<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DETAILS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 3672 33-0779123
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
----------------
1231 SIMON CIRCLE
ANAHEIM, CALIFORNIA 92806
(714) 630-4077
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BRUCE D. MCMASTER
DETAILS, INC.
1231 SIMON CIRCLE
ANAHEIM, CALIFORNIA 92806
(714) 630-4077
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
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COPY TO:
LAUREN I. NORTON, ESQ. ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON,
MASSACHUSETTS 02110 (617) 951-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
<TABLE>
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<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT REGISTRATION FEE
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<S> <C> <C> <C>
10% Senior Subordinated Notes due 2005.... $100,000,000 100% $30,303
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</TABLE>
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, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO +
+COMPLETION OR AMENDMENT. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
PROSPECTUS
DETAILS, INC.
OFFER TO EXCHANGE
SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2005
WHICH HAVE BEEN REGISTERED UNDER THE LOGO
SECURITIES ACT OF 1933, AS AMENDED,
FOR AN EQUAL PRINCIPAL AMOUNT OF ITS
SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2005,
WHICH HAVE NOT BEEN SO REGISTERED
-----------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
-----------
Details, Inc., a California corporation (the "Company"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount of up to $100,000,000 of its
new Senior Subordinated Notes due 2005 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its outstanding Senior Subordinated Notes due
2005 (the "Original Notes" and, together with the Exchange Notes, the "Notes")
from the holders (the "Holders") thereof. The terms of the Exchange Notes are
identical in all material respects to the Original Notes, except for certain
transfer restrictions and registration rights relating to the Original Notes.
The Company will accept for exchange any and all Original Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on ,
1998, unless extended (as so extended, the "Expiration Date"). Tenders of
Original Notes may be withdrawn at any time prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Original
Notes being tendered for exchange pursuant to the Exchange Offer. Pursuant to
the terms of the Registration Rights Agreement (as defined herein), the
Exchange Offer will remain open for not less than 30 days (or longer, if
required by applicable law) after the date of which notice of the Exchange
Offer is mailed to Holders of the Original Notes. The Exchange Offer is subject
to certain other customary conditions. See "The Exchange Offer."
Interest on the Exchange Notes is payable semi-annually on May 15 and November
15 of each year, commencing on May 15, 1998. Except as described below, the
Company may not redeem the Exchange Notes prior to November 15, 2001. On or
after such date, the Company may redeem the Exchange Notes, in whole or in
part, at the redemption prices set forth herein together with accrued and
unpaid interest, if any, to the redemption date. In addition, at any time on or
prior to November 15, 2000, the Company may, at its option, redeem up to 40% of
the original principal amount of the Exchange Notes at a redemption price of
110% of the principal amount thereof, together with accrued and unpaid interest
thereon to the applicable redemption date, with the net proceeds of one or more
Equity Offerings (as defined), received by, or invested in, the Company so long
as there is a Public Market (as defined) at the time of such redemption;
provided that at least 60% of the original aggregate principal amount of the
Exchange Notes remain outstanding immediately after the occurrence of such
redemption. The Exchange Notes will not be subject to any sinking fund
requirement. Upon the occurrence of a Change of Control (as defined), (i) the
Company will have the option, at any time prior to November 15, 2001, to redeem
the Exchange Notes, in whole but not in part, at a redemption price equal to
100% of the principal amount thereof plus the Applicable Premium (as defined),
together with accrued and unpaid interest, if any, to the date of redemption,
and (ii) if the Company does not so redeem the Exchange Notes or if the Change
of Control occurs after November 15, 2001, each Holder will have the right to
require the Company to make an offer to repurchase all of the outstanding
Exchange Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of repurchase.
See "Description of Exchange Notes."
The Exchange Notes will be unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Indebtedness (as defined)
of the Company and will be effectively subordinated to all obligations of the
subsidiaries of the Company. The Exchange Notes will rank pari passu with all
senior subordinated indebtedness of the Company and will rank senior to all
subordinated indebtedness of the Company. On a pro forma basis offer giving
effect to the Transactions (as defined) and the Initial Offering (as defined)
as if they had occurred on September 30, 1997, the aggregate principal amount
of the Company's outstanding Senior Indebtedness was approximately $87.7
million. The Indenture under which the Exchange Notes will be issued (the
"Indenture") will permit the Company to incur additional indebtedness,
including Senior Indebtedness, subject to certain limitations. See "Description
of Exchange Notes."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated November 18, 1997, between the Company and the other signatory
thereto (the "Registration Rights Agreement"). The Company believes that based
on interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), Exchange Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by each Holder thereof (other than any Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holder's business and such Holder has no arrangement with any
person to participate in the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The Company will not receive any proceeds from the Exchange Offer and will pay
all expenses incident to the Exchange Offer.
--------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE NOTES.
--------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR 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.
-----------
The date of this Prospectus is , 1998.
<PAGE>
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, Holders of Original Notes in any jurisdiction in
which such Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants. After the initial
issuance of the Global Note, Exchange Notes in certificated form will be
issued in exchange for interests in the Global Note only on the terms set
forth in the Indenture (the "Indenture") between the Company and State Street
Bank and Trust Company, as trustee (the "Trustee"), dated as of November 18,
1997. See "Description of Exchange Notes--Book-Entry Transfer."
Prior to this Exchange Offer, there has been no public market for the
Original Notes. To the extent that Original Notes are tendered and accepted in
the Exchange Offer, a Holder's ability to sell untendered Original Notes could
be adversely affected. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their face value. The Company
does not currently intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system.
Neither the Company nor any of its subsidiaries will receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. No dealer-
manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER "SUMMARY,"
"THE TRANSACTIONS," "UNAUDITED PRO FORMA FINANCIAL DATA," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL
POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALL
OF THESE FORWARD-LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS
MADE BY MANAGEMENT OF THE COMPANY, WHICH ALTHOUGH BELIEVED TO BE REASONABLE,
ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED ON
SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH
ESTIMATES OR
i
<PAGE>
STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2)
INCREASED COSTS; (3) INABILITY TO CONSUMMATE ACQUISITIONS ON ATTRACTIVE TERMS;
(4) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (5) INCREASES IN THE
COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL ON TERMS CONSIDERED REASONABLE BY MANAGEMENT; (6) ADVERSE STATE,
FEDERAL OR FOREIGN LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY
REGULATORS; (7) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY COMPETE AND FLUCTUATIONS IN DEMAND IN THE ELECTRONICS
INDUSTRY; AND (8) ABILITY TO SUSTAIN HISTORICAL MARGINS AS THE INDUSTRY
DEVELOPS. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND
ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT
THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS, SEE
"RISK FACTORS."
INDUSTRY DATA AND FINANCIAL INFORMATION
The Company relies on and refers to information it has received from various
industry analysts regarding the markets for its principal products, printed
circuit boards, which the Company believes to be reliable but the accuracy and
completeness of such information is not guaranteed and the Company has not
independently verified this market data. Similarly, internal Company surveys,
while believed by the Company to be reliable, have not been verified by
independent sources.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (herein referred
to, together with all exhibits and schedules thereto and any amendments
thereto, as the "Exchange Offer Registration Statement") under the Securities
Act with respect to the Exchange Notes offered hereby. This Prospectus, which
forms a part of the Exchange Offer Registration Statement, does not contain
all of the information set forth in the Exchange Offer Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as
to the contents of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of the document filed as an exhibit to
the Exchange Offer Registration Statement.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, the Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, the Company
will furnish to the holders of the Notes and will, if permitted, file with the
Commission (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 was 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 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, for so long as any of the Original Notes
remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Original Notes or beneficial owner of the
Original Notes in connection with any sale thereof the information required by
Rule 144A(d)(4) under the Securities Act.
ii
<PAGE>
Any reports or documents filed by the Company with the Commission (including
the Exchange Offer Registration Statement) may be inspected and copied at the
Public Reference Section of the Commission's office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661). Copies of such reports or other documents may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a Web site that contains reports and other information that is filed
through the Commission's Electronic Data Gathering Analysis and Retrieval
System. The Web site can be accessed at http://www.sec.gov.
iii
<PAGE>
SUMMARY
Unless otherwise stated in this Prospectus or unless the context otherwise
requires, references to the "Company," "Details, Inc.," "Details" or the
"Issuer" means Details, Inc., a California corporation and a direct wholly-
owned subsidiary of Details Capital Corp. ("Details Capital"). Details Capital
is a direct wholly-owned subsidiary of Details Holdings Corp. (f/k/a Details,
Inc.) ("Holdings"), a California corporation. On November 3, 1997, Holdings
organized the Issuer and contributed substantially all of its assets, subject
to certain liabilities (other than the Holdings Facility (as defined)) to the
Issuer. References to the "Company," and the financial statements and other
financial data herein are, for the periods prior to such transfer, references
to Holdings or the financial statements and other financial data of Holdings,
as predecessor to the Issuer and Details Capital. On November 19, 1997 Holdings
organized Details Capital and on December , 1997, Holdings contributed
substantially all of its assets, subject to certain liabilities, including the
Discount Notes (as defined) to Details Capital. The following summary is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information and financial data, including the "Unaudited Pro Forma
Financial Data," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements included elsewhere in this
Prospectus. Unless otherwise specified, "pro forma basis" as used in this
Summary means pro forma for the Transactions (as defined) and the Initial
Offering (as defined). Unless otherwise specified, "year-to-date" refers to the
nine months ended September 30, 1997.
THE COMPANY
Details is a leading manufacturer and marketer of complex printed circuit
boards ("PCBs") for the time critical or "quick-turn" segment of the domestic
PCB industry. Printed circuit boards are the basic platforms used to
interconnect microprocessors, integrated circuits, and other components
essential to the functioning of virtually all electronic products. Quick-turn
PCBs, which are defined as printed circuit boards manufactured within 10 days
(and as little as 24 hours) in prototype and pre-production quantities, are
used in the design, test and launch phases of new electronic products. The
quick-turn market is characterized by higher margins, faster growth and greater
customer diversity than the long-lead market. Approximately 70% of the
Company's year-to-date sales are quick-turn PCBs. Complex PCBs are those
employing difficult to manufacture specifications such as high layer counts,
dense circuitry designs, and exotic materials. Such boards command escalating
pricing premiums the greater the complexity. The Company's advanced engineering
capability enables it to produce boards with up to 40 layers employing leading-
edge fabrication technologies. The Company supplies over 300 customers in a
wide range of end-use markets including the telecommunications, computer,
contract manufacturing, industrial instrumentation, and consumer electronics
industries. On a pro forma basis for the twelve months ended September 30,
1997, the Company's net sales and adjusted EBITDA would have been $73.9 million
and $31.6 million, respectively.
Since the installation of a new management team in 1992, the Company has
successfully increased its sales and profitability and diversified its customer
base by strategically focusing on the quick-turn PCB market. Because of its
superior ability to deliver complex boards in short time frames with a high
degree of reliability, management believes that the Company plays a uniquely
mission critical role in facilitating its customers' "time-to-market" efforts.
Such efforts have become increasingly important in light of the electronic
industry's trends toward shortened product lifecycles and increased
competitiveness. As a result of this strategic shift, the Company has grown net
sales at a compound annual growth rate ("CAGR") of 25% from $25.8 million in
the fiscal year ended December 31, 1992 to $73.9 million for the twelve months
ended September 30, 1997. In the same time frame, the Company has grown
adjusted pro forma EBITDA at a 27% CAGR from $10.0 million to $31.6 million. As
a result of the Recapitalization (as defined), management owns stock and
options for approximately 27.5% of the fully-diluted capital stock of Holdings.
Such equity ownership represents a significant economic commitment to, and
participation in, the Company.
1
<PAGE>
The Company's principal executive offices are located at 1231 Simon Circle,
Anaheim, California 92806, and its telephone number is (714) 630-4077.
INDUSTRY OVERVIEW
The Company primarily operates in the domestic market for quick-turn printed
circuit boards. The Company believes that the industry has the following
characteristics:
Large and Rapidly Growing Industry. In 1996, the worldwide market for printed
circuit boards was $30.4 billion, of which the U.S. represented 27%, or $8.3
billion. Approximately 87% of the domestic market, or $7.2 billion, was
supplied by merchant (i.e., non-captive) fabricators. Of this amount, quick-
turn PCBs accounted for 21%, or approximately $1.5 billion. The quick-turn
segment has experienced rapid growth, increasing at a 24% CAGR since 1992,
twice the rate for the overall domestic PCB industry. The Company believes that
the growing demand for quick-turn PCBs is due to a number of favorable trends,
including: (i) increasing importance to OEMs of being first to market in the
face of shortened product lifecycles; (ii) greater complexity of electronic
products which require increased prototyping and testing; (iii) general growth
in the number of products containing electronic components; and (iv) ongoing
outsourcing by OEMs of PCB design and fabrication.
Multiple Value-Added Segments. The customary evolution of an electronic
product results in several phases of PCB procurement: initially, in the design
and development stage, customers order small lot sizes (1-25 boards) and demand
quick-turn delivery ("prototype boards"); in the test-marketing and product
introduction stages, they order low to medium quantities (up to 5,000 boards)
which may or may not require quick-turn delivery ("pre-production boards"); and
in the product roll-out stage, they tend to order large volumes with lead times
in excess of three weeks ("production boards"). Prototype and pre-production
boards, the segments in which the Company competes, command escalating pricing
premiums the shorter the lead time and the greater the board complexity. PCB
complexity is determined by layer count, the use of exotic substrates and
materials, the fineness of line spaces and traces, the incorporation of buried
resistors and capacitors, the use of microvias and numerous other features. By
focusing on either time criticality, board complexity, or both, a PCB
fabricator can realize significant pricing premiums and commensurately higher
profitability per PCB than that attainable in the production segment of the
market.
Consolidating Industry. The domestic PCB industry is highly fragmented with
approximately 600 active fabricators. Although the industry has experienced
significant consolidation in the last four years, declining 37% from the
approximately 950 manufacturers in 1992, the top eight manufacturers still only
accounted for approximately 25% of industry sales in 1996. Consolidation in the
industry is being driven by (i) growing demand by electronic OEMs for both
increasingly complex PCBs and shortened delivery cycles which mandates
sophisticated design, engineering and manufacturing capabilities on the part of
PCB fabricators; (ii) ongoing outsourcing by electronic OEMs; and (iii)
increasing desire by OEMs to use fewer suppliers.
COMPETITIVE STRENGTHS
The Company believes that it has several competitive advantages in the PCB
industry, including:
Quick-Turn Market Leader. The Company is one of the largest manufacturers of
quick-turn PCBs in the United States, with approximately 70% of its year-to-
date sales derived from quick-turn products. The Company believes it is among a
select few manufacturers that can routinely complete complex orders in less
than 24 hours. The Company believes that its superior engineering expertise,
ability to produce highly complex PCBs, and consistent record of reliable
service, product quality and on-time performance give it a competitive
advantage in the quick-turn market.
2
<PAGE>
Leading Technological Capabilities. The Company believes that it is an
industry leader in the engineering of advanced PCB materials and technologies
that maximize performance and board density. Customers utilize the
technological expertise of Details' 66 front-end engineers throughout the
product development effort to achieve an integrated cost-effective
manufacturing solution. The Company has the ability to produce boards with up
to 40 layers, and approximately 40% of its sales year-to-date included boards
with layer counts of 8 or more. The Company consistently delivers dependable,
high quality products with an on-time delivery record of approximately 97%. The
Company believes its ability to improve customer board designs for enhanced
manufacturing efficiency differentiates it from its competition.
Diverse and Loyal Customer Base. The Company believes that it has one of the
broadest customer bases in the industry, with more than 300 customers serving a
wide range of end-use markets. Year-to-date, the Company's largest customer
accounted for less than 11% of revenue. In addition, the Company has been
successful at retaining customers. For example, the Company has maintained a
relationship with its top three year-to-date customers--Motorola, Intel and
IBM--since at least 1993. The Company believes that its ability to rapidly
respond to changes in demand for new or modified board designs with consistent
high quality is a major factor in its success at creating customer
partnerships. The Company's customer list includes leading manufacturers of
telecommunications equipment, such as Motorola and Qualcomm; computer
workstations and servers, such as IBM and Silicon Graphics; semi-conductor
fabrication such as Intel; industrial products, such as Caterpillar and Delco;
computer assemblers, such as Dell and Compaq; and contract manufacturing firms
such as SCI and Jabil.
Experienced Management Team with Significant Equity Ownership. The Company's
President, Bruce McMaster, has a total of 16 years of experience in the PCB
industry. Mr. McMaster, together with the other members of his senior
management team--Lee Muse (Vice President of Sales and Marketing), Joseph Gisch
(Chief Financial Officer), Terry Wright (Vice President of Engineering), and
Michael Moisan (Vice President of Operations)--have over 70 years of industry
experience and approximately 30 years with the Company. Since 1992, management
has successfully developed and implemented manufacturing and marketing
strategies which have resulted in a compound annual growth rate in net sales of
25% from the fiscal year ended December 31, 1992 to the twelve months ended
September 30, 1997. As a result of the Recapitalization, management owns stock
and options for approximately 27.5% of the fully-diluted capital stock of
Holdings. Such equity ownership represents a significant economic commitment
to, and participation in, the Company.
BUSINESS STRATEGY
The Company's goal is to maintain its growth rate in sales and profitability
by leveraging its quick-turnaround capability, its market leading technology,
and its large customer base to increase its penetration of value-added market
segments. In order to accomplish its goal, the Company intends to:
Increase Technical Leadership in Quick-Turn Segment. The Company intends to
extend its leadership in the quick-turn segment by continuing to provide
consistent, rapid delivery through leading-edge processes and technology.
Currently, the Company is capable of delivering 12-layer boards in as little as
24 hours which it believes is among the fastest of any current industry
participant. Moreover, the Company had a less than 1% product return rate for
the nine months ended September 30, 1997, which it believes is among the lowest
in the quick-turn segment. Such performance is largely due to the technology
and processes employed by the Company coupled with its engineering expertise
and customized design and development services. The Company intends to maintain
its focus on improving quality and delivery times by incorporating emerging
technologies and by continuously improving its manufacturing processes.
3
<PAGE>
Cross-Sell Pre-Production to Quick-Turn Customers. The Company believes there
are substantial opportunities to leverage its strong customer relations in the
quick-turn segment by cross-selling 10 to 20 day pre-production volume to its
existing customers. Recognizing OEMs' desire to simplify their supplier chain,
the Company aims to offer customers a more efficient production solution which
will (i) reduce customers' tooling costs, (ii) eliminate supplier switching
risk, and (iii) shorten customers' "time-to-market." In furtherance of this
initiative, the Company continues to make investments in capital equipment,
engineering capability and systems infrastructure.
Achieve International Presence. The Company believes there are substantial
opportunities to satisfy international demand for time-critical, complex PCBs.
Year-to-date, approximately 94% of the Company's revenues were generated
domestically despite the fact that the U.S. accounts for only 27% of the
worldwide market. In particular, the Company has established a sales office in
the United Kingdom to service existing European customers' needs and to broaden
the Company's European presence. The Company is currently developing a
manufacturers' representative arrangement in Singapore as an entry into the
Asian market.
Pursue Selective Acquisitions. The Company is currently pursuing selective
acquisitions to complement its organic growth. Due to the high degree of
fragmentation in the PCB industry, the Company believes substantial
consolidation opportunities exist. Consequently, the Company is actively
seeking acquisitions which will: (i) increase its 10 to 20 day pre-production
capacity, (ii) expand its international geographic coverage, (iii) strengthen
its position in existing markets, (iv) provide significant profit improvement
opportunities through the application of the Company's superior operating
capabilities, and (v) enhance its technology base. The Company is currently in
discussions with several potential acquisition candidates but has not entered
into any agreements or understandings with any third parties.
THE TRANSACTIONS
On or about October 4, 1997, Holdings and Holdings' stockholders entered into
a recapitalization agreement (as amended to date, the "Recapitalization
Agreement") with DI Acquisition Corp. ("DIA") which provided for the
recapitalization (the "Recapitalization") by means of a merger (the "Merger")
of DIA with and into Holdings.
On October 28, 1997, the Merger was consummated. In connection with the
Recapitalization, (i) certain stockholders and optionholders of Holdings
received an aggregate amount of cash equal to approximately $184.3 million,
(ii) Chase Manhattan Capital, L.P. ("CMC"), an affiliate of the Initial
Purchaser (as defined), retained a portion of its investment in Holdings
representing approximately 7.7%, and certain other stockholders of Holdings
retained a portion of their investments in Holdings representing approximately
2.8%, of the fully-diluted equity of Holdings (in each case after giving effect
to the Recapitalization and related transactions) (collectively, the "Existing
Owner Rollover"), and (iii) management retained certain shares representing
approximately 11.3%, and certain options to acquire shares of common stock of
Holdings representing approximately 5.8%, of the fully-diluted equity of
Holdings (after giving effect to the Recapitalization and related transactions)
(collectively the "Management Rollover Equity"). In addition, in connection
with the Recapitalization, management acquired additional shares and options to
acquire additional shares representing 10.4% of the fully-diluted equity of
Holdings (after giving effect to the Recapitalization and related
transactions). After the Recapitalization, management held shares and options
representing approximately 27.5% of the fully diluted equity of Holdings.
Financing for the Recapitalization, and the related fees and expenses,
consisted of (i) $46.3 million of equity capital provided by investment funds
associated with Bain Capital, Inc. (the "Bain Capital Funds"); (ii) $11.2
million of equity capital provided by an affiliate of CMC; (iii) $4.9 million
of equity capital provided by certain other investors (the "Other Investors");
(iv) the $16.1 million
4
<PAGE>
Management Rollover Equity; (v) the $10.5 million Existing Owner Rollover; (v)
a senior subordinated loan facility of $85 million (the "Senior Subordinated
Facility"); (vi) a senior unsecured credit facility of $55 million of Holdings
(the "Holdings Facility"); and (vii) a syndicated senior secured Tranche A term
loan facility of $41.4 million as of the Recapitalization closing date (the
"Tranche A Facility"), a syndicated senior secured Tranche B term loan facility
of $50 million (the "Tranche B Facility" and, together with the Tranche A
Facility, the "Term Loan Facilities") and a senior secured revolving credit
facility of up to $30 million (the "Revolving Credit Facility" and, together
with the Term Loan Facilities, the "Senior Credit Facilities"). The
Recapitalization, the Merger, the Senior Subordinated Facility, the Holdings
Facility and the Senior Credit Facilities are referred to herein as the
"Transactions."
The following table sets forth the sources and uses of funds in connection
with the Recapitalization as of October 28, 1997:
<TABLE>
<CAPTION>
DOLLARS
IN MILLIONS
-----------
<S> <C>
SOURCES:
Senior Credit Facilities:
Revolving Credit Facility(1)................................... $ --
Term Loan Facilities(2)........................................ 91.4
Senior Subordinated Facility..................................... 85.0
Holdings Facility................................................ 55.0
Equity Investment(3)............................................. 62.4
Existing Owner Rollover.......................................... 10.5
Management Rollover Equity....................................... 16.1
------
Total Sources................................................ $320.4
======
USES:
Redemption of stock and distribution to shareholders............. $184.3
Repayment of Existing Indebtedness(4)............................ 96.4
Management Rollover Equity....................................... 16.1
Existing Owner Rollover.......................................... 10.5
Transaction Fees and Expenses(5)................................. 13.1
------
Total Uses................................................... $320.4
======
</TABLE>
- --------
(1) Under the Revolving Credit Facility the Company had, as of October 28,
1997, availability of $30 million. See "Description of Senior Credit
Facilities."
(2) Following the Recapitalization, there was an additional $25 million
available for borrowing under the Term Loan Facilities for future
acquisitions, subject to certain conditions and restrictions. See
"Description of Senior Credit Facilities."
(3) Represents $46.3 million provided by Bain Capital Funds, $11.2 million
provided by an affiliate of CMC and $4.9 million provided by Other
Investors.
(4) Includes the repayment of bank indebtedness as well as other obligations of
the Company paid in connection with the Recapitalization. See "Management."
(5) Includes underwriting fees, financial advisory fees, and legal, accounting
and other professional fees. See "Certain Relationships and Related
Transactions."
On November 3, 1997, Holdings formed the Company, as a new wholly-owned
subsidiary, and contributed substantially all of its assets, subject to certain
liabilities (other than the Holdings Facility) to the Company. On November 18,
1997, the Company consummated the sale of the Original Notes in a transaction
exempt from the registration requirements of the Securities Act (the "Initial
Offering"). Concurrently with the Initial Offering, Holdings conducted the
offering (the "Discount Note Offering") of its 12 1/2% Senior Discount Notes
due 2007 (the "Discount Notes") with an aggregate discount value of
approximately $60.1 million.
The Company used the net proceeds (after deduction of related fees and
expenses) from the Initial Offering of approximately $96.4 million to repay (i)
the $85.0 million of indebtedness represented by the Senior Subordinated
Facility, plus accrued interest and related fees and expenses, (ii) a portion
of the Holdings Facility, and (iii) indebtedness under the Term Loan Facilities
of approximately $10.3 million. In connection with the Initial Offering, the
Company entered into the Registration Rights Agreement pursuant to which it
agreed to register the Exchange Notes under the Securities Act and offer them
in exchange for the Original Notes. The proceeds of the Discount Note Offering
were used to repay the Holdings Facility, plus accrued interest and related
fees and expenses. On November 19, 1997, Holdings formed Details Capital and on
December , 1997 Holdings contributed substantially all of its assets, subject
to certain liabilities, including the Discount Notes, to Details Capital.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer............ Up to $100,000,000 aggregate principal amount
of Exchange Notes are being offered in exchange
for a like aggregate principal amount of
Original Notes. The Company is making the
Exchange Offer in order to satisfy its
obligations under the Registration Rights
Agreement relating to the Original Notes. For a
description of the procedures for tendering
Original Notes, see "The Exchange Offer--
Procedures for Tendering."
Expiration Date............... 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended by the
Company in its sole discretion (in which case
the Expiration Date will be the latest date and
time to which the Exchange Offer is extended).
See "The Exchange Offer--Terms of the Exchange
Offer."
Conditions to the Exchange
Offer........................ The Exchange Offer is subject to the condition
that the Exchange Offer does not violate
applicable law or SEC staff interpretation. If
the Company determines that the Exchange Offer
is not permitted by applicable federal law, it
may terminate the Exchange Offer. The Exchange
Offer is not conditioned upon any minimum
principal amount of Original Notes being
tendered. See "The Exchange Offer--Conditions
of the Exchange Offer."
Resale of the Exchange Notes.. Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Original Notes
may be offered for resale, resold and otherwise
transferred by any holder thereof (other than
(i) a broker-dealer who purchased such Original
Notes directly from the Company for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that the Holder
is acquiring the Exchange Notes in its ordinary
course of business and is not participating,
and has no arrangement or understanding with
any person to participate, in the distribution
of the Exchange Notes. Holders of Original
Notes wishing to accept the Exchange Offer must
represent to the Company that such conditions
have been met. In the event that the Company's
belief is inaccurate, Holders of Exchange Notes
who transfer Exchange Notes in violation of the
prospectus delivery provisions of the
Securities Act and without an exemption from
registration thereunder may incur liability
under the Securities Act. The Company does not
assume or indemnify Holders against such
liability, although the
6
<PAGE>
Company does not believe that any such
liability should exist.
A broker-dealer that receives Exchange Notes in
exchange for Original Notes held for its own
account, as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange
Notes. Although such broker-dealer may be an
"underwriter" within the meaning of the
Securities Act, the Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
The Exchange Offer is not being made to, nor
will the Company accept surrenders for exchange
from, Holders of Original Notes in any
jurisdiction in which the Exchange Offer or the
acceptance thereof would not be in compliance
with the securities or blue sky laws of such
jurisdiction.
Procedures for Tendering
Notes......................... Each Holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal, as the
case may be, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Original Notes and
any other required documentation to the
Exchange Agent (as defined herein) at the
address set forth herein. By executing a Letter
of Transmittal, each Holder will represent to
the Company conducting the Exchange Offer that,
among other things, (i) the Exchange Notes
acquired pursuant to such Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such Exchange
Notes, whether or not such person is the
Holder, (ii) neither the Holder nor any such
other person has any arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes and
that such Holder is not engaged in, and does
not intend to engage in, a distribution of
Exchange Notes, and (iii) that neither the
Holder nor any such other person is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered Holder promptly and instruct
7
<PAGE>
such registered Holder to tender on such
beneficial owner's behalf. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures................... Holders of Original Notes who wish to tender
their Original Notes and whose Original Notes
are not immediately available or who cannot
deliver their Original Notes, the Letter of
Transmittal, as the case may be, or any other
documents required by such Letter of
Transmittal to the Exchange Agent (as defined
herein) (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Original Notes according
to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery
Procedures."
Untendered Notes.............. Following the consummation of the Exchange
Offer, Holders of Original Notes eligible to
participate but who do not tender their
Original Notes will not have any further
exchange rights and such Original Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the
market for such Original Notes could be
adversely affected by the Exchange Offer.
Consequences of Failure to
Exchange..................... The Original Notes that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such
Original Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some
other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration Statement.. If (i) because of any change in law or
applicable interpretations thereof by the staff
of the Commission, the Company is not permitted
to effect the Exchange Offer as contemplated
hereby, (ii) any Securities (as defined)
validly tendered pursuant to the Exchange Offer
are not exchanged for Exchange Securities (as
defined) within 210 days after the Issue Date
(as defined), (iii) Chase Securities Inc. (the
"Initial Purchaser") so requests with respect
to Original Notes not eligible to be exchanged
for Exchange Notes in the Exchange Offer, (iv)
any applicable law or interpretations do not
permit any holder of Original Notes to
participate in the Exchange Offer, (v) any
Holder of Original Notes that participates in
the Exchange Offer does not receive freely
transferable Exchange Notes in exchange for
tendered Original Notes, or (vi) the Company so
elects, the Company has agreed pursuant to the
Registration Rights Agreement to register the
Original Notes issued by it on a
8
<PAGE>
shelf registration statement (the "Shelf
Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission, as promptly as practicable
after the filing thereof, and if applicable,
use its reasonable best efforts to keep the
Shelf Registration Statement effective for a
period of two years from the Issue Date.
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Original Notes
and Delivery of Exchange
Notes........................ The Company will accept for exchange any and
all Original Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Federal Income Tax
Consequences.................. The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See "Certain
Federal Income Tax Consequences."
Use of Proceeds............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent................ State Street Bank and Trust Company.
THE EXCHANGE NOTES
Issuer........................ Details, Inc.
Securities Offered............ $100,000,000 aggregate principal amount of 10%
Senior Subordinated Notes due 2005.
Maturity Date.................
November 15, 2005.
Interest Payment Dates........ May 15 and November 15, commencing May 15,
1998.
Sinking Fund.................. None.
Optional Redemption........... Except as described below, the Company may not
redeem the Exchange Notes prior to November 15,
2001. On or after such date, the Company may
redeem the Exchange Notes, in whole or in part,
at the redemption prices set forth herein
together with accrued and unpaid interest, if
any, to the date of redemption. In addition, at
any time prior to November 15, 2000, the
Company may, at its option, redeem up to 40% of
the original aggregate principal
9
<PAGE>
amount of the Exchange Notes with the net
proceeds of one or more Equity Offerings (as
defined), received by, or invested in, the
Company so long as there is a Public Market (as
defined) at the time of such redemption, at a
redemption price equal to 110% of the principal
amount to be redeemed, together with accrued
and unpaid interest, if any, to the date of
redemption; provided that at least 60% of the
original aggregate principal amount of the
Exchange Notes remains outstanding immediately
after each such redemption. See "Description of
Exchange Notes--Optional Redemption."
Upon a Change of Control (as defined), (i) the
Company will have the option, at any time prior
Change of Control............. to November 15, 2001, to redeem the Exchange
Notes, in whole but not in part, at a
redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium (as
defined), together with accrued and unpaid
interest, if any, to the date of redemption,
and (ii) if the Company does not so redeem the
Exchange Notes or if the Change of Control
occurs after November 15, 2001, each Holder
will have the right to require the Company to
make an offer to repurchase the Exchange Notes
at a price equal to 101% of the principal
amount thereof, together with accrued and
unpaid interest, if any, to the date of
repurchase. See "Description of Exchange
Notes--Change of Control."
The Indenture will provide that any Subsidiary
Guarantor (as defined) which guarantees the
Future Guarantees............. Company's Indebtedness under the Senior Credit
Facilities will guarantee the Exchange Notes on
an unsecured, senior subordinated basis. See
"Description of Exchange Notes --Certain
Covenants--Future Subsidiary Guarantors."
The Exchange Notes will be unsecured and will
Ranking....................... be subordinated in right of payment to all
existing and future Senior Indebtedness of the
Company and will be effectively subordinated to
all obligations of the subsidiaries of the
Company. The Exchange Notes will rank pari
passu with any future senior subordinated
indebtedness of the Company and will rank
senior to all other subordinated indebtedness
of the Company. On November 25, 1997, (i) the
aggregate amount of the outstanding Senior
Indebtedness of the Company would have been
approximately $87.6 million, (ii) there would
have been no indebtedness outstanding at the
Company's subsidiaries, and (iii) the Company
would have had no senior subordinated
indebtedness outstanding other than
10
<PAGE>
the Notes and no indebtedness that is
subordinate or junior in right of repayment to
the indebtedness represented by the Exchange
Notes. See "Description of Exchange Notes--
Ranking and Subordination."
Restrictive Covenants......... The Indenture limits: (i) the incurrence of
additional indebtedness by the Company and its
Restricted Subsidiaries, (ii) the layering of
indebtedness, (iii) the payment of dividends
on, and redemption of, capital stock of the
Company and its Restricted Subsidiaries and the
redemption of certain subordinated obligations
of the Company and its Restricted Subsidiaries,
(iv) investments, (v) sales of assets and
Subsidiary stock, (vi) certain transactions
with affiliates, (vii) the creation and
existence of liens, (viii) the types of
businesses that the Company and its Restricted
Subsidiaries may operate, and (ix)
consolidations, mergers and transfers of all or
substantially all the Company's assets. The
Indenture also prohibits certain restrictions
on distributions from Restricted Subsidiaries.
However, all of these limitations and
prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of Exchange Notes--Certain
Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
11
<PAGE>
SUMMARY UNAUDITED ADJUSTED PRO FORMA FINANCIAL DATA
The following summary unaudited adjusted pro forma financial data of the
Company set forth below give effect in the manner described under "Unaudited
Pro Forma Financial Data" and the notes thereto to the Transactions, the
Initial Offering and other supplemental adjustments as if they had occurred on
January 1, 1996 in the case of the adjusted pro forma statements of income
data, and as of September 30, 1997 in the case of the unaudited pro forma
balance sheet data. The unaudited pro forma consolidated statements of income
do not purport to represent what the Company's results of operations would have
been if the Transactions, the Initial Offering and other supplemental
adjustments had occurred as of the date indicated or what such results will be
for future periods. The information contained in this table should be read in
conjunction with "Unaudited Pro Forma Financial Data," "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements and the accompanying notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS LATEST
ENDED TWELVE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
DECEMBER 31, ------------------ SEPTEMBER 30,
1996(1) 1996(1) 1997(1) 1997(2)
------------ -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................... $ 67,515 $ 49,086 $ 55,421 $ 73,850
Cost of goods sold............. 30,505 21,899 27,019 35,625
-------- -------- -------- --------
Gross profit................. 37,010 27,187 28,402 38,225
Operating expenses:
General and administration... 1,929 1,377 1,625 2,177
Sales and marketing.......... 5,989 4,503 5,338 6,824
-------- -------- -------- --------
Operating income............... 29,092 21,307 21,439 29,224
Interest expense............... (19,082) (14,343) (14,332) (19,071)
Interest income................ 102 71 56 87
-------- -------- -------- --------
Income before provision for
income taxes.................. 10,112 7,035 7,163 10,240
Provision for income taxes..... 4,146 2,884 2,937 4,199
-------- -------- -------- --------
Net income..................... $ 5,966 $ 4,151 $ 4,226 $ 6,041
======== ======== ======== ========
OTHER FINANCIAL DATA:
Adjusted EBITDA (3)............ $ 31,139 $ 22,802 $ 23,268 $ 31,605
Adjusted EBITDA margin (4)..... 46% 46% 42% 43%
Depreciation................... 2,047 1,495 1,829 2,381
Capital expenditures........... 3,666 2,720 3,267 4,213
Cash interest expense.......... 17,995 13,528 13,517 17,984
Ratio of adjusted EBITDA to
cash interest expense......... 1.7x 1.7x 1.7x 1.8x
Ratio of earnings to fixed
charges (5)................... 1.5x 1.5x 1.5x 1.5x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997
------------------
<S> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash....................................................... $ 4,992
Working capital............................................ 9,376
Total assets............................................... 55,496
Total debt................................................. 187,656
Equity (net capital deficiency)............................ (150,497)
</TABLE>
- --------
(1) See "Unaudited Pro Forma Financial Data."
(2) Information for the twelve months ended September 30, 1997 represents the
summation of the adjusted pro forma year ended December 31, 1996 and the
adjusted pro forma nine months ended September 30, 1997 information, less
the adjusted pro forma nine months ended September 30, 1996.
(3) "Adjusted EBITDA" is defined herein as EBITDA as adjusted for other
supplemental adjustments. Other supplemental adjustments for 1997 total
$5.3 million, consisting of the non-cash compensation expense of $2.9
million related to the vesting of options under the Company's 1996 Stock
Option Plan, coupled with the cash expense of $2.4 million related to the
bonuses payable to employees to cover employee taxes upon their exercise
of these options in conjunction with the Recapitalization. "EBITDA" is
defined herein as income before provision for income taxes, depreciation,
amortization and net interest expense. EBITDA is presented because the
Company believes its is frequently used by security analysts in the
evaluation of companies. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(4) Represents adjusted EBITDA as a percentage of net sales.
(5) For purposes of computing this ratio, earnings consists of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense.
12
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are summary historical consolidated financial data of the
Company at the dates and for the periods indicated. The summary historical
consolidated statements of income data of the Company for the years ended
December 31, 1994, 1995 and 1996 and the summary historical consolidated
balance sheet data as of December 31, 1995 and 1996 were derived from the
historical consolidated financial statements of the Company that were audited
by McGladrey & Pullen, LLP, whose reports appear elsewhere in this Prospectus.
The summary historical consolidated financial data of the Company for the year
ended December 31, 1992 and for the nine month periods ended September 30, 1996
and 1997 are derived from unaudited consolidated financial statements of the
Company which, in the opinion of management, include all adjustments necessary
for a fair presentation. The summary historical consolidated financial data set
forth below should be read in conjunction with, and is qualified by reference
to, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Net sales.............. $25,759 $32,394 $44,086 $59,370 $67,515 $49,086 $55,421
Cost of goods sold..... 13,142 16,480 20,415 25,156 30,505 21,899 27,019
------- ------- ------- ------- ------- ------- -------
Gross profit........... 12,617 15,914 23,671 34,214 37,010 27,187 28,402
Operating expenses:
Compensation to CEO
(1)................... 9,414 11,513 412 418 1,055 836 811
General and administra-
tion ................. 690 1,136 1,385 1,789 1,929 1,377 1,625
Sales and marketing.... 2,672 3,074 3,542 5,293 5,989 4,503 5,338
Stock compensation and
related bonuses (2)... -- -- -- -- -- -- 5,283
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ (159) 191 18,332 26,714 28,037 20,471 15,345
Interest expense....... (57) (167) (181) (371) (9,518) (6,974) (7,427)
Interest income........ 21 10 13 42 102 71 56
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... (195) 34 18,164 26,385 18,621 13,568 7,974
Provision for (benefit
from) income taxes
(3)................... (18) 221 273 396 6,265 4,270 3,400
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ (177) $ (187) $17,891 $25,989 $12,356 $ 9,298 $ 4,574
======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA (4)............. $ 567 $ 1,047 $19,214 $27,768 $30,084 $21,966 $17,174
Adjusted EBITDA (5).... 9,981 12,560 19,626 28,186 31,139 22,802 23,268
Adjusted EBITDA margin
(6)................... 39% 39% 45% 47% 46% 46% 42%
Depreciation........... 726 856 882 1,054 2,047 1,495 1,829
Capital expenditures... 1,428 1,254 844 2,946 3,666 2,720 3,267
Ratio of earnings to
fixed charges (7)..... -- 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x
BALANCE SHEET DATA (END
OF PERIOD):
Cash................... $ 175 $ 1,592 $ 3,686 $ 472 $ 169 $ 1,856 $ 942
Working capital (defi-
cit).................. 1,170 (74) (96) (2,264) (3,514) (884) (5,892)
Total assets........... 6,164 9,097 12,015 13,081 27,503 26,930 31,686
Total debt............. 1,434 3,446 1,316 1,982 94,101 96,157 87,410
Equity (net capital de-
ficiency) (8)......... 2,993 2,806 2,806 2,500 (72,674) (75,732) (65,177)
</TABLE>
See Notes to Summary Historical Consolidated Financial Data.
13
<PAGE>
NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(1) Represents compensation paid to the Company's former CEO, who also was the
sole shareholder since the Company's inception through the Initial
Recapitalization (as defined) and whose employment terminated on October
28, 1997.
(2) Represents stock compensation and related bonuses under the Company's 1996
Stock Option Plan.
(3) Prior to February 1996, the Company elected to be taxed as an "S"
corporation and paid income taxes at a reduced rate. On a pro forma basis,
income tax expense would have been higher by the following amounts: 1994--
$7,175; 1995--$10,425; 1996--$1,295 and September 30, 1996--$1,295.
(4) "EBITDA" is defined herein as income before income taxes, plus
depreciation, amortization and net interest expense. EBITDA is presented
because the Company believes it is frequently used by security analysts in
the evaluation of companies. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of
income which are not expected to be incurred by the Company subsequent to
the Transactions. These items consist of the compensation paid to the
Company's former CEO whose employment terminated on October 28, 1997 and
stock compensation and related bonuses under the Company's 1996 Stock
Option Plan.
(6) Represents adjusted EBITDA as a percentage of net sales.
(7) For purposes of computing this ratio, earnings consists of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense. Earnings were not
sufficient to cover fixed charges by $195 for the year ended December 31,
1992.
(8) The net capital deficiency as of December 31, 1996 reflects the effects of
the Initial Recapitalization of the Company that took place in January of
1996 and which reduced stockholders' equity by $86.2 million.
14
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Exchange Notes offered hereby. This Prospectus contains
certain forward looking statements within the meaning of Section 27A of the
Securities Act. Actual results could differ materially from those projected in
the forward looking statements as a result of certain factors and
uncertainties set forth below and elsewhere in this Prospectus.
SUBSTANTIAL LEVERAGE; STOCKHOLDER'S DEFICIT
As a result of the Transactions and the Initial Offering, the Company is
highly leveraged. As of September 30, 1997, after giving pro forma effect to
the Transactions and the Initial Offering, the Company's indebtedness was
approximately $187.7 million, of which $87.7 million was Senior Indebtedness,
and there was approximately $30 million available under the Senior Credit
Facilities for future borrowings for general corporate purposes and working
capital needs. On the same pro forma basis, the Company's ratio of earnings to
fixed charges for the fiscal year ended December 31, 1996 and for the nine
months ended September 30, 1997 would have been 1.5 to 1.0 in both periods.
The Company has a stockholder's deficit which, at September 30, 1997 on a pro
forma basis after giving effect to the Transactions and the Initial Offering
and the application of the proceeds therefrom, was approximately $150.5
million. In addition, subject to the restrictions in the Senior Credit
Facilities, the Indenture and the Discount Note Indenture, the Company and its
subsidiaries may incur additional indebtedness (including additional Senior
Indebtedness) from time to time to finance acquisitions or capital
expenditures or for other purposes. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's high degree of leverage could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures,
research and development or acquisitions may be limited; (iii) the Company's
leveraged position and the covenants that will be contained in the Indenture
and the Senior Credit Facilities could limit the Company's ability to compete,
as well as its ability to expand, including through acquisitions, and to make
capital improvements; (iv) the Company may be more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage;
and (v) the Company's ability to refinance the Notes in order to pay the
principal of the Notes at maturity or upon a Change of Control may be
adversely affected. See "Description of Senior Credit Facilities" and
"Description of Notes."
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its
control, as well as the availability of revolving credit borrowings under the
Senior Credit Facilities or successor facilities. The Company anticipates that
its operating cash flow, together with borrowings under the Senior Credit
Facilities, will be sufficient to meet its operating expenses and to service
its debt requirements as they become due. If the Company is unable to service
its indebtedness, it will be forced to take actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing
its indebtedness (which could include the Notes), or seeking additional equity
capital. There is no assurance that any of these remedies can be effected on
satisfactory terms, if at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Senior Credit Facilities."
15
<PAGE>
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is subordinate in right
of payment to any Senior Indebtedness and senior in right of payment to the
Notes, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets
of the Company. In addition, the Senior Credit Facilities contain other and
more restrictive covenants and prohibit the Company and its subsidiaries from
prepaying other indebtedness (including the Notes). The Senior Credit
Facilities also require the Company to maintain specified financial ratios and
satisfy certain financial condition tests. The Company's ability to meet those
financial ratios and tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. A breach of
any of these covenants could result in a default under the Senior Credit
Facilities and/or the Indenture. Upon the occurrence of an event of default
under the Senior Credit Facilities, the lenders could elect to declare all
amounts outstanding under the Senior Credit Facilities, together with accrued
interest, to be immediately due and payable. If the Company were unable to
repay those amounts, the lenders could proceed against the collateral granted
to them to secure that indebtedness. If the Senior Indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of
the Company, including the Notes. Substantially all the assets of the Company
and its subsidiaries are pledged as security under the Senior Credit
Facilities. See "Description of Senior Credit Facilities" and "Description of
Exchange Notes--Certain Covenants."
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness, including the principal of (and premium, if any)
and interest on and all other amounts due on or payable in connection with
Senior Indebtedness. As of November 25, 1997, there was outstanding
approximately $87.6 million of Senior Indebtedness, $81.1 million of which was
fully secured borrowings under the Senior Credit Facilities. By reason of such
subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment
with respect to, or the acceleration of, any Senior Indebtedness, the holders
of such Senior Indebtedness and any other creditors who are holders of Senior
Indebtedness, and creditors of subsidiaries must be paid in full before the
holders of the Notes may be paid. If the Company incurs any additional pari
passu debt, the holders of such debt would be entitled to share ratably with
the holders of the Notes in any proceeds distributed in connection with any
insolvency, liquidation, reorganization, dissolution or other winding-up of
the Company. This may have the effect of reducing the amount of proceeds paid
to holders of the Notes. In addition, certain holders of Senior Indebtedness
may prevent cash payments with respect to the principal of (and premium, if
any) or interest or liquidated damages, if any, on the Notes for a period of
up to 179 days following a non-payment default with respect to Senior
Indebtedness. In addition, the Indenture permits the subsidiaries of the
Company to incur debt under certain circumstances. Any such debt incurred by a
subsidiary of the Company could be structurally senior to the Notes. See
"Description of Exchange Notes."
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes will not be secured by any assets of
the Company or its subsidiaries; however, obligations under the Senior Credit
Facilities are secured by a pledge of all the capital stock of the Company's
subsidiaries, and the tangible and intangible assets of the Company and its
subsidiaries. If the Company becomes insolvent or is liquidated, or if payment
under any of the Senior Credit Facilities is accelerated, the lenders under
the Senior Credit Facilities will be entitled to exercise the remedies
available to a secured lender under applicable law pursuant to the Senior
Credit Facilities. Accordingly,
16
<PAGE>
such lenders will have a prior claim with respect to such assets. See
"Description of Senior Credit Facilities."
REPAYMENT UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes may require
the Company to repurchase all or a portion of such Holder's Notes at 101% of
the principal amount of the Notes together with accrued and unpaid interest,
if any, to the date of repurchase. See "Description of Notes--Change of
Control" for the definition of "Change of Control". The occurrence of certain
of the events that would constitute a Change of Control would constitute a
default under the Senior Credit Facilities. Future Senior Indebtedness of the
Company and its subsidiaries may also contain prohibitions of certain events
that would constitute a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the Holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. Even if sufficient funds were
otherwise available, the terms of the Senior Credit Facilities will (and other
Senior Indebtedness may) prohibit the Company's prepayment of Exchange Notes
prior to their scheduled maturity. Consequently, if the Company is not able to
prepay the indebtedness under the Senior Credit Facilities and any other
Senior Indebtedness containing similar restrictions or obtain requisite
consents, as described above, the Company will be unable to fulfill its
repurchase obligations if Holders of Notes exercise their repurchase rights
following a Change of Control, thereby resulting in a default under the
Indenture.
FRAUDULENT CONVEYANCE CONSIDERATIONS
If under applicable provisions of federal bankruptcy law and comparable
provisions of state and federal fraudulent conveyance laws it were found that
the Company had (a) incurred the indebtedness represented by the Notes with
the intent of hindering, delaying or defrauding creditors or (b) had received
less than reasonably equivalent value or consideration for incurring such
indebtedness and (i) was insolvent or was rendered insolvent by reason of such
transactions, (ii) was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital to carry on its
business, or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, the obligations of the
Company on the Notes could be subordinated to all other indebtedness of the
Company.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities were greater than the fair saleable value of the debtor's assets
at a fair valuation, or if the present fair saleable value of the debtor's
assets were less than the amount required to repay its probable liabilities on
its existing debts, including contingent liabilities, as they become absolute
and matured. There can be no assurance as to what standard a court would apply
in order to determine solvency.
The Company believes (i) that it did not enter into the Initial Offering
with fraudulent intent, (ii) that circumstances constituting constructive
fraud will not have arisen with respect to the Company as a result of, and
after giving effect to, the Initial Offering and (iii) that, accordingly, the
property transferred to the Company as part of the Initial Offering and the
obligations of the Company with respect to the Notes would not be subject to
such detrimental action. These beliefs are based on the Company's operating
history and analysis of internal cash flow projections and estimated values of
assets and liabilities of the Company at the time of the offering of the
Notes. Since each of the components of the question of whether the incurrence
of the debt represented by the DIscount Notes constitutes a fraudulent
conveyance is inherently fact-based are fact-specific, there can be no
assurance that a court passing on such questions would agree with the Company.
17
<PAGE>
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
The market for the Company's products and services is characterized by
rapidly changing technology and continuing process development. The future
success of the Company's business will depend in large part upon its ability
to maintain and enhance its technological capabilities, develop and market
products and services that meet changing customer needs, and successfully
anticipate or respond to technological changes on a cost-effective and timely
basis. Research and development expenses are expected to increase as
manufacturers make demands for higher technology and smaller PCBs. In
addition, the PCB industry could in the future encounter competition from new
or revised technologies that render existing electronic interconnect
technology less competitive or obsolete or technologies that may reduce the
number of PCBs required in electronic components. There can be no assurance
that the Company will effectively respond to the technological requirements of
the changing market. To the extent the Company determines that new
technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and equipment
may require significant capital investment by the Company. There can be no
assurance that capital will be available for these purposes in the future or
that investments in new technologies will result in commercially viable
technological processes. The loss of revenue and earnings to the Company from
such a technological change or process development could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Technology, Development and Processes."
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
During the fiscal year ended December 31, 1996, sales to the Company's
largest customer, IBM, accounted for 15.9% of the Company's net revenues.
Sales to the Company's two largest customers accounted for approximately 24.6%
of the Company's net revenues and sales to the Company's ten largest customers
accounted for 51.8% of the Company's net revenues during the same period.
During the nine months ended September 30, 1997, sales to the Company's
largest customer, Motorola, accounted for 10.9% of the Company's net revenues.
Sales to the Company's two largest customers accounted for approximately 20.4%
of the Company's net revenues during the nine months ended September 30, 1997
and sales to the Company's ten largest customers accounted for 48.4% of the
Company's net revenues during the same period. There can be no assurance that
the Company will not depend upon a relatively small number of customers for a
significant percentage of its net revenues in the future. There can be no
assurance that present or future customers will not terminate their
manufacturing arrangements with the Company or significantly change, reduce or
delay the amount of manufacturing services ordered from the Company. Any such
termination of a manufacturing relationship or change, reduction or delay in
orders could have an adverse effect on the Company's results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Markets and Customers."
DEPENDENCE ON ELECTRONIC INDUSTRY
The electronics industry, which encompasses the Company's principal
customers, is characterized by intense competition, relatively short product
life-cycles and significant fluctuations in product demand. In addition, the
electronics industry is generally subject to rapid technological change and
product obsolescence. Furthermore, the electronics industry is subject to
economic cycles and has in the past experienced, and is likely in the future
to experience, recessionary periods. A recession or any other event leading to
excess capacity or a downturn in the electronics industry would likely have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "The Industry--Technical Overview,"
"Business--Markets and Customers."
18
<PAGE>
ABILITY TO IMPLEMENT THE COMPANY'S OPERATING AND ACQUISITION STRATEGY
No assurances can be given that the Company or its management team will be
able to implement successfully the operating strategy described herein,
including the ability to identify, negotiate and consummate future
acquisitions on terms management considers favorable.
The Company may from time to time pursue the acquisitions of other
companies, assets or product lines that complement or expand its existing
business. Acquisitions involve a number of risks that could adversely affect
the Company's operating results, including the diversion of management's
attention, the costs of assimilating the operations and personnel of the
acquired companies, and the potential loss of employees of the acquired
companies. No assurance can be given that any acquisition by the Company will
not materially and adversely affect the Company or that any such acquisition
will enhance the Company's business. The ability of the Company to implement
its operating strategy and to consummate future acquisitions may require
significant additional debt and/or equity capital, and no assurance can be
given as to whether, and on what terms, such additional debt and/or equity
capital will be available.
The Company's efforts to increase international sales may be adversely
affected by, among other things, changes in foreign import restrictions and
regulations, taxes, currency exchange rates, currency and monetary transfer
restrictions and regulations and economic and political changes in the foreign
nations to which the Company's products are exported. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's financial position or results of operations. See
"Business--Business Strategy" and "--Markets and Customers."
VARIABILITY OF ORDERS
The level and timing of orders placed by the Company's customers vary due to
a number of factors, including customer attempts to manage inventory, changes
in the customer's manufacturing strategies and variation in demand for
customer products due to, among other things, technological change, new
product introductions, product life-cycles, competitive conditions or general
economic conditions. Because the Company generally does not obtain long-term
production orders or advance commitments from its customers, it must attempt
to anticipate the future volume of orders based on discussions with its
customers. A substantial portion of sales in a given quarter may depend on
obtaining orders for products to be manufactured and shipped in the same
quarter in which those orders are received. The Company relies on its estimate
of anticipated future volumes when making commitments regarding the level of
business that it will seek and accept, the mix of products that it intends to
manufacture, the timing of production schedules and the levels and utilization
of personnel and other resources. A variety of conditions, both specific to
the individual customer and generally affecting the customer's industry, may
cause customers to cancel, reduce or delay orders that were previously made or
anticipated. The Company cannot assure the timely replacement of canceled,
delayed or reduced orders. Significant or numerous cancellations, reductions
or delays in orders by a group of customers could materially adversely affect
the Company's business, financial condition and results of operation.
INTELLECTUAL PROPERTY
The Company's success depends in part on proprietary technology and
manufacturing techniques. The Company has no patents for these proprietary
techniques and chooses to rely primarily on trade secret protection.
Litigation may be necessary to protect the Company's technology, to determine
the validity and scope of the proprietary rights of others. The Company is not
aware of any pending or threatened claims that affect any of the Company's
intellectual property rights. If any infringement claim is asserted against
the Company, the Company may seek to obtain a license of the other party's
19
<PAGE>
intellectual property rights. There is no assurance that a license would be
available on reasonable terms or at all. Litigation with respect to patents or
other intellectual property matters could result in substantial costs and
diversion of management and other resources and could have a material adverse
effect on the Company.
RISKS ASSOCIATED WITH A SINGLE MANUFACTURING FACILITY
The Company produces all of its quick-turn products and most of its other
products in its manufacturing facility located in Anaheim, California, other
than research and development and longer term manufacturing jobs. The
Company's manufacturing processes are highly complex and require sophisticated
and costly equipment. As a result, any prolonged disruption in the operations
of the Company's manufacturing facility, whether due to technical or labor
difficulties, destruction of or damage to this facility or other reasons,
including as a result of a natural disaster such as an earthquake, fire or
flood, could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Facilities."
ENVIRONMENTAL MATTERS
The Company's operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with
these environmental laws are major considerations for all PCB manufacturers
because metals and other hazardous materials are used in the manufacturing
process. In addition, because the Company is a generator of hazardous wastes,
the Company, along with any other person who arranges for the disposal of such
wastes, may be subject to potential financial exposure for costs associated
with an investigation and remediation of sites at which it has arranged for
the disposal of hazardous wastes, if such sites become contaminated. This is
true even if the Company fully complies with applicable environmental laws.
Although the Company believes that its facilities are currently in material
compliance with applicable environmental laws, and it monitors its operations
to avoid violations arising from human error or equipment failures, there can
be no assurances that violations will not occur. In the event of a violation
of environmental laws, the Company could be held liable for damages and for
the costs of remedial actions and could also be subject to revocation of its
effluent discharge permits. Any such revocations could require the Company to
cease or limit production at one or more of its facilities, thereby having a
material adverse effect on the Company's operations. Environmental laws could
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. See "Business--Environmental Matters."
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition. The Company principally competes with independent and captive
manufacturers of complex and quick-turn PCBs. The Company's principal
competitors include other independent small private companies and integrated
subsidiaries of more broadly based volume producers, that also manufacture
multilayer PCBs and other electronic assemblies. Some of the Company's
principal competitors are less highly-leveraged than the Company and may have
greater financial and operating flexibility. Moreover, the Company may face
additional competitive pressures as a result of changes in technology.
Competition in the complex and quick-turn PCB industry has increased due to
the consolidation trend in the industry, which results in potentially better
capitalized and more effective competitors. The Company's basic technology is
generally not subject to significant proprietary protection, and companies
with significant resources or international operations may enter the market.
Increased
20
<PAGE>
competition could result in price reductions, reduced margins or loss of
market share, any of which could materially adversely affect the Company's
business, financial condition and results of operations. See "Business--
Competition."
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on its
executive and other key management personnel. Although the Company has entered
into employment agreements with certain of its executive officers, there can
be no assurance that the Company will be able to retain its executive officers
and key personnel or attract additional qualified management in the future.
CONTROLLING STOCKHOLDERS
The Bain Capital Funds hold approximately 49.9% of the outstanding voting
stock of Holdings, the sole stockholder of the Company's parent, Details
Capital. In addition, the Bain Capital Funds and all of Holdings' other
stockholders have entered into a stockholders agreement regarding, among other
things, the voting of such stock. By virtue of such stock ownership and these
agreements, the Bain Capital Funds have the power to control all matters
submitted to stockholders of Holdings, Details Capital and the Company, to
elect a majority of the directors of Holdings and its subsidiaries, including
the Company, and to exercise control over the business, policies and affairs
of Holdings, Details Capital and the Company. The interests of the Bain
Capital Funds as equity holders may differ from the interests of holders of
the Exchange Notes. See "Certain Relationships and Related Transactions--
Stockholders Agreement."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
There is currently no established market for the Exchange Notes and,
although the Exchange Notes are expected to be eligible for trading in the
PORTAL market, there can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of Holders of the
Exchange Notes to sell their Exchange Notes or the price at which Holders
would be able to sell their Exchange Notes. Future trading prices of the
Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. The Company does not intend to apply for listing of the
Notes on any securities exchange or on any automated dealer quotation system.
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<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange
Notes.
The Company used the net proceeds (after deduction of related fees and
expenses) from the Initial Offering of approximately $96.4 million to repay
(i) the $85.0 million of indebtedness represented by the Senior Subordinated
Facility, plus accrued interest and related fees and expenses, (ii) a portion
of the Holdings Facility and (iii) indebtedness under the Term Loan Facilities
of approximately $10.3 million.
The proceeds of the Senior Subordinated Facility, the Holdings Facility and
the Senior Credit Facilities were used to finance, in part, the
Recapitalization and related fees and expenses. See "Summary--The
Transactions".
22
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of Holdings
at September 30, 1997, (ii) the capitalization of Holdings as adjusted to give
effect to the Transactions, and (iii) the capitalization of Details as
adjusted to give effect to the Transactions and the Initial Offering and
application of the net proceeds therefrom, as if such transactions had
occurred on that date. This table should be read in conjunction with the
Selected Historical Consolidated Financial Data and Unaudited Pro Forma
Financial Data and the audited consolidated financial statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HOLDINGS DETAILS
------------------------------- --------------------
AS ADJUSTED
AS ADJUSTED FOR THE TRANSACTIONS
ACTUAL FOR THE TRANSACTIONS AND THE OFFERING
--------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash...................... $ 942 $ 3,891 $ 4,992
Debt:
Senior Credit Facili-
ties(1)................ -- 91,400 81,100
Existing Indebtedness... 87,410 6,556 6,556
Senior Subordinated Fa-
cility................. -- 85,000 --
Notes................... -- -- 100,000
Holdings Facility(2).... -- 51,580 -- (5)
--------- --------- ---------
Total debt............ 87,410 234,536 187,656
Temporary equity(3)....... 83,350 -- --
Total stockholder's equity
(deficit)(4)............. (148,527) (196,222) --
Contributed capital (defi-
cit)(4)(5)............... -- -- (150,497)
--------- --------- ---------
Total capitalization...... $ 23,175 $ 42,205 $ 42,151
========= ========= =========
</TABLE>
- --------
(1) The Company's $30 million Revolving Credit Facility and $25 million
acquisition facility under the Term Loan Facilities were undrawn at
October 28, 1997. On a pro forma basis as of September 30, 1997, the
Company would have had $55 million available under these facilities.
(2) Concurrently with the Initial Offering, Holdings conducted the Discount
Note Offering, the proceeds of which were used to repay the Holdings
Facility.
(3) Temporary equity represents the fair value at September 30, 1997 of the
Company stock and warrants subject to a put at the option of the holders
thereof which were issued in 1996 in connection with the Initial
Recapitalization and exercised in connection with the Transactions.
(4) As a result of the Initial Recapitalization and subsequent increases in
temporary equity, Holdings had a stockholder's deficit. As a result of the
Recapitalization, Holdings' total stockholders' deficit increased by $47.7
million. In the Recapitalization, the Bain Capital Funds, an affiliate of
CMC and the Other Investors received common stock representing 62.0% of
Holdings for an aggregate consideration of $62.4 million. Existing Owners
and management retained 10.5% and 17.1% of Holdings, respectively, which,
based on the price of the stock received by the Bain Capital Funds, an
affiliate of CMC and the Other Investors, had a value of $26.6 million.
The total value of the common stock purchased and retained in the
Recapitalization was $89.0 million.
(5) Subsequent to the Recapitalization, Holdings incorporated Details, Inc. as
a wholly-owned subsidiary with a $1 capital contribution and contributed
substantially all of its assets, subject to certain liabilities (other
than the Holdings Facility) to Details.
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<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet as of September
30, 1997 gives effect to the Transactions and the Initial Offering as if they
had occurred on such date.
The following Unaudited Pro Forma Consolidated Statements of Income for the
year ended December 31, 1996, the nine months ended September 30, 1996 and
1997 and the last twelve months ended September 30, 1997 give effect to the
Transactions and the Initial Offering as if they had occurred on January 1,
1996. See "The Transactions." The Unaudited Pro Forma Consolidated Statements
of Income do not purport to represent what the Company's results of operations
would have been if the Transactions and the Initial Offering had occurred as
of the dates indicated or what such results will be for any future periods.
The unaudited pro forma financial data are based on the historical
consolidated financial statements of the Company and the assumptions and
adjustments described in the accompanying notes.
The unaudited pro forma balance sheet also includes the following non-
recurring charges related to the Transactions: (i) approximately $6 million
from the write-off of deferred financing fees; (ii) approximately $1.2 million
from the early extinguishment of the Company's long term debt; (iii)
approximately $1.2 million related to the buyout of the CEO's employment
contract; and (iv) approximately $30.6 million of stock compensation and
related bonuses under the Company's 1996 Stock Option Plan. Such charges
aggregate $39.0 million and result in a net charge to earnings of $23.0
million (net of tax benefit of $16.0 million, assuming an estimated 41% tax
rate).
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
HOLDINGS DETAILS, INC.
--------------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 PRO FORMA 1997 1997 OTHER
HISTORICAL ADJUSTMENTS PRO FORMA PRO FORMA* ADJUSTMENTS PRO FORMA
------------- ----------- ------------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 942 $ 3,130 (a) $ 3,891 $ 3,892 $ 1,100 (i) $ 4,992
(1)(b)
(180)(c)
Trade receivables,
net................... 10,148 -- 10,148 10,148 -- 10,148
Inventories............ 2,414 -- 2,414 2,414 -- 2,414
Other.................. 1,047 -- 1,047 1,047 -- 1,047
--------- -------- --------- --------- -------- ---------
Total current assets... 14,551 2,949 17,500 17,501 1,100 18,601
Investment in Details,
Inc. .................. -- 1 (b) 1 -- --
Property and equipment,
net.................... 14,931 -- 14,931 14,931 -- 14,931
Other assets............ 662 -- 662 662 -- 662
Deferred tax assets..... -- 8,333 (a) 11,957 11,957 1,845 (j) 13,802
1,596 (e)
2,028 (f)
Debt issue costs, net... 1,542 11,600 (c) 11,600 8,400 3,600 (i) 7,500
(1,542)(e) (4,500)(j)
--------- -------- --------- --------- -------- ---------
Total assets............ $ 31,686 $ 24,965 $ 56,651 $ 53,451 $ 2,045 $ 55,496
========= ======== ========= ========= ======== =========
LIABILITIES AND EQUITY
Current liabilities:
Current portion long-
term debt............. $ 10,990 $ 10,000 (a) $ 365 $ 365 $ -- $ 365
1,200 (e)
3,400 (g)
(25,225)(c)
Accounts payable....... 3,505 -- 3,505 3,505 -- 3,505
Accrued expenses....... 2,989 -- 2,989 2,989 -- 2,989
Accrued bonuses ....... 2,959 (593)(a) 2,366 2,366 -- 2,366
--------- -------- --------- --------- -------- ---------
Total current
liabilities........... 20,443 (11,218) 9,225 9,225 -- 9,225
Other long-term
liabilities............ -- 9,477 (d)(g) 9,477 9,477 -- 9,477
Long-term debt.......... 76,420 (70,229)(c) 6,191 6,191 -- 6,191
Senior Credit
Facilities............. -- 91,400 (c) 91,400 91,400 (10,300)(i) 81,100
Senior Subordinated
Facility............... -- 85,000 (c) 85,000 85,000 (85,000)(i) --
Notes................... -- -- -- -- 100,000 (i) 100,000
Holdings Facility....... -- 51,580 (c) 51,580
Temporary equity........ 83,350 (83,350)(g) -- -- -- --
Stockholders' equity
(deficit):
Common stock........... 5,301 (5,301)(g) -- -- -- --
Convertible preferred
stock................. 13,532 (13,532)(g) -- -- -- --
Class A Common, Class L
Common................ -- 60,895 (c) 67,325 -- -- --
5,867 (c)
563 (h)
Additional paid in
capital............... 2,922 14,048 (a) 8,367 -- -- --
(16,970)(g)
4,947 (f)
3,420 (c)
Receivables from
stockholders.......... -- (563)(h) (563) -- -- --
Retained earnings
(deficit)............. (170,282) (11,992)(a) (271,351) -- -- --
(83,862)(g)
(2,296)(e)
(2,919)(f)
--------- -------- --------- --------- -------- ---------
Total stockholders'
equity (deficit)...... (148,527) (47,695) (196,222) -- -- --
Contributed capital
(deficit).............. -- -- -- (147,842) (2,655)(j) (150,497)
--------- -------- --------- --------- -------- ---------
Total liabilities and
equity................. $ 31,686 $ 24,965 $ 56,651 $ 53,451 $ 2,045 $ 55,496
========= ======== ========= ========= ======== =========
</TABLE>
- --------
* Subsequent to the Recapitalization, Holdings incorporated Details, Inc. as a
wholly-owned subsidiary with a $1 capital contribution and contributed
substantially all of its assets, subject to certain liabilities (other than
the Holdings Facility) to Details.
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(a) Reflects: (i) the compensation expense of $13,840 (recorded net of the
estimated tax benefit of $5,675 assuming a 41% effective tax rate) related
to the accelerated vesting of 1,437 options that were outstanding under
the Company's variable stock plan at an exercise price of approximately
$2,179 per share and an estimated fair market value of the Company of
approximately $11,810 per share; (ii) the exercise of these options
immediately prior to the Recapitalization, resulting in cash proceeds to
the Company of $3,130 and an increase in additional paid in capital of
$16,970; (iii) the compensation expense attributable to the bonuses
payable to cover employee taxes on these options of $11,768 (recorded net
of the estimated tax benefit of $4,825 assuming a 41% effective tax rate);
and (iv) the increase in the Company's short-term debt in connection with
paying $10,000 of these bonuses prior to the Recapitalization. The net pro
forma adjustment recorded has been calculated as the total amount required
to be recorded less the amount already recorded in the Company's September
30, 1997 historical financial statements, summarized as follows:
<TABLE>
<CAPTION>
TOTAL CALCULATED RECORDED AS OF NET PRO FORMA
ADJUSTMENT SEPTEMBER 30, 1997 ADJUSTMENT
---------------- ------------------ -------------
DEBIT(CREDIT)
<S> <C> <C> <C>
Cash...................... 3,130 -- 3,130
Deferred tax asset........ 10,500 2,167 8,333
Retained earnings......... 15,108 3,116 11,992
Additional paid-in capital
("APIC")................. (16,970) (2,922) (14,048)
Accrued bonuses........... (1,768) (2,361) 593
Short-term debt........... (10,000) -- (10,000)
</TABLE>
(b) Represents Holdings' initial capital contribution of $1 to Details, Inc.
subsequent to the Recapitalization.
(c) Reflects the incurrence of debt relating to the Senior Credit Facilities,
the Senior Subordinated Facility, the Notes, the Holdings Facility and the
uses of cash for the purposes of effecting the Recapitalization.
<TABLE>
<S> <C>
SOURCES OF CASH:
Cash............................................................. $ 180
Senior Credit Facilities......................................... 91,400
Senior Subordinated Facility..................................... 85,000
Holdings Facility(I)............................................. 55,000
Class L Common and Class A Common (net of fees and expenses of
$1,500)......................................................... 60,895
Common stock and common stock equivalents(II).................... 26,605
--------
Total Sources.................................................. $319,080
========
USES OF CASH:
Payment of deferred financing fees............................... 11,600
Payment of existing indebtedness(III)............................ 96,604
Continuing equity interest(II)................................... 26,605
Redemption of stock and distribution to shareholders............. 184,271
--------
Total Uses..................................................... $319,080
========
</TABLE>
(I) A portion of the proceeds received from the Holdings Facility of
$55,000 was allocated to the estimated fair market value of the Class L
Common and Class A Common warrants of $3,420.
(II) As part of the Recapitalization, $26,605 (estimated fair market value)
of common stock and common stock options was exchanged in a non-cash
transaction for Class L Common and Class A Common and options to
acquire Class L Common and Class A Common of Holdings. These exchanges
are included in the above table to highlight the common stock
(exchanged
26
<PAGE>
at carryover basis of $5,867) and options (exchanged at carryover basis
of $4,689), which differs from their estimated fair market value of
$26,605.
(III) Includes $15,000 payment on the Company's existing subordinated debt
which has a carrying value at September 30, 1997 of $13,850, the
difference has been recorded as a non-recurring charge of $1,150 (see
Note (e) below).
(d) Represents a deferred purchase price obligation, contingent upon the
Company's ability to utilize the deferred tax benefit recorded in
connection with the exercise of options prior to the Recapitalization (See
Note (a)). Management believes that it is probable that the Company will
utilize these tax benefits in the near future.
(e) Represents the balance sheet impact for the following non-recurring
charges related to the Transactions.
<TABLE>
<S> <C>
Write-off of deferred financing fees................................. $1,542
Early extinguishment of long term debt............................... 1,150
Buy out of CEO's employment contract................................. 1,200
------
3,892
Net deferred tax benefit (assuming 41% effective rate)........... (1,596)
------
Net charge to equity............................................. $2,296
======
</TABLE>
(f) Represents compensation expense of $4,947 for vested but unexercised
options exchanged for new Class A options and Class L options at the same
intrinsic value. The charge to equity of $2,919 is net of a tax benefit of
$2,028 (assuming an estimated 41% effective tax rate).
(g) Represents the net change in retained earnings (deficit) as a result of
the redemption and subsequent retirement of existing common and common
stock equivalents and preferred stock in conjunction with the
Recapitalization.
<TABLE>
<S> <C>
Distribution to shareholders...................................... $(184,271)
Estimated fees and expenses of Recapitalization................... (3,400)
Deferred purchase obligation...................................... (9,477)
Retire common stock and APIC(I)................................... 16,404
Retire convertible preferred stock................................ 13,532
Retire temporary equity........................................... 83,350
---------
$ (83,862)
=========
</TABLE>
(I) Represents the carrying value of common stock of $5,301 and the
carrying value of common stock issued and retired as a result of
options that were exercised prior to the Recapitalization (valued at
$16,970, as discussed in Note (a) above), less common stock converted
into Class L Common and Class A Common at their historical carrying
value ($5,867).
(h) Represents the Company's issuance of restricted Class A Common (valued at
$563) to management in exchange for a recourse note.
(i) Reflects the incurrence of debt related to the Notes and the use of
proceeds therefrom to retire the existing Senior Subordinated Facility and
a portion of the Senior Credit Facilities.
<TABLE>
<S> <C>
SOURCES OF CASH:
Notes.............................................................. $100,000
========
USES OF CASH:
</TABLE>
<TABLE>
<S> <C>
Payment of Senior Subordinated Facility........................... $ 85,000
Payment of Senior Credit Facilities............................... 10,300
Payment of deferred financing fees................................ 3,600
Cash(I)........................................................... 1,100
--------
$100,000
========
</TABLE>
(I) A portion of the cash proceeds from the Original Notes was used to
repay the accrued interest on the Holdings Facility and the Senior
Subordinated Facility.
(j) Reflects the write-off of deferred financing fees of $4,500 in conjunction
with the retirement of the Senior Subordinated Facility. The charge to
equity for the write-off of deferred financing fees of $2,655 is net of a
tax benefit of $1,845 (assuming estimated 41% effective tax rate).
27
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LATEST TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 1997(A)
------------------------------------------------------------
PRO FORMA SUPPLEMENTAL ADJUSTED
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) PRO FORMA
---------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $73,850 $ -- $73,850 $ -- $ 73,850
Cost of goods sold...... 35,625 -- 35,625 -- 35,625
------- ------- ------- ------- --------
Gross profit............ 38,225 -- 38,225 -- 38,225
Operating expenses:
Compensation to CEO.... 1,030 (1,030)(b) -- -- --
General and
administration........ 2,177 -- 2,177 -- 2,177
Sales and marketing.... 6,824 -- 6,824 -- 6,824
Stock compensation and
related bonuses....... 5,283 -- 5,283 (5,283)(f) --
------- ------- ------- ------- --------
Operating income........ 22,911 1,030 23,941 5,283 29,224
Interest expense........ (9,971) (9,100)(c) (19,071) -- (19,071)
Interest income......... 87 -- 87 -- 87
------- ------- ------- ------- --------
Income before income
taxes.................. 13,027 (8,070) 4,957 5,283 10,240
Provision for (benefit
from) income taxes..... 5,395 (3,362)(d) 2,033 2,166 (d) 4,199
------- ------- ------- ------- --------
Net income.............. $ 7,632 $(4,708) $ 2,924 $ 3,117 $ 6,041
======= ======= ======= ======= ========
OTHER DATA:
Adjusted EBITDA (g)..................................................... $ 31,605
Adjusted EBITDA margin.................................................. 43%
Depreciation............................................................ 2,381
Capital expenditures.................................................... 4,213
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
28
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
PRO FORMA SUPPLEMENTAL ADJUSTED
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) PRO FORMA
---------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $67,515 $ -- $ 67,515 $ -- $ 67,515
Cost of goods sold...... 30,505 -- 30,505 -- 30,505
------- ------- -------- ------- --------
Gross profit............ 37,010 -- 37,010 -- 37,010
Operating expenses:
Compensation to CEO.... 1,055 (1,055)(b) -- -- --
General and
administration........ 1,929 -- 1,929 -- 1,929
Sales and marketing.... 5,989 -- 5,989 -- 5,989
------- ------- -------- ------- --------
Operating income........ 28,037 1,055 29,092 -- 29,092
Interest expense........ (9,518) (9,564)(c) (19,082) -- (19,082)
Interest income......... 102 -- 102 -- 102
------- ------- -------- ------- --------
Income before income
taxes.................. 18,621 (8,509) 10,112 -- 10,112
Provision for (benefit
from) income taxes..... 6,265 (2,119)(d) 4,146 -- 4,146
------- ------- -------- ------- --------
Net income.............. $12,356 $(6,390) $ 5,966 $ -- $ 5,966
======= ======= ======== ======= ========
OTHER DATA:
Adjusted EBITDA (g)..................................................... $ 31,139
Adjusted EBITDA margin.................................................. 46%
Depreciation............................................................ 2,047
Capital expenditures.................................................... 3,666
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
29
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------
PRO FORMA SUPPLEMENTAL ADJUSTED
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(A) PRO FORMA
---------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $49,086 $ -- $ 49,086 $ -- $ 49,086
Cost of goods sold...... 21,899 -- 21,899 -- 21,899
------- ------- -------- ------ --------
Gross profit............ 27,187 -- 27,187 -- 27,187
Operating expenses:
Compensation to CEO.... 836 (836)(b) -- -- --
General and
administration........ 1,377 -- 1,377 -- 1,377
Sales and marketing.... 4,503 -- 4,503 -- 4,503
------- ------- -------- ------ --------
Operating income........ 20,471 836 21,307 -- 21,307
Interest expense........ (6,974) (7,369)(c) (14,343) -- (14,343)
Interest income......... 71 -- 71 -- 71
------- ------- -------- ------ --------
Income before provision
for income taxes....... 13,568 (6,533) 7,035 -- 7,035
Provision for (benefit
from) income
taxes.................. 4,270 (1,386)(d) 2,884 -- 2,884
------- ------- -------- ------ --------
Net income.............. $ 9,298 $(5,147) $ 4,151 $ -- $ 4,151
======= ======= ======== ====== ========
OTHER DATA:
Adjusted EBITDA (g)..................................................... $ 22,802
Adjusted EBITDA margin.................................................. 46%
Depreciation............................................................ 1,495
Capital expenditures.................................................... 2,720
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
30
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------
ADJUSTED
PRO FORMA SUPPLEMENTAL PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) FORMA
---------- ----------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $55,421 $ -- $ 55,421 $ -- $ 55,421
Cost of goods sold...... 27,019 -- 27,019 -- 27,019
------- ------- -------- ------- --------
Gross profit............ 28,402 -- 28,402 -- 28,402
Operating expenses:
Compensation to CEO.... 811 (811)(b) -- -- --
General and
administration........ 1,625 -- 1,625 -- 1,625
Sales and marketing.... 5,338 -- 5,338 -- 5,338
Stock compensation and
related bonuses....... 5,283 -- 5,283 (5,283)(f) --
------- ------- -------- ------- --------
Operating income........ 15,345 811 16,156 5,283 21,439
Interest expense........ (7,427) (6,905)(c) (14,332) -- (14,332)
Interest income......... 56 -- 56 -- 56
------- ------- -------- ------- --------
Income before income
taxes.................. 7,974 (6,094) 1,880 5,283 7,163
Provision for (benefit
from) income taxes..... 3,400 (2,629)(d) 771 2,166 2,937
------- ------- -------- ------- --------
Net income.............. $ 4,574 $(3,465) $ 1,109 $ 3,117 $ 4,226
======= ======= ======== ======= ========
OTHER DATA:
Adjusted EBITDA (g)..................................................... $ 23,268
Adjusted EBITDA margin.................................................. 42%
Depreciation............................................................ 1,829
Capital expenditures.................................................... 3,267
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(a) Information for the latest twelve months ended September 30, 1997
represents the summation of the pro forma year ended December 31, 1996 and
pro forma nine months ended September 30, 1997 information, less the pro
forma nine months ended September 30, 1996.
(b) Reflects cost savings as a result of the cancellation of the employment
agreement with the Company's CEO as a direct result of the
Recapitalization. The CEO's employment was terminated on October 28, 1997.
(c) The increase to pro forma interest expense as a result of the
Recapitalization is as follows:
<TABLE>
<CAPTION>
LATEST
TWELVE MONTHS YEAR ENDED NINE MONTHS NINE MONTHS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1996 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Elimination of
historical interest
expense and fees....... $(9,971) $(9,518) $ (6,974) $(7,427)
------- ------- -------- -------
Senior Credit Facilities
(assuming LIBOR at 5.8%)
Term Loan A--LIBOR
plus 2.50%........... 2,581 2,581 1,936 1,936
Term Loan B--LIBOR
plus 2.75%........... 4,289 4,289 3,217 3,217
Notes................... 10,000 10,000 7,500 7,500
Other bank fees and
unused commitment fee
on the Revolving Credit
Facility............... 150 150 113 113
Capital leases.......... 764 775 612 601
Other................... 200 200 150 150
------- ------- -------- -------
Cash interest ex-
pense.............. 17,984 17,995 13,528 13,517
Amortization of de-
ferred financing fees
($7,500 over average
6.9 years)............ 1,087 1,087 815 815
------- ------- -------- -------
Total interest from
recapitalization
debt requirements.. 19,071 19,082 14,343 14,332
------- ------- -------- -------
Net increase in
interest......... $ 9,100 $ 9,564 $ 7,369 $ 6,905
======= ======= ======== =======
</TABLE>
An increase or decrease in the assumed weighted average interest rate on
the Senior Credit Facilities of 0.125% would change pro forma interest
expense by $102, $102, $77, and $77 for the latest twelve months ended
September 30, 1997, for the year ended December 31, 1996, and the nine
months ended September 30, 1996 and 1997, respectively.
(d) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (i) the Company's historical tax provision
using historical amounts and (ii) the direct tax effects of the pro forma
adjustments described above at an estimated 41% effective tax rate.
(e) Supplemental adjustments represent those adjustments which management
believes are appropriate to reflect the elimination of certain expenses not
expected to recur after the Recapitalization.
(f) Reflects the supplemental adjustment for the exclusion of the charge
recorded for stock options vested under the Company's 1996 Stock Option
Plan.
(g) "Adjusted EBITDA" is defined herein as income before provision for income
taxes, plus depreciation, amortization and net interest expense and other
supplemental adjustments for the expense recorded for stock compensation
and related bonuses under the Company's 1996 Stock Option Plan.
32
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company at the dates and for the periods indicated. The selected historical
consolidated statements of income data of the Company for each of the three
years ended December 31, 1996 and the selected historical consolidated balance
sheet data as of December 31, 1995 and 1996 were derived from the historical
consolidated financial statements of the Company that were audited by
McGladrey & Pullen, LLP, whose report appears elsewhere in this Prospectus.
The selected historical consolidated financial data of the Company for the
year ended December 31, 1992 and the nine month periods ended September 30,
1996 and 1997 are derived from unaudited consolidated financial statements of
the Company which, in the opinion of management, include all adjustments
necessary for a fair presentation. The selected historical consolidated
financial data set forth below should be read in conjunction with, and is
qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited consolidated financial
statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Net sales.............. $25,759 $32,394 $ 44,086 $ 59,370 $ 67,515 $ 49,086 $ 55,421
Cost of goods sold..... 13,142 16,480 20,415 25,156 30,505 21,899 27,019
------- ------- -------- -------- -------- -------- ---------
Gross profit........... 12,617 15,914 23,671 34,214 37,010 27,187 28,402
Operating expenses:
Compensation to CEO
(1)................... 9,414 11,513 412 418 1,055 836 811
General and administra-
tion.................. 690 1,136 1,385 1,789 1,929 1,377 1,625
Sales and marketing.... 2,672 3,074 3,542 5,293 5,989 4,503 5,338
Stock compensation and
related bonuses (2)... -- -- -- -- -- -- 5,283
------- ------- -------- -------- -------- -------- ---------
Operating income
(loss)................ (159) 191 18,332 26,714 28,037 20,471 15,345
Interest expense....... (57) (167) (181) (371) (9,518) (6,974) (7,427)
Interest income........ 21 10 13 42 102 71 56
------- ------- -------- -------- -------- -------- ---------
Income (loss) before
income taxes.......... (195) 34 18,164 26,385 18,621 13,568 7,974
Provision for (benefit
from) income taxes
(3)................... (18) 221 273 396 6,265 4,270 3,400
------- ------- -------- -------- -------- -------- ---------
Net income (loss)...... $ (177) $ (187) $ 17,891 $ 25,989 $ 12,356 $ 9,298 4,574
======= ======= ======== ======== ======== ======== =========
OTHER FINANCIAL DATA:
EBITDA (4)............. $ 567 $ 1,047 $ 19,214 $ 27,768 $ 30,084 $ 21,966 $ 17,174
Adjusted EBITDA (5).... 9,981 12,560 19,626 28,186 31,139 22,802 23,268
Depreciation........... 726 856 882 1,054 2,047 1,495 1,829
Cash provided by oper-
ating activities...... 298 395 18,094 26,141 12,158 10,882 11,506
Cash flow (used in) in-
vesting activities.... (1,273) (1,254) (844) (2,946) (3,577) (2,712) (3,267)
Cash provided by (used
in) financing
activities............ 786 2,277 (15,156) (26,409) (8,885) (6,786) (7,466)
Ratio of earnings to
fixed charges (6)..... -- 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x
BALANCE SHEET DATA (END
OF PERIOD):
Working capital........ $ 1,170 $ (74) $ (96) $ (2,264) $ (3,514) $ (884) $ (5,892)
Total assets........... 6,164 9,097 12,015 13,081 27,503 26,930 31,686
Total debt............. 1,434 3,446 1,316 1,982 94,101 96,157 87,410
Equity (net capital de-
ficiency) (7).......... 2,993 2,806 2,806 2,500 (72,674) (75,732) (65,177)
</TABLE>
- --------
(1) Represents compensation paid to the Company's former CEO, who also was the
sole shareholder since the Company's inception through the Initial
Recapitalization and whose employment terminated on October 28, 1997.
(2) Represents stock compensation and related bonuses under the Company's 1996
Stock Option Plan.
(3) Prior to February 1996, the Company elected to be taxed as an "S"
corporation and paid income taxes at a reduced rate. On a pro forma basis,
income tax expense would have been higher by the following amounts: 1994-
$7,175; 1995-$10,425; 1996-$1,295 and September 30, 1996-$1,295.
(4) "EBITDA" is defined herein as income before income taxes, depreciation,
amortization and net interest expense. EBITDA is presented because the
Company believes it is frequently used by security analysts in the
evaluation of companies. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items
of income which are not expected to be incurred by the Company subsequent
to the Transactions. These items consist of the compensation paid to the
Company's former CEO whose employment terminated on October 28, 1997 and
stock compensation and related bonuses under the Company's 1996 Stock
Option Plan.
(6) For purposes of computing this ratio, earnings consists of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense. Earnings were not
sufficient to cover fixed charges by $195 for the year ended December 31,
1992.
(7) The net capital deficiency as of December 31, 1996 reflects the Initial
Recapitalization of the Company that took place in January of 1996.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations covers periods before completion of the Transactions. In
connection with the Transactions, the Company entered into financing
arrangements and altered its capital structure. Accordingly, the results of
operations for periods subsequent to the consummation of the Transactions will
not necessarily be comparable to prior periods. See "The Transactions,"
"Capitalization," "Description of Senior Credit Facilities," "Selected
Historical Consolidated Financial Data," "Unaudited Pro Forma Consolidated
Financial Data," and the audited and unaudited consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
OVERVIEW
The Company is a leading domestic manufacturer and marketer of PCBs for the
quick-turn segment of the PCB industry. The Company produces PCBs for over 300
customers across a wide range of end-use markets including the
telecommunications, computer, contract manufacturing, industrial
instrumentation and consumer electronics industries. For the nine months ended
September 30, 1997, approximately 70% of the Company's sales were quick-turn
PCBs. The Company's net sales of PCB panels, which consist of multiple
individual printed circuit boards, have grown at a compound annual growth rate
of 25% from $25.8 million in fiscal year ended December 31, 1992 to $73.9
million in the twelve months ended September 30, 1997.
SIGNIFICANT TRANSACTIONS
The Company was established in 1978 by James Swenson. In 1992, the Company
installed new management, headed by Bruce McMaster, and began to focus
primarily on quick-turn products. In late January 1996, CMC and its affiliates
acquired approximately 40% of the outstanding stock of the Company in a
recapitalization (the "Initial Recapitalization"). On October 4, 1997,
Holdings and its stockholders entered into the Recapitalization Agreement
pursuant to which the Merger was consummated on October 28, 1997. See "The
Transactions." The Company incurred a non-recurring charge of approximately
$39.0 million (net of estimated income tax benefits of $16.0 million) as a
result of the following events in connection with the Transactions: (i) the
write-off of deferred financing fees; (ii) the early extinguishment of the
Company's long-term debt; (iii) the buyout of the CEO's employment contract;
and (iv) the compensation expense attributable to the accelerated vesting of
the outstanding options under the Company's variable stock plan in conjunction
with the Recapitalization. Because the Merger has been accounted for as a
recapitalization, the historical cost basis of the Company's assets and
liabilities was not affected.
RESULTS OF OPERATIONS
The following table sets forth certain condensed historical financial data
for the Company expressed as a percentage of net sales for the periods set
forth below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............. 46.3 42.4 45.2 44.6 48.8
------- ------- ------- -------- --------
Gross profit.................... 53.7 57.6 54.8 55.4 51.2
Operating expenses:
Stock compensation and related
bonuses...................... 0 0 0 0 9.5
Other operating expenses...... 12.1 12.6 13.3 13.7 14.0
------- ------- ------- -------- --------
Operating income................ 41.6 45.0 41.5 41.7 27.7
Net interest expense............ (0.4) (0.5) (13.9) (14.1) (13.3)
------- ------- ------- -------- --------
Income before income taxes...... 41.2 44.5 27.6 27.6 14.4
Income tax expense.............. (0.6) (0.7) (9.3) (8.7) (6.1)
------- ------- ------- -------- --------
Net income...................... 40.6 43.8 18.3 18.9 8.3
======= ======= ======= ======== ========
</TABLE>
34
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net Sales. Net sales for the nine months ended September 30, 1997, increased
$6.3 million or 12.9% to $55.4 million from $49.1 million for the nine months
ended September 30, 1996. The increase was largely due to growth in the volume
of units shipped primarily attributable to increased demand from
telecommunications customers. During the nine months ended September 30, 1997,
the Company's largest customer accounted for 10.9% of net sales. During the
nine months ended September 30, 1996, the Company's largest customer accounted
for 17.5% of net sales.
Gross Profit. Gross profit for the nine months ended September 30, 1997,
increased $1.2 million to $28.4 million from $27.2 million for the nine months
ended September 30, 1996. As a percentage of net sales, gross profit decreased
4.2% from 55.4% for the nine months ended September 30, 1996, to 51.2% for the
nine months ended September 30, 1997. The decrease in gross profit as a
percentage of sales was primarily attributable to increases in engineering,
manufacturing and systems personnel needed to support continued growth in
manufacturing capacity.
Stock Compensation. During the nine months ended September 30, 1997, stock
compensation and related bonuses increased $5.3 million from the nine months
ended September 30, 1996, due primarily to non-cash expense for the vesting of
employee stock options granted in 1996.
Other Operating Expenses. Other operating expenses increased $1.1 million or
15.8% to $7.8 million for the nine months ended September 30, 1997, as
compared to $6.7 million for the nine months ended September 30, 1996. As a
percentage of net sales, other operating expenses increased to 14.0% for the
nine months ended September 30, 1997, as compared to 13.7% for the nine months
ended September 30, 1996. The increase was due to additional sales and
marketing expenses attributable to increased sales coupled with the start-up
costs associated with the January 1997 opening of the Company's sales office
in London. The Company anticipates operating expenses will continue to
increase as the Company expands.
Net Interest Expense. Net interest expense for the nine months ended
September 30, 1997, increased $469,000 to $7.4 million from $6.9 million for
the nine months ended September 30, 1996. The increase in interest expense is
primarily due to the nine months ended September 30, 1996 containing only 8
months of interest from the Initial Recapitalization which occurred in late
January 1996. In connection with the Initial Recapitalization, the Company
incurred approximately $95.0 million in bank indebtedness. If the Initial
Recapitalization would have been entered into on January 1, 1996, interest
expense for the nine months ended September 30, 1996, would have been higher
by approximately $770,000 for a total of $7.6 million. At September 30, 1997,
the Company's total debt is approximately $87.4 million resulting in a
corresponding decrease in interest expense for the nine months ended September
30, 1997. The Company anticipates that interest expense will increase
substantially upon completion of the Transactions and the Offering.
Income Tax Expense. Income tax expense for the nine months ended September
30, 1997, was $3.4 million or 42.6% of income before income taxes. Income tax
expense for the nine months ended September 30, 1996, was $4.3 million or
31.5% of income before income taxes. Prior to the Initial Recapitalization,
the Company was taxed as an "S" corporation for income tax purposes. As an "S"
corporation, the Company paid reduced income taxes and all income was passed
through to the stockholder of the Company. On a pro forma basis, the Company's
effective tax rate would have been 41% had the "S" corporation election not
been in effect. The Company anticipates a combined tax rate of approximately
41% in the future under the current federal and state income tax rate
structure.
35
<PAGE>
Net Income. For the reasons discussed above, net income for the nine months
ended September 30, 1997, decreased $4.7 million to $4.6 million from $9.3
million for the nine months ended September 30, 1996.
1996 COMPARED TO 1995
Net Sales. Net sales increased $8.1 million or 13.7% to $67.5 million in
1996 from $59.4 million in 1995. The increase was due primarily to a change in
the product sales mix resulting in an increase in average panel price
partially offset by a decrease in total panels shipped. The overall increase
in average price per panel was a result of the Company's increased emphasis on
prototype and premium products. During 1996, the Company had sales to two
customers totaling $16.6 million or 24.6% of net sales. During 1995, the
Company had sales to these two customers totaling $16.4 million or 27.7% of
net sales.
Gross Profit. Gross profit increased $2.8 million to $37.0 million in 1996
from $34.2 million for 1995. As a percentage of net sales, gross profit
decreased 2.8% to 54.8% in 1996 from 57.6% in 1995. The decrease in gross
profit as a percentage of sales was primarily the result of an increase in the
Company's investment in engineering, manufacturing and systems personnel to
support continued growth in manufacturing capacity, combined with increased
manufacturing costs incurred on more complex, high density PCBs.
Other Operating Expenses. Other operating expenses increased $1.5 million or
19.6% to $9.0 million in 1996 from $7.5 million in 1995. As a percentage of
net sales, other operating expenses increased to 13.3% in 1996 from 12.6% in
1995. Of these totals, compensation to the CEO increased $637,000 to $1.1
million in 1996 from $418,000 in 1995. This increase was due to a new
employment contract signed in January 1996 in connection with the Initial
Recapitalization. In connection with the Recapitalization, the Company
negotiated a termination of the CEO's current contract and anticipates an
elimination of annual compensation expense to this individual of $1.1 million
beginning in November 1997.
Net Interest Expense. Net interest expense increased $9.1 million to $9.4
million from $329,000 in 1995. The increase in interest expense is primarily
due to the debt incurred of approximately $95.0 million and $6.6 million in
capital lease transactions in connection with the Initial Recapitalization.
Prior to 1996, the Company had incurred only nominal amounts of debt for the
purchase of equipment.
Income Tax Expense. Income tax expense was $6.3 million or 33.6% of income
before income taxes in 1996. Income tax expense was $396,000 or 1.5% of income
before income taxes in 1995. The income tax rates were lower than the
statutory income tax rate since the Company changed from an "S" corporation to
a "C" corporation in late January 1996. On a pro forma basis, the income tax
rate of the Company if it were taxable as a "C" corporation for all of 1996
would have been 41%.
Net Income. For the reasons discussed above, net income decreased $13.6
million to $12.4 million in 1996 from $26.0 million in 1995.
1995 COMPARED TO 1994
Net Sales. Net sales increased $15.3 million or 34.7% to $59.4 million in
1995 from $44.1 million in 1994. The increase was due primarily to a change in
the product sales mix resulting in an increase in the average panel price
combined with an increase in total panels shipped. The overall increase
in average price per panel was a result of the Company's increased emphasis on
prototype and premium products. The increase in panels shipped is the result
of the Company's focus on obtaining larger quantity orders for quick-turn PCB
business as well as increases in prototype and premium units produced.
Increased capacity utilization experienced at standard lead-time PCB
36
<PAGE>
production houses also resulted in extended lead times for production orders
and less capacity available for quick-turn services, and as a result, the
Company experienced increased orders to fill this shortage of quick-turn
capacity. During 1995, two customers accounted for $16.4 million or 27.7% of
net sales. During 1994, two customers accounted for sales of $17.3 million or
39.3% of net sales.
Gross Profit. Gross profit increased $10.5 million to $34.2 million in 1995
from $23.7 million for 1994. As a percentage of net sales, gross profit
increased 3.9% to 57.6% in 1995 from 53.7% in 1994. The increase in gross
profit was primarily attributable to the increase in prototype and premium
units produced and sold in 1995 as compared to 1994 and a decrease in
manufacturing expenses.
Other Operating Expenses. Other operating expenses increased $2.2 million or
40.5% to $7.5 million in 1995 from $5.3 million in 1994. As a percentage of
net sales, other operating expenses increased 0.5% to 12.6% in 1995 from 12.1%
in 1994. The increase was due to a $1.7 million increase in sales and
marketing expense due to higher variable costs directly attributable to
increased sales. In addition, general and administrative expenses increased by
$404,000 as a result of an increase in fixed costs associated with the
administration of a larger organization.
Net Interest Expense. Net interest expense increased $161,000 to $329,000 in
1995 from $168,000 in 1994 due to an increase in debt outstanding used in the
purchase of production equipment.
Income Tax Expenses. Income tax expense was $396,000 or 1.5% of income
before income taxes in 1995. Income tax expense was $273,000 or 1.5% of income
before income taxes in 1994. The income tax rates were lower than the
statutory income tax rate since the Company was an "S" corporation for income
tax purposes.
Net Income. For the reasons discussed above, net income increased $8.1
million to $26.0 million in 1995 from $17.9 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash provided by operations
and borrowings under various debt instruments. The Company's principal uses of
cash have been to finance capital expenditures and meet debt service
requirements. The Company anticipates that it will also use cash in the future
to finance possible acquisitions.
Net cash provided by operating activities was $11.5 million and $10.9
million for the nine months ended September 30, 1997 and 1996, respectively.
Net cash provided by operating activities was $12.2 million, $26.1 million and
$18.1 million for the fiscal years ended 1996, 1995 and 1994, respectively.
Fluctuations in net cash provided by operating activities is primarily
attributable to increases and decreases in the Company's net income before
non-cash charges.
Financing activities in 1996 primarily consisted of distributions to
shareholders and shareholder transactions and increased debt requirements in
connection with the Initial Recapitalization. Net cash used in financing
activities was $15.2 million, $26.4 million and $8.9 million for the fiscal
years ended December 31, 1994, 1995 and 1996, respectively. Financing
activities in 1994 and 1995 primarily consisted of distributions to
shareholders.
The Company's capital expenditures were $0.8 million, $2.9 million, $3.7
million and $3.3 million in 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively. The Company anticipates these expenditures
will increase to approximately $4 million for the full year 1997 and $6
million for 1998.
37
<PAGE>
As of October 28, 1997, after giving effect to the Transactions, the Company
incurred new indebtedness aggregating $181.4 million. As a result of the
Transactions, the Company has significantly increased cash requirements for
debt service relating to the Notes and Senior Credit Facilities. As of
September 30, 1997, on a pro forma basis, the Company would had borrowings of
approximately $187.7 million and up to $30 million available for borrowing
under the Revolving Credit Facility and, following the Recapitalization, $25
million additional availability under the Term Loan Facilities. The Company's
estimated minimum principal payment obligations under the Senior Credit
Facilities are $2.3 million and $4.5 million for fiscal 1998 and fiscal 1999,
respectively. This compares to $11.0 million and $12.5 million, which would
have been required under its previous facilities.
Concurrently with the Initial Offering, Holdings conducted the Discount
Notes Offering, the proceeds of which it used to repay the Holdings Facility.
On December , 1997, Holdings contributed substantially all of its assets,
subject to certain liabilities, including the Discount Notes, to Details
Capital. Concurrently with the Exchange Offer, Details Capital is conducting
an exchange offer for the Discount Notes. The Discount Notes and the Exchange
Discount Notes exchanged therefor are both herein referred to as the "Discount
Notes". The Discount Notes require no interest payments for the first five
years. Although none of the Company's assets secure the Discount Notes and the
Company does not guarantee the Discount Notes, Neither Holdings nor Details
Capital currently has any operations or sources of cash flow. The Company
expects that, based on current operations, it will be the only source of
payment for Details Capital's debt service. See "Description of Exchange
Notes--Certain Covenants." The Company's ability to incur additional
indebtedness is limited under the Indenture, the Discount Note Indenture and
the Senior Credit Facilities.
Based upon the current level of operations, the Company believes that cash
generated from operations, available cash and amounts available under the
Senior Credit Facilities, will be adequate to meet its debt service
requirements, capital expenditures and working capital needs for the
foreseeable future, although no assurance can be given in this regard.
Accordingly, there can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future borrowings will
be available under the Senior Credit Facilities to enable the Company to
service its indebtedness, including the Notes, or make anticipated capital
expenditures. The Company's future operating performance and ability to
service or refinance the Notes and to extend or refinance the Senior Credit
Facilities will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
IMPACT OF INFLATION
The Company believes that its results of operations are not dependent upon
moderate changes in the inflation rate. However, severe increases in inflation
could affect the global and United States economy and could have an impact on
the Company's profitability.
COMPUTER SYSTEMS AND YEAR 2000
The Company is currently developing a plan to insure that its systems and
software infrastructure are Year 2000 compliant. The scheduled implementation
of all phases of the plan is February 1998. Given the relatively small size of
the Company's systems and the predominately new hardware, software and
operating systems, management does not anticipate any significant delays in
becoming Year 2000 compliant. However, the Company is unable to control
whether its customers' and suppliers' systems are Year 2000 compliant. To the
extent that customers would be unable to order product or pay invoices or
suppliers would be unable to manufacture and ship product, it could affect the
Company's operations.
CHANGES IN ACCOUNTING PRINCIPLES
FASB has also issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information." Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for the Company's year
ending December 31, 1998. The Company has not determined if the effect of the
adoption of this Statement would require the Company to report industry
segments.
38
<PAGE>
THE INDUSTRY
TECHNICAL OVERVIEW
PCBs serve as the foundation of almost all electronic products, providing
the circuitry and mounting surfaces necessary to interconnect discrete
electronic components, including integrated circuits, capacitors and
resistors. PCBs consist of a pattern of electrical circuitry etched from
copper and laminated to a board made of insulating material, thereby providing
electrical interconnection between the components mounted onto it. PCBs can be
designed as single-sided, double-sided, or multi-layer boards, are
characterized as rigid or flexible depending on their end-use and are designed
to customer specification using computer aided design ("CAD") software. Multi-
layer PCBs consist of stacked boards separated by bonding sheets and pressed
to form a solid board. Electrical connections between the layers are made
using standard plated through-holes (drilled and plated through the whole
board), or by vias (plated holes between two or more layers). To meet
increasing demand among OEMs and contract manufacturers, PCB manufacturers
have developed more complex multi-layer designs with surface mount and other
attachment technologies, narrower widths and separations of copper traces,
advanced materials (such as Teflon), and small diameters of vias and through-
holes to connect internal circuitry. Changes in the industry are predominantly
evolutionary rather than revolutionary and many of the production processes
and technologies used today were first developed more than 10 years ago.
MARKET SEGMENTATION AND GROWTH
As electronic products have become smaller and more complex, the manufacture
of PCBs has required increasingly sophisticated engineering and manufacturing
expertise. These advanced manufacturing processes and technology requirements
have caused OEMs to rely increasingly on independent or merchant manufacturers
and to reduce dependence on their own internal captive facilities. It is
estimated that in 1996 independent or merchant manufacturers served 87% of the
domestic PCB market, an increase from 71% in 1992.
The worldwide PCB market, including both captive and merchant PCB
production, generated approximately $30.4 billion of revenue in 1996. The U.S.
accounted for approximately 27% of the worldwide market, or $8.3 billion. As
described above, approximately 87% of the domestic market, or $7.2 billion was
supplied by merchant (i.e., non-captive) fabricators. The merchant market is
divided between quick-turn and long-lead manufacturers. Of the $7.2 billion of
domestic merchant production, quick-turn PCBs accounted for 21% or
approximately $1.5 billion. Quick-turn PCBs, which are defined as printed
circuit boards manufactured within 10 days (and as little as 24 hours) in
prototype and pre-production quantities, are used in the design, test and
launch phases of new electronic products. The quick-turn market is
characterized by higher margins, faster growth and greater customer diversity
than the long-lead PCB market. Since 1992, the quick-turn segment has
experienced rapid growth, increasing at a 24% CAGR, twice the rate for the
overall domestic PCB industry. Long-lead PCBs, defined as those with delivery
lead times in excess of ten days (and customarily 3-5 weeks), typically have
larger order sizes and are utilized in both the ramp-to-production and full
production phases of electronic product development. The following table
describes the domestic PCB market.
DOMESTIC PCB MARKET SIZE
<TABLE>
<CAPTION>
SHIPMENT VALUE IN BILLIONS OF DOLLARS
-----------------------------------------
1992 1993 1994 1995 1996 CAGR
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Quick-Turn......................... $ 0.6 $ 0.8 $ 1.0 $ 1.2 $ 1.5 24%
Long-Lead.......................... 3.1 3.6 4.2 4.9 5.7 16%
------ ------ ------ ------ ------ -----
Total Merchant................... 3.7 4.4 5.2 6.1 7.2 18%
Captive............................ 1.5 1.5 1.5 1.4 1.1 (8%)
------ ------ ------ ------ ------ -----
Total PCB Market................. $ 5.2 $ 5.9 $ 6.7 $ 7.5 $ 8.3 12%
</TABLE>
39
<PAGE>
The customary evolution of an electronic product results in several phases
of PCB procurement: prototype, pre-production and production. Initially, in
the design and development stage, customers order small lot sizes (1-25
boards) and demand quick-turn delivery ("prototype boards"); in the test-
marketing and product introduction stages, they order low to medium quantities
(up to 5,000 boards) which may or may not require quick-turn delivery ("pre-
production boards"); and in the product roll-out stage, they tend to order
large volumes with lead times in excess of three weeks ("production boards").
Prototype and pre-production boards, the segments in which the Company
competes, command escalating pricing premiums the shorter the lead time and
the greater the board complexity. PCB complexity is determined by layer count,
the use of exotic substrates and materials, the fineness of line spaces and
traces, the incorporation of buried resistors and capacitors, the use of
microvias and numerous other features. By focusing on either time criticality,
board complexity, or both, a PCB fabricator can realize significant pricing
premiums and commensurately higher profitability per PCB than that attainable
in the production segment of the market.
END-USE MARKETS
PCBs are customized for specific electronic applications and are sold to
OEMs and contract manufacturers in volumes that range from smaller quantities
for prototypes and pre-production orders to larger quantities for volume
production. PCBs are used in various end-use markets which include
(i) telecommunications products such as cellular phones, pagers and switching
and transmission equipment; (ii) computers and peripherals such as notebook
and desktop computers, high-end workstations, network servers, modems and
printers; (iii) automotive systems such as ABS traction control, airbag and
electric-powered engines and engine transmission control; (iv) industrial
applications such as optical code-readers and test equipment; and (v) basic
home appliances such as microwave ovens and remote controls.
TRENDS
The PCB industry is characterized by the following trends:
Increasing Complexity of Electronic Products. The increasing complexity of
electronic products has driven technological advancements in PCBs. As this
trend continues, fabricators face increasingly more difficult demands on the
manufacturing process. For example, modern compact and portable designs
feature advanced materials, high layer counts, narrower line widths and spaces
and smaller vias to connect internal circuitry. As a result, manufacturers
must remain at the forefront of both design and manufacturing technologies in
order to be competitive in the prototype and pre-production segments.
Accelerating Product Lifecycles. Rapid advances in technology and increasing
competitive pressures are shortening product lifecycles and forcing electronic
OEMs to develop and bring new products to market faster. This has resulted in
OEMs viewing "speed to market" as a key competitive advantage causing them to
partner with suppliers that can consistently deliver highly reliable product
under demanding time constraints. This trend is a key driver of growth in the
quick-turn market.
Consolidating Industry. The domestic PCB industry is highly fragmented with
approximately 600 active fabricators. Although the industry has experienced
significant consolidation in the last four years, declining 37% from the
approximately 950 manufacturers in 1992, the top eight manufacturers still
only account for approximately 25% of industry sales in 1996. Consolidation in
the industry is driven by (i) growing demand by electronic OEMs for both
increasingly complex PCBs and shortened delivery cycles which mandates
sophisticated design, engineering and manufacturing capabilities; (ii) ongoing
outsourcing by electronic OEMs; and (iii) increasing desire by OEMs to use
fewer suppliers.
40
<PAGE>
BUSINESS
GENERAL
Details is a leading manufacturer and marketer of complex printed circuit
boards for the time critical or "quick-turn" segment of the domestic PCB
industry. Printed circuit boards are the basic platforms used to interconnect
microprocessors, integrated circuits, and other components essential to the
functioning of virtually all electronic products. Quick-turn PCBs, which are
defined as printed circuit boards manufactured within 10 days (and as little
as 24 hours) in prototype and pre-production quantities, are used in the
design, test and launch phases of new electronic products. The quick-turn
market is characterized by higher margins, faster growth and greater customer
diversity than the long-lead market. Approximately 70% of the Company's year-
to-date sales are quick-turn PCBs. Complex PCBs are those employing difficult
to manufacture specifications such as high layer counts, dense circuitry
designs, and exotic materials. Such boards command escalating pricing premiums
the greater the complexity. The Company's advanced engineering capability
enables it to produce boards with up to 40 layers employing leading edge
fabrication technologies. The Company supplies over 300 customers in a wide
range of end-use markets including the telecommunications, computer, contract
manufacturing, industrial instrumentation, and consumer electronics
industries. On a pro forma basis for the twelve months ended September 30,
1997, the Company's net sales and adjusted EBITDA would have been $73.9
million and $31.6 million, respectively.
Since the installation of a new management team in 1992, the Company has
successfully increased its sales and profitability and diversified its
customer base by strategically focusing on the quick-turn PCB market. Because
of its superior ability to deliver complex boards in short time frames with a
high degree of reliability, management believes that the Company plays a
uniquely mission critical role in facilitating its customers' "time-to-market"
efforts. Such efforts have become increasingly important in light of the
electronic industry's trends toward shortened product lifecycles and increased
competitiveness. As a result of this strategic shift, the Company has grown
net sales at a CAGR of 25% from $25.8 million in the fiscal year ended
December 31, 1992 to $73.9 million for the twelve months ended September 30,
1997. In the same time frame, the Company has grown adjusted pro forma EBITDA
at a 27% CAGR from $10.0 million to $31.6 million. As a result of the
Recapitalization, management owns stock and options for approximately 27.5% of
the fully-diluted capital stock of Holdings. Such equity ownership represents
a significant economic commitment to, and participation in, the Company.
COMPETITIVE STRENGTHS
The Company believes that it has several competitive advantages in the PCB
industry, including:
Quick-Turn Market Leader. The Company is one of the largest manufacturers of
quick-turn PCBs in the United States, with approximately 70% of its year-to-
date sales derived from quick-turn products. The Company believes it is among
a select few manufacturers that can routinely complete complex orders in less
than 24 hours. The Company believes that its superior engineering expertise,
ability to produce highly complex PCBs, and consistent record of reliable
service, product quality and on-time performance give it a competitive
advantage in the quick-turn market.
Leading Technological Capabilities. The Company believes that it is an
industry leader in the engineering of advanced PCB materials and technologies
that maximize performance and board density. Customers utilize the
technological expertise of Details' 66 front-end engineers throughout the
product development effort to achieve an integrated cost-effective
manufacturing effort. The Company
41
<PAGE>
has the ability to produce boards with up to 40 layers, and approximately 40%
of its sales year-to-date included boards with layer counts of 8 or more. The
Company consistently delivers dependable, high quality products with an on-
time delivery record of approximately 97%. The Company believes its ability to
improve customer board designs for enhanced manufacturing efficiency
differentiates it from its competition.
Diverse and Loyal Customer Base. The Company believes that it has one of the
broadest customer bases in the industry, with more than 300 customers serving
a wide range of end-use markets. Year-to-date, the Company's largest customer
accounted for less than 11% of revenue. In addition, the Company has been
successful at retaining customers. For example, the Company has maintained a
relationship with its top three year-to-date customers--Motorola, Intel and
IBM--since at least 1993. Details believes that its ability to rapidly respond
to changes in demand for new or modified board designs with consistent high
quality is a major factor in its success at creating customer partnerships.
The Company's customer list includes leading manufacturers of
telecommunications equipment, such as Motorola and Qualcomm; computer
workstations and servers, such as IBM and Silicon Graphics; semi-conductor
fabrication such as Intel; industrial products, such as Caterpillar and Delco;
computer assemblers, such as Dell and Compaq; and contract manufacturing firms
such as SCI and Jabil.
Experienced Management Team with Significant Equity Ownership. The Company's
President, Bruce McMaster, has a total of 16 years of experience in the PCB
industry. Mr. McMaster, together with the other members of his senior
management team--Lee Muse (Vice President of Sales and Marketing), Joseph
Gisch (Chief Financial Officer), Terry Wright (Vice President of Engineering),
and Michael Moisan (Vice President of Operations)--have over 70 years of
industry experience and approximately 30 years with the Company. Since 1992,
management has successfully developed and implemented manufacturing and
marketing strategies which have resulted in a compound annual growth rate in
net sales of 25% from the fiscal year ended December 31, 1992 to the twelve
months ended September 30, 1997. As a result of the Recapitalization,
management owns stock and options for approximately 27.5% of the fully-diluted
capital stock of Holdings. Such equity ownership represents a significant
economic commitment to, and participation in the Company.
BUSINESS STRATEGY
The Company's goal is to maintain its growth rate in sales and profitability
by leveraging its quick-turnaround capability, its market leading technology,
and its large customer base to increase its penetration of value-added market
segments. In order to accomplish its goal, the Company intends to:
Increase Technical Leadership in Quick-Turn Segment. The Company intends to
extend its leadership in the quick-turn segment by continuing to provide
consistent, rapid delivery through leading-edge processes and technology.
Currently, the Company is capable of delivering 12- layer boards in as little
as 24 hours which it believes is among the fastest of any current industry
participant. Moreover, the Company had a less than 1% product return rate for
the nine months ended September 30, 1997 which it believes is among the lowest
in the quick-turn segment. Such performance is largely due to the technology
and processes employed by the Company coupled with its engineering expertise
and customized design and development services. The Company intends to
maintain its focus on improving quality and delivery times by incorporating
emerging technologies and by continuously improving its manufacturing
processes.
Cross-Sell Pre-Production to Quick-Turn Customers. The Company believes
there are substantial opportunities to leverage its strong customer relations
in the quick-turn segment by cross-selling 10 to 20 day pre-production volume
to its existing customers. Recognizing OEMs' desire to
42
<PAGE>
simplify their supplier chain, the Company aims to offer customers a more
efficient production solution which will (i) reduce customers' tooling costs,
(ii) eliminate supplier switching risk, and (iii) shorten its customers'
"time-to-market." In furtherance of this initiative, the Company continues to
make investments in capital equipment, engineering capability and systems
infrastructure.
Achieve International Presence. The Company believes there are substantial
opportunities to satisfy international demand for time-critical, complex PCBs.
Year-to-date, approximately 94% of the Company's revenues were generated
domestically despite the fact that the U.S. accounts for only 27% of the
worldwide market. In particular, the Company has established a sales office in
the United Kingdom to service existing European customers' needs and to
broaden the Company's European presence. The Company is currently developing a
manufacturers' representative arrangement in Singapore as an entry into the
Asian market.
Pursue Selective Acquisitions. The Company is currently pursuing selective
acquisitions to complement its organic growth. Due to the high degree of
fragmentation in the PCB industry, the Company believes substantial
consolidation opportunities exist. Consequently, the Company is actively
seeking acquisitions which will: (i) increase its 10 to 20 day pre-production
capacity, (ii) expand its international geographic coverage, (iii) strengthen
its position in existing markets, (iv) provide significant profit improvement
opportunities through the application of the Company's superior operating
capabilities, and (v) enhance its technology base. The Company is currently in
discussions with several potential acquisition candidates but has not entered
into any agreements or understandings with third parties.
PRODUCTS AND SERVICES
The majority of the Company's business consists of building printed circuit
boards for sophisticated electronics products on a quick-turn delivery basis
and involves working closely with its customers from the initial design stage
through product development and launch. The Company's product offering
includes boards using super-fine line spaces and traces, buried resistors and
capacitors, microvias and a wide range of substrates and materials. All of the
Company's products are manufactured to customer order. The Company's PCBs are
utilized in cellular phones, telecommunications equipment, computer networking
equipment, medical devices, sophisticated industrial equipment and other high
growth electronic applications. In addition to direct sales to OEMs, the
Company sells to contract manufacturers and is a turnkey supplier in the event
of product shortages.
The Company provides design and engineering assistance in the early stages
of product development to ensure that both mechanical and electrical
considerations are integrated into a cost-effective manufacturing solution. In
doing so, the Company often recommends design changes to its customers to
reduce manufacturing costs and lead times or to increase manufacturing yields
and the quality of the finished product. The Company believes that this long-
term view of manufacturing and customer relationships distinguishes it from
many of its competitors in the quick-turn market. This cooperative approach
further enables the Company to gain valuable insight into the future
technology requirements of its customers and to obtain opportunities for
subsequent prototype and pre-production business.
MANUFACTURING
The production of complex printed circuit boards is an extensive and
sequential process. A variety of manufacturing operations are utilized,
including: (i) graphic operations such as photoprinting, screen printing, and
phototool generation; (ii) chemical operations such as copper deposition,
electroplating and etching; (iii) mechanical operations such as lamination,
drilling and routing; and (iv) electronic operations such as computer-aided
manufacturing ("CAM"), automated optical inspection, and electrical testing.
Management believes that the highly specialized equipment it uses is among the
most advanced in the industry.
43
<PAGE>
Details utilizes a number of advanced processes and technologies, including
direct chip attached, multichip module-laminate, ball grid array, chip on
board, tape automated bonding, flip chip, and high density interface. Details
also maintains the capability to produce less sophisticated plate-through-hole
circuit ("PTH") boards. The Company's engineering operations consist of 89
engineering professionals (including 66 front-end) dedicated to improving the
design and functionality of its customers' products. The Company utilizes
state-of-the-art equipment to implement advanced technologies such as high
density interface (microvias), blind and buried vias, buried capacitors and
resistors, electroless gold (wire bond), and controlled and differential
impedance to meet customer specifications. The Company is qualified under
various industry standards for the manufacture of PCBs. Such qualifications
include Bellcore compliance for telecommunications products and UL
(Underwriters Laboratories) approval for electronics. In addition, all of the
Company's facilities are ISO-9002 certified.
The Company seeks to maximize the use of its manufacturing capacity. This
requires efficient management of time-critical production schedules. In
addition, the Company opportunistically augments its quick-turn capacity with
pre-production and longer-lead orders. The majority of engineering and
manufacturing takes place at the Company's facilities in Anaheim, California.
Research and development and longer term manufacturing jobs are carried out in
a nearby facility in Placentia, California.
TECHNOLOGY, DEVELOPMENT AND PROCESSES
The Company maintains a strong commitment to research and development,
focusing its efforts on enhancing existing capabilities as well as developing
new technologies. The Company's staff of over 80 experienced engineers,
chemists and laboratory technicians works in conjunction with the Company's
sales staff to identify specific needs and develop innovative, high
performance solutions to customer issues. This method of product development
allows customers to augment their own internal development teams while
providing Details with the opportunity to gain an in-depth understanding of
its customers' businesses, thereby enabling it to better anticipate and serve
their future needs.
The market for the Company's products and services is characterized by
rapidly changing technology and continuing process development. The future
success of the Company's business will depend in large part upon its ability
to maintain and enhance its technological capabilities, develop and market
products and services that meet changing customer needs, and successfully
anticipate or respond to technological changes on a cost-effective and timely
basis. See "Risk Factors--Technological Change and Process Development."
SALES AND MARKETING
Marketing Strategy. The Company's marketing strategy focuses on developing
close working relationships with its customers early in the design phase and
throughout the lifecycle of the product. Accordingly, the Company's senior
management personnel and engineering staff advise customers with respect to
applicable technology, manufacturability of designs, and cost implications
through on-line computer technical support, conference calls, and customer
visits. Details has focused its marketing efforts on developing long-term
relationships with key customers in high growth segments of the electronics
industry.
Sales Force. The Company markets its products and manufacturing services
through an expansive network consisting of 12 top representative organizations
with 60 manufacturers' representatives across the country complemented by a
direct sales force of 16 individuals. Approximately 87% of the Company's net
sales in the fiscal year ended December 31, 1996 were generated through
manufacturers' representatives and 13% through its direct sales force. For
many of these representatives, Details is their largest revenue source and
their exclusive prototype supplier.
44
<PAGE>
The Company's representative network covers the entire United States and has
recently expanded to Europe and Asia. The Company's marketing methodology of
introducing its capabilities and providing technical support to customers
requires extensive interaction with its customers. Consequently, the Company
augments the manufacturer's representatives network's sales efforts by
providing extensive marketing, engineering and technical support. The Company
utilizes fully trained sales representatives and its own engineering force to
provide customer service during all aspects of pre-production and prototype
board fabrication.
MARKETS AND CUSTOMERS
The Company believes that it has one of the broadest customer bases in the
industry, with more than 300 customers consisting primarily of leading OEMs
and contract manufacturers in a wide range of end-use markets. The Company's
customers principally consist of telecommunications, industrial and business
computers companies, as well as medical, semiconductor equipment and
manufacturers. During the nine months ended September 30, 1997, sales to the
Company's largest customer, Motorola, accounted for 10.9% of the Company's net
revenues. Sales to the Company's two largest customers accounted for 20.4% of
the Company's net revenues during the nine months ended September 30, 1997 and
sales to its ten largest customers accounted for approximately 48.4% during
the same period. The Company's customer list includes leading manufacturers of
telecommunications equipment, such as Motorola and Qualcomm; computer
workstations and servers, such as IBM and Silicon Graphics; semiconductor
fabrication such as Intel; industrial products, such as Caterpillar and Delco;
computer assemblers, such as Dell and Compaq; and contract manufacturing firms
such as SCI and Jabil. The Company has been successful at retaining customers.
For example, the Company has maintained a relationship with its top three
year-to-date customers--Motorola, Intel and IBM--since at least 1993. The
Company's active customer base (defined as customers who have placed orders
within the month) has increased from an average of 122 in 1994 to the current
average of 149 customers per month. The Company believes that its ability to
rapidly respond to changes in demand for new or modified board designs with
consistent high quality is a major factor in building customer partnerships.
The following table shows, for the periods indicated, the Company's sales
and the percentage of its sales in each of the principal end-user markets it
serves for the fiscal years ended December 31, 1994 through 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER
31,
-------------------------------
MARKETS 1994 1995 1996
- ------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Telecommunications..................... $12.0 27% $21.5 36% $20.7 30%
Computer............................... 13.2 30 18.1 30 24.9 37
Automotive and Industrial.............. 3.6 8 2.2 4 2.7 4
Turnkey................................ 3.8 9 11.1 19 6.6 10
Governmental Aerospace................. 1.4 3 3.0 5 3.0 4
Other.................................. 10.2 23 3.9 6 10.2 15
----- --- ----- --- ----- ---
Total (1)............................ $44.2 100% $59.8 100% $68.1 100%
===== === ===== === ===== ===
</TABLE>
- --------
(1)Sales include shipping charges and sales taxes not reflected in the
Company's financial statements as net sales.
The Company's core strategy is focused on serving the domestic quick-turn
PCB market. It has broad national coverage and services customers in all
regions of the country. The Company is also expanding internationally, and has
recently opened an office in London, England staffed with three individuals.
In addition, the Company is currently developing a manufacturers'
representative arrangement in Singapore as an entry into the Asian market.
45
<PAGE>
SUPPLIERS
The Company's raw materials inventory is small in comparison to sales and
must be regularly and rapidly replenished. The Company uses "just-in-time"
procurement practices to maintain its raw materials inventory at low levels
and works closely with its suppliers to incorporate technological advances in
the raw materials it purchases. Although the Company prefers certain suppliers
for some raw materials, multiple sources exist for all materials. Adequate
amounts of all raw materials have been available in the past and the Company
believes this will continue in the foreseeable future.
The primary raw materials used by the Company in its manufacturing process
are core materials (copperclad layers of fiberglass of varying thickness
impregnated with bonding materials), chemical solutions (copper, gold, etc.)
for plating operations, photographic film, carbide drill bits, and other
supplies such as copper anodes which are used in plating operations.
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition. Details principally competes with independent and captive
manufacturers of complex and quick-turn PCBs. The Company's principal
competitors include other independent, small private companies and integrated
subsidiaries of more broadly based volume producers. Some of the Company's
principal competitors are less highly-leveraged than the Company and may have
greater financial and operating flexibility. Moreover, the Company may face
additional competitive pressures as a result of changes in technology.
Competition in the complex and quick-turn PCB industry has increased due to
the consolidation trend in the industry, which results in potentially better
capitalized and more effective competitors. The Company's basic technology is
generally not subject to significant proprietary protection, and companies
with significant resources or international operations may enter the market.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. See "Risk
Factors--Competition."
FACILITIES
Details conducts its operations within 14 adjacent buildings, located in
Anaheim, California, totalling 73,000 square feet. Existing leases have a
remaining term of 8 years with an option to renew for 10 years or to purchase
at fair market value upon expiration. These lease arrangements have been
entered into with the Swenson Family Trust, which is controlled by the
Company's founder and former shareholder, James I. Swenson and his wife. Most
operations, including management, marketing, manufacturing, testing and
shipping, are housed in this building complex. The Company also leases a 5,000
square foot facility located in Placentia, California approximately one mile
from the main facility complex, which is used for research and development and
longer-lead time production volumes. The Company believes that its facilities
are adequate to support its current operations. See "Certain Relationships and
Related Transactions."
EMPLOYEES
As of October 1, 1997, the Company has approximately 417 employees, none of
whom are represented by unions. The Company has not experienced any labor
problems resulting in a work stoppage and believes it has good relations with
its employees.
ENVIRONMENTAL MATTERS
The Company utilizes various chemicals in its plating operations (copper
sulfate, sulfuric acid, nitric acid, hydrochloric acid, and ammonia agents)
which are carefully monitored to assure compliance
46
<PAGE>
with EPA requirements. Other chemicals are used in the laminate processes, but
are usually impregnated in raw materials and do not create toxic exposures.
Proper waste disposal and environmental regulations are major considerations
for PCB manufacturers because of the metals and chemicals used in the
manufacturing process.
Although the Company believes that its facilities are currently in material
compliance with applicable environmental laws, and it monitors its operations
to avoid violations arising from human error or equipment failures, there can
be no assurance that violations will not occur. In the event of a violation of
environmental laws, the Company could be held liable for damages and for the
costs of remedial actions and could also be subject to revocation of its
affluent discharge permits. Any such revocations could require the Company to
cease or limit production at one or more of its facilities, thereby having a
material adverse effect on the Company's operations. Environmental laws could
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. See "Risk Factors--Environmental Matters."
LEGAL PROCEEDINGS
The Company is a party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these
legal actions will not have a material adverse effect on the Company's
financial position or results of operations.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Directors
and executive officers of the Company, Details Capital and Holdings following
the Recapitalization and the incorporation of the Company and Details Capital,
including their respective ages, as of November 25, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bruce D. McMaster................ 36 President and Director of Holdings,
Details Capital and Details
Joseph P. Gisch.................. 41 Chief Financial Officer of Holdings,
Details Capital and Details
Lee W. Muse, Jr. ................ 41 Vice President--Sales and Marketing of
Holdings, Details Capital and
Details
Terry L. Wright.................. 38 Vice President--Engineering of Holdings,
Details Capital and Details
Michael P. Moisan................ 43 Vice President--Operations of Holdings,
Details Capital and Details
Stephen M. Zide.................. 37 Vice President and Director of Holdings,
Details Capital and Details
Christopher Behrens.............. 36 Director of Holdings, Details Capital and
Details
Edward W. Conard................. 41 Director of Holdings, Details Capital and
Details
Prescott Ashe.................... 30 Director of Holdings, Details Capital and
Details
</TABLE>
Bruce D. McMaster joined Details in 1985 and has served as President since
1991 and as a Director since the Recapitalization. Prior to joining the
Company, Mr. McMaster was employed by Multiplex, Inc., a PCB manufacturer,
where he was Production Supervisor for its factory.
Joseph P. Gisch has served as Chief Financial Officer since 1995. Prior to
1995, Mr. Gisch was a partner at the accounting firm of McGladrey & Pullen,
LLP where he was responsible for the audit, accounting and information systems
for a variety of manufacturing clients. Mr. Gisch was responsible for general
accounting and income tax matters for Details. Mr. Gisch has not been
responsible for any audit services for Details since 1991.
Lee W. Muse, Jr. joined Details in 1989 and has served as Vice President,
Sales and Marketing since 1992. Prior to 1989, Mr. Muse was employed by Metro-
Circuits, Inc., a PCB manufacturer, where he served as both the East and West
Coast Regional Sales Manager.
Terry L. Wright joined Details in 1991 and has served as Vice President,
Engineering since 1995. Prior to 1991, Mr. Wright was employed as a general
manager at the circuit board manufacturer, Applied Circuit Solutions, Inc.
Michael P. Moisan has been Vice President, Operations since 1996. Prior to
joining Details in October 1996, Mr. Moisan was employed by Circuit-Wise,
Inc., a PCB manufacturer, as Director of Technology & Engineering. From 1987
to 1995 Mr. Moisan was employed by AMP-AKZO, Inc., a PCB manufacturer, most
recently as Director of Operations.
Edward W. Conard has served as a Director since the Recapitalization. He has
been a Managing Director of Bain Capital, Inc. since March 1993. From 1990 to
1992, Mr. Conard was a director of Wasserstein Perella, an investment banking
firm that specializes in mergers and acquisitions. Previously, he was a Vice
President at Bain & Company, where he headed the firm's operations practice
area. Mr. Conard also serves as a director of Waters Corporation.
48
<PAGE>
Stephen M. Zide has served as Vice President and a Director since the
Recapitalization. Mr. Zide has been an Associate at Bain Capital, Inc. since
August 1997. Previously, he was a partner at the law firm of Kirkland & Ellis
from 1992 to 1995.
Christopher Behrens has served as a Director since the Recapitalization. He
has been a Principal of Chase Capital Partners since 1994. Prior to joining
Chase Capital Partners ("CCP"), Mr. Behrens was a Vice President in the
Merchant Banking Group of The Chase Manhattan Bank ("Chase") from 1990 to
1994. Mr. Behrens is also a director of Portola Packaging and The Pantry in
addition to numerous private companies.
Prescott Ashe has served as a Director since the Recapitalization. Mr. Ashe
has been an Associate at Bain Capital, Inc. since December 1992. Previously,
he worked as an analyst at Bain Capital, Inc. and as a consultant at Bain &
Company.
At present, all Directors are elected and serve until a successor is duly
elected and qualified or until the earlier of his death, resignation or
removal. All members of the Board of Directors of Holdings set forth herein
were elected by class vote pursuant to Holdings' Articles of Incorporation.
There are no family relationships between any of the Directors or executive
officers of Holdings, Details Capital or the Company. Executive officers of
Holdings, Details Capital and the Company are elected by and serve at the
discretion of their respective boards of directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
the fiscal year ended December 31, 1996 of Mr. Swenson, the former CEO of
Holdings, and the four other most highly compensated executive officers of
Holdings (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS (2) COMPENSATION ($)
- ----------------- ---------- --------- ------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
James I. Swenson(3)..... $611,538 $400,000 -- -- $10,397(4)
Chief Executive Officer
Bruce D. McMaster....... 331,250 300,000 -- 781 --
President
Joseph P. Gisch......... 246,693 50,286 -- 111 --
Chief Financial Officer
Lee W. Muse, Jr. ....... 254,807 300,000 -- 649 --
Vice President, Sales
Terry L. Wright......... 127,502 75,000 -- 162 --
Vice President,
Engineering
</TABLE>
- --------
(1) The perquisites and other benefits paid to each Named Executive Officer
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus received by each Named Executive Officer.
(2) The options represent options to purchase shares of common stock of
Holdings in 1996, prior to the Recapitalization.
(3) Mr. Swenson resigned effective October 28, 1997 in connection with the
Recapitalization and received approximately $1.2 million in connection
with the termination of his employment agreement.
(4) Reflects certain life insurance benefits paid by Holdings on behalf of Mr.
Swenson.
49
<PAGE>
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase common stock of Holdings made to the Named Executive Officers during
the fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
-------------------------------------- ---------------------
NUMBER OF % OF TOTAL EXERCISE
OPTIONS OPTIONS TO PRICE EXPIRATION
NAME GRANTED (1)(2)(3) EMPLOYEES ($/SHARE) DATE 5% ($) 10% ($)
- ---- ----------------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James I. Swenson........ -- -- -- -- -- --
Bruce D. McMaster....... 781 41.3% $2,179 2006 $1,070,248 $2,712,231
Joseph P. Gisch......... 111 5.9 2,179 2006 152,110 385,477
Lee W. Muse, Jr. ....... 649 34.4 2,179 2006 889,364 2,253,828
Terry L. Wright......... 162 8.6 2,179 2006 221,999 562,589
</TABLE>
- --------
(1) The options represent options to purchase shares of common stock of
Holdings in 1996, prior to the Recapitalization.
(2) Prior to the Recapitalization, upon the exercise of any options and,
following the Recapitalization, upon the exercise of options to acquire
shares of Class L Common (as defined), the Company must pay to the
optionee a bonus in an aggregate amount sufficient to enable the optionee
to satisfy his federal and state income tax liability attributable to such
exercise and bonus (subject to certain limitations).
(3) In connection with the Recapitalization: (i) unvested options to purchase
328.6 shares of common stock held by the Named Executive Officers became
vested and converted into options to purchase approximately 74,279 shares
of Class A Common at an exercise price of $0.9639 per share and options to
purchase approximately 9,181 shares of Class L Common at an exercise price
of $70.1858 per share; (ii) of the remaining options to purchase 1,374.4
shares of common stock, approximately 1,203.7 were exercised and converted
into the right to receive cash and approximately 170.7 were exercised and
converted into approximately 38,583 shares of Class A Common Stock of
Holdings, without par value ("Class A Common"), and 4,769 shares of Class
L Common Stock of Holdings, without par value ("Class L Common"); (iii)
the Named Executive Officers received a bonus payment of $10 million in
the aggregate from the Company; and (iv) the Named Executive Officers
employed by the Company after the Recapitalization received an aggregate
bonus of approximately $2.4 million, which amount is payable on the third
anniversary of the Recapitalization whether or not such Named Executive
Officer is still employed by the Company.
(4) In the nine months ended September 30, 1997, the Company recorded a non-
cash charge against earnings of approximately $2.9 million in connection
with stock compensation and related bonuses under the 1996 Stock Option
Plan. The Company estimates that an additional non-cash charge of
approximately $15.9 million will be incurred in the fourth quarter of 1997
in connection with the Recapitalization and the 1996 Stock Option Plan.
EMPLOYMENT AGREEMENTS
Mr. McMaster is currently employed as President of the Company pursuant to
an agreement dated September 1, 1995, as amended, effective until October 28,
2000. Under this agreement, Mr. McMaster is entitled to receive an annual
salary of $375,000 in 1997, $425,000 in 1998 and $450,000 in 1999. In
addition, Mr. McMaster is eligible for an annual bonus based upon the
achievement of EBITDA targets and received an award, pursuant to the
agreement, of 4,747.009 shares of Class A Common, on the Recapitalization
closing date. Mr. McMaster's employment agreement contains
50
<PAGE>
customary confidentiality provisions and a non-compete clause effective for
the duration of the term of the agreement. In addition, Mr. McMaster will be
entitled to receive an additional bonus of $1,088,558.35 in consideration of
prior services which will be payable on the third anniversary of the
Recapitalization whether or not he is still employed by the Company.
Mr. Gisch is currently employed as Chief Financial Officer of the Company
pursuant to an agreement dated September 19, 1995, as amended, effective until
October 28, 2000. Under this agreement, Mr. Gisch is entitled to receive an
annual salary of $252,000 in 1997, $265,000 in 1998 and $275,000 in 1999. In
addition, Mr. Gisch is eligible for an annual bonus based upon the achievement
of EBITDA targets and received an award, pursuant to the agreement, of
676.7889 shares of Class A Common on the Recapitalization closing date. Mr.
Gisch's employment agreement contains customary confidentiality provisions. In
addition, Mr. Gisch will be entitled to receive an additional bonus of
$155,197.52 in consideration of prior services which will be payable on the
third anniversary of the Recapitalization whether or not he is still employed
by the Company.
Mr. Muse is currently employed as Vice President--Sales and Marketing of the
Company pursuant to an agreement dated September 1, 1995, as amended,
effective until October 28, 2000. Under this agreement, Mr. Muse is entitled
to receive an annual salary of $300,000 in 1997, $350,000 in 1998 and $375,000
in 1999. In addition, Mr. Muse is eligible for an annual bonus based upon the
achievement of EBITDA targets and received an award, pursuant to the
agreement, of 3,950.0435 shares of Class A Common on the Recapitalization
closing date. Mr. Muse's employment agreement contains customary
confidentiality provisions and a non-compete clause effective for the duration
of the term of the agreement. In addition, Mr. Muse will be entitled to
receive an additional bonus of $905,802.38 in consideration of prior services
which will be payable on the third anniversary of the Recapitalization whether
or not he is still employed by the Company.
Mr. Wright is currently employed as Vice President--Engineering of the
Company pursuant to an agreement dated September 1, 1995, as amended,
effective until October 28, 2000. Under this agreement, Mr. Wright is entitled
to receive an annual salary of $140,000 in 1997, $155,000 in 1998 and $170,000
in 1999. In addition, Mr. Wright is eligible for an annual bonus based upon
the achievement of EBITDA targets and received an award, pursuant to the
agreement, of 993.0454 shares of Class A Common on the Recapitalization
closing date. Mr. Wright's employment agreement contains customary
confidentiality provisions and a non-compete clause effective for the duration
of the term of the agreement. In addition, Mr. Wright will be entitled to
receive an additional bonus of $227,719.73 in consideration of prior services
which will be payable on the third anniversary of the Recapitalization whether
or not he is still employed by the Company.
COMPENSATION OF DIRECTORS
During 1996 and 1997 until the closing date of the Recapitalization, outside
Directors of Holdings received $2,500 per meeting attended for serving on the
Board of Directors of Holdings and were reimbursed for their out-of-pocket
expenses incurred in connection with attending board meetings. The Company,
Details Capital and Holdings currently pay no compensation to their
independent directors, and pay no additional remuneration to their employees
or to executives of the Company, Details Capital or Holdings for serving as
directors.
STOCK OPTION PLANS AND RELATED TRANSACTIONS
Prior to the Recapitalization, the Company had two stock option plans, (i)
the 1996 Performance Stock Option Plan (the "1996 Stock Option Plan") under
which the Board was authorized to sell or otherwise issue options to acquire
up to 1,809 shares of the Company's common stock in such quantity, at such
price, on such terms and subject to such conditions as established by the
Board, and (ii) the 1996 Employee Stock Option Plan (the "1996 Employee Plan")
under which the Board was authorized
51
<PAGE>
to sell or otherwise issue options to acquire up to 260 shares of the
Company's common stock in such quantity, at such price, on such terms and
subject to such conditions as established by the Board. Under the 1996 Stock
Option Plan, the Board had granted options to acquire 1,703 shares of the
Company's common stock and, under the 1996 Employee Plan, the Board had
granted options to acquire 247 shares of the Company's common stock, in each
case, at an exercise price of $2,179 per share.
In connection with the Recapitalization, the Board accelerated the vesting
of all of the unvested options as of the closing date of the Recapitalization
and (i) of the 1,703 options granted under the 1996 Stock Option Plan, 1,374.4
were exercised and the remaining 328.6 continue outstanding, and (ii) of the
247 options granted under the 1996 Employee Plan, 64.2 were canceled and
redeemed and 182.8 continue outstanding. In accordance with the provisions of
the respective plans, upon the effectiveness of the amendment of the Company's
Articles of Incorporation in connection with the Recapitalization, the holder
of each outstanding option became entitled to purchase 226.0362 shares of
Class A Common at an exercise price of $0.9639 per share and 27.9371 shares of
Class L Common at an exercise price of $70.1858 per share. Shortly after the
Recapitalization, each of the Named Executive Officers elected to exercise his
remaining options to acquire shares of Class A Common under the 1996 Stock
Option Plan. The Company loaned to each Named Executive Officer sufficient
funds to satisfy the exercise price of such options. Immediately after the
Recapitalization, the Board of Directors adopted, and the stockholders
approved, the 1997 Details, Inc. Equity Incentive Plan (the "1997 Stock Option
Plan" and, together with the 1996 Stock Option Plan and the 1996 Employee
Plan, collectively, the "Stock Option Plans") which authorizes the granting of
stock options and the sale of Class A Common to current or future employees,
directors, consultants or advisors of Holdings or its subsidiaries. The Board
is authorized to sell or otherwise issue Class A Common at any time prior to
the termination of the 1997 Stock Option Plan in such quantity, at such price,
on such terms and subject to such conditions as established by the Board up to
an aggregate of 235,000 shares of Class A Common, subject to adjustment upon
the occurrence of certain events to prevent any dilution or expansion of the
rights of participants that might otherwise result from the occurrence of such
events. Currently there are approximately 10,021 shares of Class A Common
available for grant under the 1997 Stock Option Plan. Pursuant to the
Recapitalization Agreement, the Named Executive Officers (i) received
approximately $89.1 million, subject to adjustment, in cash in exchange for
shares and options of Holdings held by such Named Executive Officers that were
repurchased in the Recapitalization, (ii) received options with a net
realizable value of $3.0 million, and (iii) retained common stock of Holdings
with a value of approximately $11.3 million.
Options to purchase an aggregate of 112,489.4228 shares of Class A Common at
an exercise price of $61.17 per share were granted and 112,489.4228 shares of
Class A Common restricted stock were made available at $5 per share to the
Named Executive Officers under the 1997 Stock Option Plan in connection with
the Recapitalization. The restricted stock and options vest in equal monthly
increments over a four year period from the date of grant or issue, subject to
earlier vesting upon certain events, including all of such shares vesting
immediately on a sale of the Company. The aggregate exercise price of the
options granted under the 1997 Stock Option Plan in connection with the
Recapitalization is approximately $6.9 million. Subsequent to the
Recapitalization, the Named Executive Officers purchased an aggregate of
112,489.4228 shares of Class A Common restricted stock at a price of $5 per
share and exercised options to purchase an aggregate of 74,278.5902 shares of
Class A Common with an exercise price of $0.9639 per share. The Company loaned
to each such Named Executive Officer, pursuant to an interest bearing note,
sufficient funds to pay the purchase price and the exercise price with respect
to such shares and options. Mr. McMaster, Mr. Gisch, Mr. Muse and Mr. Wright
received loans of approximately $285,885, $46,856, $224,137 and $77,164 for
the purchase of restricted shares of Class A Common and the exercise of
options to purchase shares of Class A Common. The Company has agreed to permit
the Named Executive Officers to repay their respective loan obligations with
proceeds received as deferred purchase price in connection with the
Recapitalization.
52
<PAGE>
The following table summarizes the shares of capital stock and options that
were acquired by the Named Executive Officers under the 1997 Stock Option Plan
in connection with the Recapitalization:
<TABLE>
<CAPTION>
NO. OF
OPTIONS TO PURCHASE
NO. OF RESTRICTED SHARES SHARES OF
OF CLASS A COMMON AGGREGATE CLASS A COMMON
NAME PURCHASED(1) PURCHASE PRICE(2) GRANTED
- ---- ------------------------ ----------------- -------------------
<S> <C> <C> <C>
James I. Swenson........ -- $ -- --
Bruce D. McMaster....... 50,620.2402 253,101 50,620.2402
Joseph P Gisch.......... 8,436.7067 42,184 8,436.7067
Lee W. Muse, Jr. ....... 39,371.2980 196,856 39,371.2980
Terry L. Wright......... 14,061.1778 70,306 14,061.1778
</TABLE>
- --------
(1) The Company has the right to repurchase the restricted shares of Class A
Common held by a Named Executive Officer for the original purchase price
in the event that the Named Executive Officer ceases to be employed by the
Company.
(2) The Company loaned the aggregate purchase price to each Named Executive
Officer pursuant to an interest bearing note.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the Company's issued and outstanding capital stock is owned by
Details Capital. All of Details Capital's issued and outstanding capital stock
is owned by Holdings. As of November 25, 1997, the outstanding equity
securities of Holdings consisted of 1,924,936.8583 shares of Class A Common
and 208,380.2060 shares of Class L Common. The Class A Common consists of six
separate classes (A-1 through A-6), which have different rights with respect
to the election of directors. All of the shares of Class A Common entitle the
holder to one vote per share on all matters to be voted upon by the
stockholders of Holdings except for Class A-6, which is nonvoting. The Class L
Common is identical to the Class A Common except that the Class L Common is
nonvoting and is entitled to a preference over the Class A Common with respect
to any distribution by Holdings to holders of its capital stock equal to the
original cost of such share ($364.0909) plus an amount which accrues on a
daily basis at a rate of 12% per annum, compounded quarterly. The Class L
Common is convertible into Class A Common upon a vote of a majority of the
holders of the outstanding Class L Common at any time.
The following table sets forth certain information as of November 25, 1997
regarding the beneficial ownership of (i) each class of voting securities of
the Company by each person known to Holdings to own more than 5% of any class
of outstanding voting securities of Holdings, and (ii) the equity securities
of Holdings by each Director of Holdings, each Named Executive Officer and all
of Holdings' directors and executive officers as a group. To the knowledge of
Holdings, each of such stockholders has sole voting and investment power as to
the shares shown unless otherwise noted. Beneficial ownership of the
securities listed in the table has been determined in accordance with the
applicable rules and regulations promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------------
CLASS A COMMON STOCK CLASS L COMMON STOCK
----------------------- -----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
NAME AND ADDRESS OF SHARES OF CLASS OF SHARES OF CLASS
- ---------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Capital Funds (1)......... 960,775.8780 49.9% 118,747.5833 53.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Chase Manhattan Capital,
L.P.(2)....................... 344,036.3778 17.9 42,521.3511 19.1
380 Madison Avenue
12th Floor
New York, New York 10017
DIRECTORS AND EXECUTIVE OFFI-
CERS:
James I. Swenson(3)............ -- -- -- --
Bruce D. McMaster(4)........... 207,004.2630 10.8 18,741.6538 8.4
Joseph P. Gisch(5)............. 29,785.2110 1.6 2,554.9312 1.2
Lee W. Muse(6)................. 148,207.4334 7.7 12,963.4499 5.8
Terry L. Wright(7)............. 39,461.1467 2.1 3,016.5861 1.4
Christopher Behrens(8)......... 344,036.3778 17.9 42,521.3511 19.1
Edward Conard (9).............. 960,775.8780 49.9 118,747.5833 53.3
Stephen M. Zide(10)............ 199,770.7344 10.4 24,683.2317 11.1
Prescott Ashe(10).............. 199,770.7344 10.4 24,683.2317 11.1
All Directors and executive of-
ficers as a group (9 per-
sons)(11)..................... 424,458.0541 22.1 37,276.6210 16.7
</TABLE>
- --------
(1) Includes shares of Class A Common and Class L Common held by Bain Capital
Fund V, L.P., ("Fund V"); Bain Capital Fund V-B, L.P. ("Fund V-B"); BCIP
Associates ("BCIP"); and BCIP Trust Associates, L.P. ("BCIP Trust" and
collectively with Fund V, Fund V-B and BCIP, the "Bain Capital Funds").
54
<PAGE>
(2) CMC is the managing member of DI Investors, L.L.C. and owns a majority of
the interests therein. Accordingly, CMC may be deemed to beneficially own
shares owned by DI Investors, L.L.C. CMC disclaims beneficial ownership
of any such shares in which it does not have a pecuniary interest.
(3) Mr. Swenson's employment with Holdings and the Company terminated on
October 28, 1997.
(4) The shares of Class A Common included in the table include 50,620.2402
shares, which, upon purchase, are subject to vesting and 34,012.2526
shares that can be acquired upon the exercise of outstanding options. The
shares of Class L Common included in the table include 4,203.7617 shares
that can be acquired upon the exercise of outstanding options.
(5) The shares of Class A Common included in the table include 8,436.7067
shares, which, upon purchase, are subject to vesting and 4,849.1820
shares that can be acquired upon the exercise of outstanding options. The
shares of Class L Common included in the table include 599.3371 shares
that can be acquired upon the exercise of outstanding options.
(6) The shares of Class A Common included in the table include 39,371.2980
shares, which, upon purchase, are subject to vesting and 28,302.0008
shares that can be acquired upon the exercise of outstanding options. The
shares of Class L Common included in the table include 3,498.0002 shares
that can be acquired upon the exercise of outstanding options.
(7) The shares of Class A Common included in the table include 14,061.1778
shares, which, upon purchase, are subject to vesting and 7,115.1548
shares that can be acquired upon the exercise of outstanding options. The
shares of Class L Common included in the table include 879.4012 shares
that can be acquired upon the exercise of outstanding options.
(8) Mr. Behrens is a Principal of CCP, the general partner of CMC and,
accordingly, may be deemed to beneficially own shares owned by CMC. Mr.
Behrens disclaims beneficial ownership of any such shares in which he
does not have a pecuniary interest. The address of Mr. Behrens is c/o
Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New
York 10017.
(9) Mr. Conard is Managing Director of Bain Capital, Inc. and a limited
partner of Bain Capital Partners V, L.P., the sole general partner of
Fund V and Fund V-B. Accordingly, Mr. Conard may be deemed to
beneficially own shares owned by Fund V and Fund V-B. Mr. Conard is a
general partner of BCIP and BCIP Trust and, accordingly, may be deemed to
beneficially own shares owned by such funds. Mr. Conard disclaims
beneficial ownership of any such shares in which he does not have a
pecuniary interest. The address of Mr. Conard is c/o Bain Capital, Inc.,
Two Copley Place, Boston, Massachusetts 02116.
(10) The shares of Class A Common and Class L Common included in the table
represent shares held by BCIP. Messrs. Zide and Ashe are each Associates
of Bain Capital, Inc. and are partners of BCIP and limited partners of
BCIP Trust and, accordingly, may be deemed to beneficially own shares
owned by such funds. Each such person disclaims beneficial ownership of
any such shares in which he does not have a pecuniary interest. The
address of each such person is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116.
(11) Excludes shares deemed to be beneficially owned by Messrs. Conard, Zide,
Ashe and Behrens.
55
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summary of the Recapitalization Agreement, the Stockholders
Agreement and the Management Agreement is a description of the material
provisions of these agreements a copy of each of which is filed as an exhibit
to the Exchange Offer Registration Statement.
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contains customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the
conduct of the business prior to the Recapitalization closing date and various
closing conditions, including the obtaining of financing and the continued
accuracy of representations and warranties. In addition, the Company has
agreed to pay to the equity holders immediately prior to the Recapitalization
amounts received as a result of tax benefits realized in connection with the
Recapitalization.
Subject to certain limitations set forth therein, the Recapitalization
Agreement contains indemnification provisions binding on the Company after the
Recapitalization closing date. Specifically, the Company has agreed to
indemnify each stockholder party to the Recapitalization Agreement against any
and all liabilities resulting from (i) any misrepresentation or breach of
warranty made by DIA in the Recapitalization Agreement and (ii) any breach or
default in performance by the Company of any covenant or agreement contained
in the Recapitalization Agreement, after the Recapitalization.
Subject to certain limitations set forth therein, the equity holders
immediately prior to the Recapitalization have agreed to indemnify the Company
and its officers, directors, employees and agents on a pro rata basis against
any and all liabilities resulting from (i) any misrepresentation or breach of
warranty by such stockholders in the Recapitalization Agreement and (ii) any
breach or default in performance by the Company, prior to the Effective Time,
of such covenant or agreement (as described in the Recapitalization
Agreement).
STOCKHOLDERS AGREEMENT
In connection with the Recapitalization, the Bain Capital Funds, Company
management, CMC and all of the other stockholders and optionholders of
Holdings entered into a stockholders agreement (the "Stockholders Agreement"),
that, among other things, provides for tag-along rights, drag-along rights,
registration rights, restrictions on the transfer of shares held by parties to
the Stockholders Agreement and certain preemptive rights for certain
stockholders including the Bain Capital Funds, management and CMC. The
Stockholders Agreement also provides that the parties thereto will vote their
shares in the same manner as the Bain Capital Funds in connection with certain
transactions and that the Bain Capital Funds will be entitled to fix the
number of directors of Holdings. Pursuant to Holdings' charter, the Bain
Capital Funds will be entitled to designate a sufficient number of directors
to maintain a majority of the board of directors of Holdings and each of
management and CMC will be entitled to designate one director.
MANAGEMENT AGREEMENT
Pursuant to a management agreement among Bain Capital Partners V, L.P.
("Bain"), Holdings, and the Company (the "Management Agreement"), Bain is
entitled to a management fee when, and if, it provides advisory services to
Holdings or the Company in connection with potential business acquisitions.
Beginning on the first anniversary of the Recapitalization, Bain may, upon the
request of Holdings or the Company, perform certain management consulting
services at Bain's customary rates plus reimbursement for reasonable out-of-
pocket expenditures. In addition, Bain will receive a fee in an amount which
will approximate 1% of the gross purchase price of any senior financing
transaction for any acquisition, recapitalization or refinancing transaction
(including assumed debt). In connection
56
<PAGE>
with the Recapitalization, Bain received a transaction fee of approximately
$3.1 million. The Management Agreement continues in full force and effect,
unless and until terminated by mutual consent of the parties, or until
terminated as a result of a breach of the Management Agreement. The Management
Agreement includes customary indemnification provisions in favor of Bain.
CERTAIN INTERESTS OF THE FORMER CEO
The Company leases the buildings and certain equipment located at its
Anaheim, California facility pursuant to lease arrangements entered into with
the Swensen Family Trust, a trust controlled by the Company's founder and
former shareholder, James I. Swensen, and his wife. Under the terms of these
leases, the Company pays approximately $104,000 per month in 1997 as base rent
subject to applicable adjustment based upon changes in the consumer price
index. The leases have a remaining term of 8 years with an option to renew for
an additional 10 years or to purchase the property at fair market value upon
expiration. See "Business--Facilities."
57
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITIES
The Company has entered into an agreement with various banks and financial
institutions, including Chase, an affiliate of the Initial Purchaser, as a
bank lender and as agent for the bank lenders party thereto, providing for the
Senior Credit Facilities, which currently consists of (i) the Tranche A
Facility of up to approximately $31.1 million in term loans; (ii) the
acquisition facility (the "Acquisition Facility") of up to $25.0 million which
may be borrowed for a period of up to one year after the closing date of the
Senior Credit Facilities for permitted acquisitions by the Company; (iii) the
Tranche B Facility of up to $50.0 million in term loans; and (iv) the
Revolving Credit Facility of up to $30.0 million in revolving credit loans,
letters of credit and swing line loans.
The Senior Credit Facilities are (i) jointly and severally guaranteed by
Holdings and Details Capital and (ii) secured by all of the stock of the
Company and certain stock of the Company's subsidiaries. Future domestic
subsidiaries of the Company will guarantee the Senior Credit Facilities and
secure that guarantee with their tangible and intangible assets.
The Senior Credit Facilities require the Company to meet certain financial
tests, including without limitation, maximum leverage ratio, minimum interest
coverage and fixed charges coverage and minimum levels of EBITDA. In addition,
the Senior Credit Facilities contain certain negative covenants limiting,
among other things, additional debt, additional liens, transactions with
affiliates, mergers and consolidations, liquidations and dissolutions, sales
of assets, dividends, capital expenditures, investments, loans and advances,
prepayments and modifications of debt instruments and other matters
customarily restricted in such agreements. The Senior Credit Facilities
contain customary events of default, including without limitation, payment
defaults, breaches of representations and warranties, covenant defaults,
certain events of bankruptcy and insolvency, failure of any guaranty or
security document supporting the Senior Credit Facilities to be in full force
and effect, change of control of Holdings and change of ownership of the stock
of the Company.
The Tranche A Facility and any borrowings pursuant to the Acquisition
Facility mature in quarterly installments from September 1998 until October
2003. The Tranche B Facility matures in minimal quarterly installments from
September 1998 until December 2003 at which time the remaining outstanding
loans under the Tranche B Facility become repayable in three equal quarterly
installments with a final payment in October 2004. The Revolving Credit
Facility terminates in October 2003.
The Company's borrowings under the Senior Credit Facilities bear interest at
a floating rate and may be maintained as ABR Loans (as defined in the Senior
Credit Facilities) or, beginning 60 days after the closing date of the Senior
Credit Facilities (or earlier upon syndication) at the Company's option, as
Eurodollar Loans. ABR Loans bear interest at the ABR (defined as the higher of
(x) the applicable prime lending rate of Chase and (y) the Federal Reserve
reported overnight funds rate plus 1/2 of 1%) plus the Applicable Margin (as
defined in the Senior Credit Facilities). Eurodollar Loans shall bear interest
at the Eurodollar Rate (as defined in the Senior Credit Facilities) plus the
Applicable Margin.
The Applicable Margin shall be (a) with respect to the Revolving Credit
Facility, the Acquisition Facility and the Tranche A Facility, (i) 1 1/2%, in
the case of ABR Loans and (ii) 2 1/2%, in the case of Eurodollar Loans and (b)
with respect to the Tranche B Facility, (i) 1 3/4% in the case of ABR Loans
and (ii) 2 3/4%, in the case of Eurodollar Loans. The Applicable Margin with
respect to the Revolving Facility and the Tranche A Facility is subject to
reduction after four fiscal quarters following the closing of the Senior
Credit Facilities in accordance with an agreed upon pricing grid.
The Company is required to pay to the lenders under the Senior Credit
Facilities a commitment fee equal to 1/2 of 1% per annum, payable in arrears
on a quarterly basis, on the average unused portion of the Revolving Credit
Facilities during such quarter (provided that such commitment
58
<PAGE>
fee decreases to 3/8 of 1% per annum if during any quarterly payment period
certain financial ratios relating to interest coverage and leverage are
attained). The Company is required to pay to the lenders a letter of credit
fee with respect to each letter of credit outstanding equal to a floating rate
of interest equal to the Applicable Margin on Eurodollar Loans times the
average daily stated amount of such letter of credit as well as a fronting fee
of 1/4 of 1% on such average daily stated amount.
The Senior Credit Facilities prescribe that certain amounts must be used to
prepay the Term Loan Facilities and reduce commitments under the Revolving
Credit Facility including (a) 100% of the net proceeds of any sale or issuance
of equity or any incurrence of indebtedness after the closing date by the
Company or any of its subsidiaries, except for proceeds of Notes offered
hereby and the Discount Notes to the extent applied to repay the Senior
Subordinated Facility or the Holdings Facility and subject to certain other
exceptions including the retention of equity proceeds under certain
circumstances including for use in acquisitions or the making of capital
expenditures, (b) 100% of the net proceeds of any sale or other disposition by
the Company or any of its subsidiaries of any assets (including casualties or
condemnations), except for the sale of inventory or obsolete or worn-out
property in the ordinary course of business and subject to exceptions for
certain reinvestments and (c) 75% of Excess Cash Flow (as defined in the
Senior Credit Facilities) for each fiscal year of the Company commencing with
the fiscal year ending December 31, 1998, provided, that the foregoing
percentage will be reduced to 50% upon satisfaction of certain financial
ratios. Details repaid approximately $10.3 million of the Term Loan Facilities
with a portion of the proceeds from the Initial Offering.
In general, mandatory prepayments described above will be applied, first to
prepay the Term Loan Facilities (pro rata among the Tranche A Facility and the
Tranche B Facility) and second, to permanently reduce commitments under the
Revolving Credit Facility (with extensions of credit thereunder being prepaid
to the extent the aggregate amount thereof exceeds the Revolving Credit
Facility commitments as so reduced). Prepayments, optional or mandatory of the
Term Loan Facilities will be applied pro rata to the Tranche A Facility and
the Tranche B Facility, and ratably to the respective installments thereof.
Notwithstanding the foregoing, as long as any Tranche A term loans are
outstanding, each holder of Tranche B term loans has the right to refuse all
or any portion of such prepayment allocable to it, and the amount so refused
will be applied to prepay the Tranche A term loans. Any prepayments of the
Term Loan Facilities may not be reborrowed.
59
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes are to be issued under an indenture dated November 18,
1992, (the "Indenture"), between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee"), a copy of which is available upon request
to the Company. The following is a description of the material provisions of
the Indenture, which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus forms a part.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially shall be the corporate trust office of the Trustee in New
York, New York), except that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Note Register.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith. Initially, the Trustee will act as Paying Agent and
Registrar for the Exchange Notes. The Exchange Notes may be presented for
registration of transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to Holders of the Exchange
Notes.
The Exchange Notes are expected to be eligible for trading in the PORTAL
market.
TERMS OF EXCHANGE NOTES
The Exchange Notes will be unsecured, senior subordinated obligations of the
Company, limited to $100 million aggregate principal amount, and will mature
on November 15, 2005. Each Exchange Note will bear interest at the rate per
annum shown on the front cover of this Prospectus from the date of issuance,
or from the most recent date to which interest has been paid or provided for,
payable semi-annually on May 15 and November 15 of each year commencing on May
15, 1998 to holders of record at the close of business on the May 1 or
November 1 immediately preceding the interest payment date.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to November 15, 2001. On and after such date, the Notes will
be redeemable, at the Company's option, in whole or in part, at any time upon
not less than 30 nor more than 60 days prior notice mailed by first-class mail
to each holder's registered address, at the following redemption prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest to the redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date):
60
<PAGE>
If redeemed during the 12-month period commencing on November 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2001.................................................... 105.000%
2002.................................................... 103.333%
2003.................................................... 101.667%
2004 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to November 15, 2000,
the Company may redeem in the aggregate up to 40% of the original principal
amount of the Notes with the proceeds of one or more Equity Offerings received
by, or invested in, the Company so long as there is a Public Market at the
time of such redemption, at a redemption price (expressed as a percentage of
principal amount) of 110% plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 60% of the original principal amount of the
Notes must remain outstanding after each such redemption.
At any time on or prior to November 15, 2001, the Notes may also be redeemed
as a whole at the option of the Company upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days prior notice (but in no
event more than 90 days after the occurrence of such Change of Control) mailed
by first-class mail to each holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as
of, and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
"Applicable Premium" means, with respect to an Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value at such time of (1) the redemption price of
such Note at November 15, 2001 (such redemption price being described under
"--Optional Redemption") plus (2) all required interest payments due on such
Note through November 15, 2001, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the principal amount of such
Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to November 15, 2001; provided, however, that
if the period from the Redemption Date to November 15, 2001 is not equal to
the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the Redemption Date to
November 15, 2001 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
Selection. In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating
61
<PAGE>
to such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note.
RANKING AND SUBORDINATION
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full in cash or Cash Equivalents when due of all Senior
Indebtedness of the Company. However, payment from the money or the proceeds
of U.S. Government Obligations held in any defeasance trust described under
"Defeasance" below is not subordinate to any Senior Indebtedness or subject to
the restrictions described herein. As of November 25, 1997, the outstanding
Senior Indebtedness of the Company was approximately $87.6 million (exclusive
of unused commitments). Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "Certain Covenants--
Limitation on Indebtedness" below.
"Senior Indebtedness" is defined, whether outstanding on the Issue Date or
thereafter issued, created, incurred or assumed, as the Bank Indebtedness and
all other Indebtedness of the Company, including interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) thereon and fees
relating thereto, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
in respect of such Indebtedness are not superior in right of, or are
subordinate to, payment to the Notes; provided, however, that Senior
Indebtedness will not include (i) any obligation of the Company to any
Subsidiary, (ii) any liability for Federal, state, foreign, local or other
taxes owed or owing by the Company, (iii) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities),
(iv) any Indebtedness, Guarantee or obligation of the Company that is
expressly subordinate or junior in right of payment to any other Indebtedness,
Guarantee or obligation of the Company, including any Senior Subordinated
Indebtedness and any Subordinated Obligations or (v) any Capital Stock.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not incur, directly or indirectly, any Indebtedness that is subordinate
or junior in ranking in any respect to Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated
in right of payment to Senior Subordinated Indebtedness. In addition, no
Subsidiary Guarantor shall incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness of
such Subsidiary Guarantor unless such Indebtedness is Senior Subordinated
Indebtedness of such Subsidiary Guarantor or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness of such Subsidiary
Guarantor. Unsecured Indebtedness is not deemed to be subordinate or junior to
Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium, if any, or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid
when due whether at maturity, upon any redemption, by declaration or
otherwise, in cash or Cash Equivalents or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default
has been cured or waived and any such acceleration has been rescinded or such
Senior Indebtedness has been paid in full in cash or Cash Equivalents.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment
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from the Representative of the Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
second preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company
may not pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the holders
of such Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer
continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness
or the Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after the end of such Payment Blockage Period. Not more than one Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution, reorganization or bankruptcy of or
similar proceeding relating to the Company or its property, the holders of
Senior Indebtedness will be entitled to receive payment in full in cash or
Cash Equivalents of the Senior Indebtedness (including interest after, or
which would accrue but for, the commencement of any proceeding at the rate
specified in the applicable Senior Indebtedness, whether or not a claim for
such interest would be allowed) before the holders of the Notes are entitled
to receive any payment, and until the Senior Indebtedness is paid in full in
cash or Cash Equivalents, any payment or distribution to which holders of the
Notes would be entitled but for the subordination provisions of the Indenture
will be made to holders of the Senior Indebtedness as their interests may
appear. If a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders
or the Representative of the Designated Senior Indebtedness receive notice of
such acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), unless the Company shall have exercised its right to redeem the
Notes as described under "--Optional Redemption", each holder will have the
right to require the Company to repurchase all or any part of
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such holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock of the Company or Holdings (or its successor by merger,
consolidation or purchase of all or substantially all of its assets) (for
the purposes of this clause, such person shall be deemed to beneficially
own any Voting Stock of the Company or Holdings held by a parent
corporation, if such person "beneficially owns" (as defined above),
directly or indirectly, more than 50% of the voting power of the Voting
Stock of such parent corporation); or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
or Holdings (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the
Company or Holdings was approved by a vote of at least a majority of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved or is a designee of the Permitted Holders or was
nominated or elected by such Permitted Holders or any of their designees)
cease for any reason to constitute a majority of the Board of Directors of
the Company or Holdings then in office; or
(iii) the 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 Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) other than a
Permitted Holder or Holdings; or
(iv) the adoption by the stockholders of a plan for the liquidation or
dissolution of the Company or Holdings.
Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control as described under "--Optional
Redemption", the Company shall mail a notice to each holder with a copy to the
Trustee stating: (i) that a Change of Control has occurred and that such
holder has the right to require the Company to purchase such holder's Notes at
a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on a record date to receive interest on the
relevant interest payment date); (ii) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (iii) the procedures determined by the Company, consistent with
the Indenture, that a holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Agreement. Future
Senior Indebtedness of the Company and its
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Subsidiaries may also contain prohibitions of certain events that would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the holders of
their right to require the Company to repurchase the Notes could cause a
default under such Senior Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the holders upon a repurchase
may be limited by the Company's then existing financial resources. There can
be no assurance that sufficient funds will be available when necessary to make
any required repurchases. Even if sufficient funds were otherwise available,
the terms of the Senior Credit Agreement will (and other Senior Indebtedness
may) prohibit the Company's prepayment of Notes prior to their scheduled
maturity. Consequently, if the Company is not able to prepay the Bank
Indebtedness and any other Senior Indebtedness containing similar restrictions
or obtain requisite consents, as described above, the Company will be unable
to fulfill its repurchase obligations if holders of Notes exercise their
repurchase rights following a Change of Control, thereby resulting in a
default under the Indenture.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving the Company by increasing
the capital required to effectuate such transactions. The definition of
"Change of Control" includes a disposition of all or substantially all of the
property and assets of the Company and its Restricted Subsidiaries. With
respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which is the choice of law under the Indenture) and is
subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
property or assets of a Person, and therefore it may be unclear as to whether
a Change of Control has occurred and whether the Company is required to make
an offer to repurchase the Notes as described above.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness; provided,
however, that the Company and its Restricted Subsidiaries may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio for the
Company and its Restricted Subsidiaries is at least (i) 2.00 to 1.00, if such
Indebtedness is Incurred on or prior to the second anniversary of the Issue
Date and (ii) 2.25 to 1.00, if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to the Senior Credit Agreement; provided, however, that the
aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (i) does not exceed $160 million at any time outstanding, less the
aggregate principal amount of all mandatory prepayments of principal thereof
with the proceeds of Asset Dispositions; (ii) the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness
of the Company owing to and held by any Wholly-Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owing to and held by the Company or
any Wholly-Owned Subsidiary; provided, however, that any subsequent issuance
or transfer of any Capital Stock or any other event which results in any such
Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a
Wholly-Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof; (iv) Indebtedness
represented by (x) the Notes, (y) any Indebtedness (other than
the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on the
Issue Date and (z) any
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Refinancing Indebtedness Incurred in respect of any Indebtedness described in
this clause (iv) or clause (v) or Incurred pursuant to paragraph (a) of the
covenant described under "Limitation on Indebtedness"; (v) Indebtedness of a
Restricted Subsidiary Incurred and outstanding on the date on which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company (other than Indebtedness Incurred to provide all or any portion of the
funds utilized to consummate the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary or was
otherwise acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have been
able to Incur $1.00 of additional Indebtedness under this covenant after
giving effect to the Incurrence of such Indebtedness pursuant to this clause
(v); (vi) Indebtedness under Currency Agreements and Interest Rate Agreements;
provided, however, that in the case of Currency Agreements and Interest Rate
Agreements, such Currency Agreements and Interest Rate Agreements are entered
into for bona fide hedging purposes of the Company or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors or senior
management of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates, as applicable, to Indebtedness of the
Company or its Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business; (vii) Indebtedness of foreign Restricted Subsidiaries under working
capital facilities; provided that the aggregate principal amount of such
Indebtedness outstanding at any time does not exceed 5% of Consolidated
Tangible Assets; (viii) Indebtedness (including Capital Lease Obligations)
incurred by the Company or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount outstanding not to
exceed the greater of (A) $5.0 million or (B) 5% of Consolidated Tangible
Assets at the time of any Incurrence thereof (including any Refinancing
Indebtedness with respect thereto); (ix) Indebtedness incurred by the Company
or any of its Restricted Subsidiaries constituting reimbursement obligations
with respect to letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims; (x)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
of the Company providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Restricted
Subsidiary of the Company, provided that the maximum liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition; (xi) obligations in respect of performance and surety bonds
and completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business; and (xii) Indebtedness
(other than Indebtedness described in clauses (i)--(xi)) in a principal amount
which, when taken together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (xii) and then outstanding, will not exceed
the greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets.
(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the
Company unless such Indebtedness shall be subordinated to the Notes to at
least the same extent as such Subordinated Obligations. No Subsidiary
Guarantor shall incur any Indebtedness under paragraph (b) above if the
proceeds thereof are used, directly or indirectly to refinance any
Subordinated Obligations of such Subsidiary Guarantor unless such Indebtedness
shall be subordinated to the obligations of such Subsidiary Guarantor under
its Subsidiary Guarantee to at least the same extent as such Subordinated
Indebtedness.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or
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assets, or any proceeds therefrom, unless (i) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to
the Notes, the Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens and (ii) in all other cases,
the Notes are equally and ratably secured, except for (A) Liens existing as of
the Issue Date and any extensions, renewals or replacements thereof, (B) Liens
securing Senior Indebtedness, (C) Liens securing the Notes, (D) Liens of the
Company or a Wholly Owned Restricted Subsidiary of the Company on assets of
any Subsidiary of the Company, (E) Liens securing Indebtedness which is
incurred to refinance Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend
to or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced, and (F) Permitted
Liens.
Limitation on Layering. The Company shall not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or
is contractually subordinated in right of payment to Senior Subordinated
Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness if such
Indebtedness is contractually subordinate or junior in ranking in any respect
to any Senior Indebtedness of such Subsidiary Guarantor unless such
Indebtedness is Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor or is contractually subordinated in right of payment to Senior
Subordinated Indebtedness of such Subsidiary Guarantor.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock except (A) dividends or distributions payable in its Capital
Stock (other than Disqualified Stock) and (B) dividends or distributions
payable to the Company or a Restricted Subsidiary of the Company (and if such
Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders
of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of the Company held by Persons
other than a Restricted Subsidiary of the Company or any Capital Stock of a
Restricted Subsidiary of the Company held by any Affiliate of the Company,
other than another Restricted Subsidiary (in either case, other than in
exchange for its Capital Stock (other than Disqualified Stock)), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of purchase,
repurchase or acquisition) or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or
Investment being herein referred to in clauses (i) through (iv) as a
"Restricted Payment"), if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment: (1) a Default shall have occurred
and be continuing (or would result therefrom); or (2) the Company is not able
to incur an additional $1.00 of Indebtedness pursuant to the covenant
described in "Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments declared or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from, but excluding, the Issue Date to, but excluding, the date of
such Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (B) the aggregate net proceeds,
including the fair market value of property other than cash (determined in
good faith by the Board of Directors as evidenced by a certificate filed with
the Trustee, except that in the event the value of any non-cash consideration
shall be $10 million or more, the value shall be as determined in writing by
an Independent Appraiser) received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) or other capital
contributions subsequent to the Issue Date (other than net proceeds received
from an issuance or sale of such Capital Stock to a Subsidiary of the
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Company or an employee stock ownership plan or similar trust to the extent
such sale to an employee stock ownership plan or similar trust is financed by
loans from the Company or any Restricted Subsidiary unless such loans have
been repaid with cash on or prior to the date of determination); (C) the
amount by which Indebtedness of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a Subsidiary of
the Company) subsequent to the Issue Date of any Indebtedness of the Company
convertible or exchangeable for Capital Stock of the Company (less the amount
of any cash, or other property, distributed by the Company upon such
conversion or exchange); (D) the amount equal to the net reduction in
Investments made by the Company or any of its Restricted Subsidiaries in any
Person resulting from (i) repurchases or redemptions of such Investments by
such Person, proceeds realized upon the sale of such Investment to an
unaffiliated purchaser, repayments of loans or advances or other transfers of
assets (including by way of dividend or distribution) by such Person to the
Company or any Restricted Subsidiary of the Company or (ii) the redesignation
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investment") not to exceed, in the case of
any Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was included in the calculation of the amount of Restricted Payments;
provided, however, that no amount shall be included under this clause (D) to
the extent it is already included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Company or any
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or similar trust to the extent such sale
to an employee stock ownership plan or similar trust is financed by loans from
the Company or any Restricted Subsidiary unless such loans have been repaid
with cash on or prior to the date of determination); provided, however, that
(A) such purchase or redemption shall be excluded in subsequent calculations
of the amount of Restricted Payments and (B) the aggregate net proceeds from
such sale shall be excluded from clause (3) (B) of paragraph (a); (ii) any
purchase or redemption of Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Company; provided, however, that such purchase
or redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under "Limitation
on Sales of Assets and Subsidiary Stock" below; provided, however, that such
purchase or redemption shall be excluded in subsequent calculations of the
amount of Restricted Payments; (iv) dividends paid within 60 days after the
date of declaration if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend shall be
included in subsequent calculations of the amount of Restricted Payments; (v)
payments for the purpose of, and in amounts equal to, amounts required to
permit Holdings to redeem or repurchase Capital Stock of Holdings from
existing or former employees or management of the Company or any Subsidiary or
their assigns, estates or heirs, in each case in connection with the
repurchase provisions under employee stock option or stock purchase agreements
or other agreements to compensate management employees; provided that such
redemption or repurchases pursuant to this clause shall not exceed $5.0
million (and shall be increased by the amount of any proceeds to the Company
from (x) sales of Capital Stock of Holdings to management employees subsequent
to the Issue Date and (y) any "key-man" life insurance policies which are used
to make such redemptions or repurchases) in the aggregate; provided, however,
that such payments shall be included in the calculation of the amount of
Restricted Payments; provided, further, that the cancellation of Indebtedness
owing to the Company from members of management of the Company or any of its
Restricted Subsidiaries in connection with a repurchase of Capital Stock of
Holdings will not be deemed to constitute a Restricted Payment under the
Indenture; (vi) loans or advances made after the Issue Date to employees or
directors of the Company or any Subsidiary the proceeds of which are used to
purchase Capital Stock of Holdings, in an aggregate amount not in
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excess of $1.0 million at any one time outstanding; provided, however, that
such payments shall be included in the calculation of the amount of Restricted
Payments; (vii) cash dividends to Holdings in amounts equal to (A) the amounts
required for Holdings to pay any Federal, state or local income taxes to the
extent that such income taxes are attributable to the income of the Company
and its Subsidiaries, (B) the amounts required for Holdings to pay franchise
taxes and other fees required to maintain its legal existence, (C) an amount
not to exceed $250,000 in any fiscal year to permit Holdings to pay its
corporate overhead expenses incurred in the ordinary course of business, and
to pay salaries or other compensation of employees who perform services for
both Holdings and the Company, (D) so long as no Default or Event of Default
shall have occurred and be continuing, an amount not to exceed $100,000 in the
aggregate, to enable Holdings to make payments to holders of its Capital Stock
in lieu of issuance of fractional shares of its Capital Stock, (E) the amounts
required for Holdings to make indemnification payments under the
Recapitalization Agreement, and (F) on or about the Issue Date the amount
required to enable Holdings to repay the Holdings Facility in an amount not to
exceed the difference between all amounts then owing by Holdings in respect of
the Holdings Facility less the net proceeds to Holdings from the issuance of
the Holdings Senior Discount Notes; provided, however, that such payments
shall not be included in the calculation of the amount of Restricted Payments;
(viii) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price
hereof; provided, however, that such repurchases shall not be included in the
calculation of the amount of Restricted Payments; and (ix) so long as (A) no
Default or Event of Default has occurred and is continuing and (B) immediately
before and immediately after giving effect thereto, the Company would have
been permitted to Incur at least $1.00 of additional Indebtedness under the
covenant described in "Limitation on Indebtedness," from and after May 15,
2003, payments of cash dividends to Holdings in an amount sufficient to enable
Holdings to make payments of interest required to be made in respect of the
Holdings Senior Discount Notes in accordance with the terms thereof in effect
on the date of the Indenture, provided such interest payments are made with
the proceeds of such dividends; provided, however, that such payments shall
not be included in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other
obligations owed to the Company, (ii) make any loans or advances to the
Company or (iii) transfer any of its property or assets to the Company, except
(a) any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the date of the Indenture (including, without limitation, the
Senior Credit Facility); (b) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by a Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred to provide all or any portion of the funds utilized to consummate,
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date; (c) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (a) or (b) of this covenant or this clause (c) or contained in any
amendment to an agreement referred to in clause (a) or (b) of this covenant or
this clause (c); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such agreement or
amendment are no less favorable to the Holders of the Notes than encumbrances
and restrictions contained in such agreements; (d) in the case of clause (iii)
above, any encumbrance or restriction (A) that restricts in a customary manner
the subletting, assignment or transfer of any property or asset that is
subject to a lease, license or similar contract, or the assignment or transfer
of any such lease, license or other contract, (B) by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by
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the Indenture, (C) contained in mortgages, pledges or other security
agreements securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such mortgages, pledges or other security agreements or (D) pursuant to
customary provisions restricting dispositions of real property interests set
forth in any reciprocal easement agreements of the Company or any Restricted
Subsidiary; (e) any restriction with respect to a Restricted Subsidiary (or
any of its property or assets) imposed pursuant to an agreement entered into
for the direct or indirect sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary (or the property or
assets that are subject to such restriction) pending the closing of such sale
or disposition; (f) encumbrances or restrictions arising or existing by reason
of applicable law; (g) any restrictions pursuant to the Indenture and the
Holdings Senior Discount Notes; (h) restrictions imposed by any agreement or
instrument governing Capital Stock of any Person that is acquired; and (i)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any of its Restricted Subsidiaries to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Board of Directors
(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents and (iii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company
(or such Restricted Subsidiary, as the case may be) (A) first, to the extent
the Company or any Restricted Subsidiary, as the case may be, elects (or is
required by the terms of any Senior Indebtedness), to prepay, repay or
purchase Senior Indebtedness or Indebtedness (other than any Preferred Stock)
of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within 180 days from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash; (B)
second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), at the Company's election to the
investment in Additional Assets within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (C) third,
to the extent of the balance of such Net Available Cash after application and
in accordance with clauses (A) and (B), to make an offer to purchase (an
"Offer") Notes and other pari passu debt obligations subject to a similar
covenant (collectively, the "pari passu Notes") at par plus accrued and unpaid
interest, if any, thereon; and (D) fourth, to the extent of the balance of
such Net Available Cash after application in accordance with clauses (A), (B)
and (C), for other general corporate purposes not prohibited by the Indenture;
provided, however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions, the Company and its Restricted Subsidiaries shall not be
required to apply any Net Available Cash in accordance herewith except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
are not applied in accordance with this covenant exceed $5 million. The
Company shall not be required to make an Offer for the Notes and for the pari
passu Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and
(B)) are less than $5 million for any particular Asset Disposition (which
lesser amounts shall be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(b) If the aggregate principal amount (or accreted value, as applicable) of
Notes and pari passu Notes validly tendered and not withdrawn in connection
with an Offer pursuant to clause (C) above exceeds the funds available
therefor ("Offer Proceeds"), the Offer Proceeds will be apportioned between
the Notes and such pari passu Notes, with the portion of the Offer Proceeds
payable in
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respect of the Notes equal to the lesser of (i) the Offer Proceeds amount
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and the outstanding principal amount (or
accreted value, as applicable) of the relevant pari passu Notes, and (ii) the
aggregate principal amount of Notes validly tendered and not withdrawn.
(c) For the purposes of this covenant, the following will be deemed to be
cash: (x) the assumption by the transferee of Senior Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary of the Company and the
release of the Company or such Restricted Subsidiary from all liability on
such Senior Indebtedness or Indebtedness in connection with such Asset
Disposition (in which case the Company shall, without further action, be
deemed to have applied such assumed Indebtedness in accordance with clause (A)
of the preceding paragraph), (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash and (z) any
Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Disposition having an aggregate fair
market value, taken together with all other Designated Noncash Consideration
received pursuant to this clause (z) that is at that time outstanding, not to
exceed 10% of Consolidated Tangible Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value).
(d) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C), the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes at a purchase price
of 100% of their principal amount plus accrued and unpaid interest, if any, to
the purchase date in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of the pari passu Notes tendered pursuant to the offer is less
than the Net Available Cash allotted to the purchase of the pari passu Notes,
the Company will apply the remaining Net Available Cash in accordance with
clause (a)(iii)(D) above.
(e) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or conduct any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate
of the Company (an "Affiliate Transaction") unless: (i) the terms of such
Affiliate Transaction are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time
of such transaction in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the members of such Board having no personal stake in
such transaction, if any (and such majority or majorities, as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i)
above); and (iii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $15 million, the Company has received a written
opinion from an independent investment banking firm of nationally recognized
standing that such Affiliate Transaction is not materially less favorable than
those that might reasonably have been obtained in a comparable transaction at
such time on an arms-length basis from a Person that is not an Affiliate.
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(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or
the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors of the Company, (iii) the payment of
compensation and directors' fees and the performance of indemnification or
contribution obligations in the ordinary course of business, (iv) loans or
advances to employees in the ordinary course of business of the Company or any
of its Restricted Subsidiaries, (v) the execution, delivery and performance of
the Management Agreement, or (vi) any transaction between the Company and a
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Company will file with the
Commission, and provide, within 15 days after the Company is required to file
the same with the Commission, the Trustee and the holders of the Notes with
the annual reports and the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) that are specified in Sections 13 and 15(d) of the
Exchange Act. In the event that the Company is not permitted to file such
reports, documents and information with the Commission pursuant to the
Exchange Act, the Company will nevertheless deliver such Exchange Act
information to the Trustee and the holders of the Notes as if the Company were
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been incurred by the Successor Company or such Restricted Subsidiary at the
time of such transaction), no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such transaction,
the Consolidated Net Worth of the Company or the Successor Company, as the
case may be, is not less than that of the Company immediately prior to the
transaction; (iv) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness under the covenant described in "Limitation on Indebtedness"; and
(v) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture and
thereafter the Company shall be released from all obligations and covenants
thereunder, but, in the case of a lease of all or substantially all its
assets, the Company will not be released from the obligation to pay the
principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (i) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company and (ii) the Company may
merge with an Affiliate incorporated solely for the purpose of reincorporating
the Company in another jurisdiction to realize tax or other benefits.
Future Subsidiary Guarantors. After the Issue Date, the Company will cause
each Restricted Subsidiary created or acquired by the Company which Guarantees
the Bank Indebtedness to execute
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and deliver to the Trustee a Subsidiary Guarantee pursuant to which such
Subsidiary Guarantor will unconditionally Guarantee on a joint and several
basis, the full and prompt payment of the principal of, premium, if any and
interest on Exchange Notes on a senior subordinated basis.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the Senior Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to its contribution obligations
under the Indenture, result in the obligations of such Subsidiary Guarantor
under its Subsidiary Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each Subsidiary Guarantor will be permitted to consolidate with or merge
into or sell its assets to the Company or another Subsidiary Guarantor without
limitation. Each Subsidiary Guarantor will be permitted to consolidate with or
merge into or sell all or substantially all its assets to a corporation,
partnership or trust other than the Company or another Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor). Upon the sale or
disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of
all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the
Company, which sale or disposition is otherwise in compliance with the
Indenture (including the covenant described under "Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock"), such Subsidiary
Guarantor shall be deemed released from all its obligations under the
Indenture and its Subsidiary Guarantee and such Subsidiary Guarantee shall
terminate; provided, however, that any such termination shall occur only to
the extent that all obligations of such Subsidiary Guarantor under the Senior
Credit Agreement and all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, any other Indebtedness of the
Company shall also terminate upon such release, sale or transfer.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business other than a Related
Business.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Note when due, continued for
30 days, whether or not such payment is prohibited by the provisions described
under "Ranking and Subordination" above, (ii) a default in the payment of
principal of any Note when due at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise, whether
or not such payment is prohibited by the provisions described under "Ranking
and Subordination" above, (iii) the failure by the Company to comply for 30
days after notice with any of its obligations under the covenants described
under "Change of Control" above or under covenants described under "Certain
Covenants" above (in each case, other than a failure to purchase Notes which
shall constitute an Event of Default under clause (ii) above), (iv) the
failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (v) Indebtedness of the Company or any
Restricted Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or accelerated exceeds $10
million (the "cross acceleration provision"), (vi) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (vii) any judgment or decree for the
payment of money in excess of $10 million is rendered against the Company or a
Significant Subsidiary and such judgment or decree shall remain undischarged
or unstayed for a period of 60 days after such judgment becomes final and non-
appealable (the "judgment default provision") or (viii) any Subsidiary
Guarantee ceases to be in full force and effect (except as contemplated by the
terms of the
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Indenture) or any Subsidiary Guarantor denies or disaffirms its obligations
under the Indenture or its Subsidiary Guarantee. However, a default under
clauses (iii) and (iv) will not constitute an Event of Default until the
Trustee or the holders of 25% in principal amount of the outstanding Exchange
Notes notify the Company of the default and the Company does not cure such
default within the time specified in clauses (iii) and (iv) hereof after
receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company and the Trustee may declare the principal of and accrued and unpaid
interest, if any, on all the Notes to be due and payable. Upon such a
declaration, such principal and accrued and unpaid interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and accrued and unpaid interest on all the Notes
will become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing,
(ii) holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered
the Trustee reasonable security or indemnity against any loss, liability or
expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and
(v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or of exercising any
trust or power conferred on the Trustee. The Trustee, however, may refuse to
follow any direction that conflicts with law or the Indenture or that the
Trustee determines is unduly prejudicial to the rights of any other holder or
that would involve the Trustee in personal liability. Prior to taking any
action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of, premium, if any, or interest on any Note, the Trustee
may withhold notice if and so long as a committee of its Trust officers in
good faith determines that withholding notice is in the interests of the
Noteholders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within
30 days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any
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provisions may be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. However, without the consent
of each holder of an outstanding Note affected, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the stated rate of or extend the stated time for
payment of interest on any Note, (iii) reduce the principal of or extend the
Stated Maturity of any Note, (iv) reduce the premium payable upon the
redemption or repurchase of any Note or change the time at which any Note may
be redeemed as described under "Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) impair the right of
any holder to receive payment of principal of and interest on such holder's
Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Notes or (vii)
make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of the Company under the Indenture, to
provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f) (2) (B) of the Code), to
add Guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
Trust Indenture Act. However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the holders is not necessary under the Indenture 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
under the Indenture becomes effective, the Company is required to mail to the
holders a notice briefly describing such amendment. However, the failure to
give such notice to all the holders, or any defect therein, will not impair or
affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under covenants
described under "Certain Covenants" (other than "Merger and Consolidation"),
the operation of the cross acceleration provision, the bankruptcy provisions
with respect to Significant Subsidiaries, the judgment default provision and
the Subsidiary Guarantee provision described under "Events of Default" above
and the limitations contained in clauses (iii) and (iv) under "Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iii), (v), (vi) (with
respect only to Significant Subsidiaries), (vii) or (viii) under "Events of
Default" above or because of the failure of the Company to comply with clause
(iii) or (iv) under "Certain Covenants--Merger and Consolidation" above.
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In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes. The Trustee is also the trustee under the indenture for the
Discount Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary of the Company; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of the Company; provided, however, that, in the
case of clauses (ii) and (iii), such Restricted Subsidiary is primarily
engaged in a Related Business.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the
sale of Cash Equivalents or Temporary Cash Investments in the ordinary course
of business, (iii) a disposition of inventory or a licensing of intellectual
property in the ordinary course of business, (iv) a disposition of obsolete or
worn out equipment or equipment that is no longer useful or to be used in the
conduct of the business of the Company and its Restricted Subsidiaries and
that is disposed of in each case in the ordinary course of business, (v)
transactions permitted under "Certain Covenants--Merger and Consolidation"
above,
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(vi) for purposes of "Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition subject to "Limitation on Restricted Payments" and (vii)
the sale, discount or factoring, in each case without recourse, of accounts
receivable arising in the ordinary course of business.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
greater of (i) the interest rate implicit in such Sale/Leaseback Transaction
and (ii) the interest rate borne by the Notes, in each case, compounded semi-
annually) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable by the Company under or in respect
of the Senior Credit Agreement and any related notes, collateral documents,
letters of credit and guarantees, including principal, premium, if any,
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company whether or not a
claim for post filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof and refinancings thereof.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP, and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition thereof, having a
credit rating of "A" or better from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances
having maturities of not more than one year from the date of acquisition
thereof issued by any commercial bank the long-term debt of which is rated at
the time of acquisition thereof at least "A" or the equivalent thereof by
Standard & Poor's Rating Group, or "A" or the equivalent thereof by Moody's
Investors Service, Inc., and having capital and surplus in excess of $500
million; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (i), (ii) and
(iii) entered into with any bank meeting the qualifications specified in
clause (iii) above; (v) commercial paper rated at the time of acquisition
thereof at least "A-2" or the equivalent thereof by Standard & Poor's Rating
Group or "P-2" or the equivalent thereof by Moody's Investors Service, Inc.,
or carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of investments,
and in either case maturing within 270 days after the date of acquisition
thereof; and (vi) interests in any investment company which invests solely in
instruments of the type specified in clauses (i) through (v) above.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means, with
respect to any Person, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the period of the most recent four consecutive
fiscal quarters ending prior to the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters (in each case,
determined, for each fiscal quarter (or portion thereof) of the four fiscal
quarters ending prior to or including the Issue Date, on a pro forma basis to
give effect to the Transactions, the Offering and the application of proceeds
thereof as if they had occurred at the beginning of such four quarter period
adjusted for any pro forma expense and cost reductions and related adjustments
that are directly attributable to the Transactions and the Offering);
provided, however, that (1) If the Company or any Restricted Subsidiary (x)
has Incurred any Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of
such period (except that in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on the date of
such calculation shall be computed based on (A) the average daily balance of
such Indebtedness during such four fiscal quarters or such shorter period for
which such facility was outstanding or (B) if such facility was created after
the end of such four fiscal quarters, the average daily balance of such
Indebtedness during the period from the date of creation of such facility to
the date of such calculation) and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such discharge had occurred on the first day of
such period, or (y) has repaid, repurchased, defeased or otherwise discharged
any Indebtedness since the beginning of the period that is no longer
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio involves a discharge of
Indebtedness (in each case other than Indebtedness incurred under any
revolving credit facility unless such Indebtedness has been permanently
repaid), Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such discharge
of such Indebtedness, including with the proceeds of such new Indebtedness, as
if such discharge had occurred on the first day of such period, (2) if since
the beginning of such period the Company or any Restricted Subsidiary shall
have made any Asset Disposition or if the transaction giving rise to the need
to calculate the Consolidated Coverage Ratio is an Asset Disposition, the
Consolidated EBITDA for such period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets which
are the subject of such Asset Disposition for such period or increased by an
amount equal to the Consolidated EBITDA (if negative) directly attributable
thereto for such period and Consolidated Interest Expense for such period
shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale), (3) if since the
beginning of such period the Company or any Restricted Subsidiary (by merger
or otherwise) shall have made an Investment in any Restricted Subsidiary (or
any Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such period
(adjusted for any pro forma expense and cost reductions and related
adjustments calculated on a basis consistent with Regulation S-X under the
Act) and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was
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merged with or into the Company or any Restricted Subsidiary since the
beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or
(3) above if made by the Company or a Restricted Subsidiary during such
period, Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition or Investment occurred on the first day of such period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest expense on such Indebtedness shall
be calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated EBITDA" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense and (iv) amortization of intangibles and
(v) other non-cash charges reducing Consolidated Net Income (excluding any
such non-cash charge to the extent it represents an accrual of or reserve for
cash charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period not included in the calculation) and less, to
the extent added in calculating Consolidated Net Income, non-cash items
increasing Consolidated Net Income (excluding such non-cash items to the
extent they represent an accrual for cash receipts to be received prior to the
Stated Maturity of the Notes) for such period. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the interest,
depreciation and amortization of, a Restricted Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA of such Person
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries on a consolidated basis
determined in accordance with GAAP, plus, to the extent not included in such
interest expense, (i) interest expense attributable to Capitalized Lease
Obligations and the interest portion of rent expense associated with
Attributable Indebtedness in respect of the relevant lease giving rise
thereto, determined as if such lease were a capitalized lease in accordance
with GAAP, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) interest actually paid by the Company
or any such Subsidiary under any Guarantee of Indebtedness or other obligation
of any other Person, (vii) net costs associated with Hedging Obligations
(including amortization of fees), (viii) dividends in respect of all
Disqualified Stock of the Company and any Restricted Subsidiaries, in each
case, held by Persons other than the Company or a Wholly-Owned Subsidiary and
(ix) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust to purchase Capital Stock of the
Company; provided, however, that there shall be excluded therefrom any such
interest expense of any Unrestricted Subsidiary to the extent the related
Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary. For purposes of the foregoing, total interest expense shall be
determined after giving effect to any net payments made or received by the
Company and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect
to any Restricted Subsidiary of the Company that was not a Wholly-Owned
Subsidiary shall be included only to the extent (and in the same proportion)
that the
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net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and shall not include interest on the Holdings Senior
Discount Notes incurred or accrued by the Company.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Restricted Subsidiaries on a consolidated basis determined
in accordance with GAAP; provided, however, that there shall not be included
in such Consolidated Net Income: (i) any net income (loss) of any Person if
such Person is not a Restricted Subsidiary, except that (A) subject to the
limitations contained in (iv) below, the Company's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause (iii)
below) and (B) the Company's equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income to the extent such loss has been
funded with cash from the Company or a Restricted Subsidiary; (ii) any net
income (loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
limitations contained in (iv) below the Company's equity in the net income of
any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend to another Restricted Subsidiary, to the limitation contained in
this clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition
of any property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital Stock
of any Person; (v) any extraordinary gain or loss, (vi) any non-cash
compensation charge for employee stock options or other stock awards, (vii)
non-cash, non-recurring charges reducing Consolidated Net Income (excluding
any such non-cash charge to the extent it represents an accrual of or reserve
for cash charges in any future period or amortization of prepaid cash expense
that was paid in a prior period not included in the calculation); (viii) non-
cash, non-recurring items increasing Consolidated Net Income (excluding such
non-cash items to the extent they represent an accrual for cash receipts to be
received prior to the Stated Maturity of the Notes); and (ix) the cumulative
effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B)
any amounts attributable to Disqualified Stock.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill, deferred financing costs and other intangibles
less accumulated amortization, shown on the balance sheet of the Company and
its Restricted Subsidiaries as of the most recent date for which such balance
sheet is available, determined on a consolidated basis in accordance with
GAAP.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
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"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated
Noncash Consideration pursuant to an Officers' Certificate executed by the
principal executive officer and the principal financial officer of the Company
or such Restricted Subsidiary, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
Such Officers' Certificate shall state the basis of such valuation, which
shall be as determined by an Independent Appraiser with respect to the receipt
in one or a series of related transactions of Designated Noncash Consideration
with a fair market value in excess of $10 million.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness in the case
of the Company and (ii) any other Senior Indebtedness which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $10.0 million and is specifically designated in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which 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 (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness
or Disqualified Stock (excluding capital stock which is convertible or
exchangeable solely at the option of the Company or a Restricted Subsidiary)
or (iii) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the Stated Maturity of the Notes, provided,
that only the portion of Capital Stock which so matures or is mandatorily
redeemable, is so convertible or exchangeable or is so redeemable at the
option of the holder thereof prior to such Stated Maturity shall be deemed to
be Disqualified Stock.
"Equity Offering" means an offering for cash by either of the Company or
Holdings of its respective common stock, or options, warrants or rights with
respect to its common stock.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those 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 approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
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"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holdings" means Details Holding Corp. (formerly known as Details, Inc.), a
California corporation, and any corporation, which is the direct or indirect
sole stockholder of the Company or Holdings.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services (except trade payables), which purchase price is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services; (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such
Person; (vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (but
excluding, in each case, any accrued dividends); (vii) all Indebtedness of
other Persons secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person; provided, however, that the
amount of such Indebtedness shall be the lesser of (A) the fair market value
of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons; (viii) all Indebtedness of other Persons
to the extent Guaranteed by such Person; and (ix) to the extent not otherwise
included in this definition, net obligations of such Person under Currency
Agreements and Interest Rate Agreements (the amount of any such obligations to
be equal at any time to the termination value of such agreement or arrangement
giving rise to such obligation that would be payable by such Person at such
time). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Independent Appraiser" means, with respect to any transaction or series of
related transactions, an independent, nationally recognized appraisal or
investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital
Stock, Indebtedness or other similar instruments issued by, such Person. For
purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment"
shall include the portion (proportionate to the Company's equity interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted
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Subsidiary of the Company at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment"
in such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of such Subsidiary at the time that such
Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors of the Company. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Common
Stock of any direct or indirect Restricted Subsidiary of the Company such
that, after giving effect to any such sale or disposition, the Company no
longer owns, directly or indirectly, 100% of the outstanding Common Stock of
such Restricted Subsidiary, 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 Common Stock of such Restricted Subsidiary not sold or
disposed of.
"Issue Date" means the date on which the Exchange Notes are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreement" means the Management Agreement between the Company
and Bain Capital, Inc. (and its permitted successors and assigns thereunder)
as in effect on the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon such
assets, or which must by its terms, or in order to obtain a necessary consent
to such Asset Disposition, or by applicable law be repaid out of the proceeds
from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Bain Capital, Inc. and any Affiliate thereof (or
any wholly-owned Subsidiary of Holdings for purposes of the definition of
"Change of Control").
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"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) cash, Cash Equivalents and Temporary Cash Investments; (iv) receivables
owing to the Company or any Restricted Subsidiary created or acquired in the
ordinary course of business; (v) payroll, travel and similar advances made in
the ordinary course of business; (vi) loans or advances to employees and
officers made in the ordinary course of business; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; and (viii) Currency Agreements and Interest Rate
Agreements entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (ix) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers; (x) the
Subsidiary Guarantees and guarantees by the Company of Indebtedness otherwise
permitted to be incurred by Restricted Subsidiaries of the Company under the
Indenture; (xi) Investments the payment for which consists exclusively of
Capital Stock (other than Disqualified Stock) of the Company; provided that
the fair market value of such Investments shall not be counted under clause
(3)(B) of paragraph (a) of "Limitation on Restricted Payments"; (xii)
Investments received by the Company or its Restricted Subsidiaries as
consideration for asset dispositions, including Asset Dispositions; provided
in the case of an Asset Disposition, such Asset Disposition is effected in
compliance with the covenant described under "Limitation on Sales of Assets
and Subsidiary Stock;" and (xiii) other Investments in an aggregate amount
outstanding at any time not to exceed the greater of (A) $7.5 million and (B)
5% of Total Consolidated Assets.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof.
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
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(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business, provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired
and (B) the Lien securing such Indebtedness shall be created within 90 days
of such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment, or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Hedging Obligations that are otherwise permitted
under the Indenture;
(xii) Liens securing Indebtedness of foreign Restricted Subsidiaries of
the Company incurred in reliance on clause (b)(vii) of "Limitation on
Indebtedness";
(xiii) Liens securing acquired Indebtedness incurred in reliance on
clause (b) of "Limitation on Indebtedness"; provided that such Liens do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries other than the property or assets that secured the
acquired Indebtedness prior to the time such Indebtedness became acquired
Indebtedness of the Company or a Restricted Subsidiary of the Company;
(xiv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xv) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods; and
(xvii) Liens existing on the Issue Date, together with any Liens securing
Indebtedness incurred in reliance on clause (b) of "Limitation on
Indebtedness" in order to refinance the Indebtedness secured by Liens
existing on the Issue Date; provided that the Liens securing Refinancing
Indebtedness shall not extend to property other than that pledged under the
Liens securing the Indebtedness being refinanced.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
A "Public Market" exists at any time with respect to the common stock of the
Company or Holdings, as the case may be, if the common stock of the Company or
Holdings, as the case may be,
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is then registered with the Securities Exchange Commission pursuant to Section
12(b) or 12(g) of Exchange Act and traded either on a national securities
exchange or in the National Association of Securities Dealers Automated
Quotation System.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance", "refinances,"
and "refinanced" shall have a correlative meaning) any Indebtedness existing
on the date of the Indenture or Incurred in compliance with the Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness, provided, however, that
(i) only with respect to Indebtedness described under subclause (y) of clause
(b)(iv) in the covenant "Limitation on Indebtedness," the Refinancing
Indebtedness has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Indebtedness being refinanced
(other than Indebtedness which is Senior Indebtedness referred to in clause
(iv) under the covenant "Limitation on Indebtedness") and (ii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding (plus
fees and expenses, including any premium and defeasance costs) of the
Indebtedness being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses in which the Company and
its Restricted Subsidiaries are primarily engaged on the date of the
Indenture.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Agreement" means (i) the Senior Secured Credit Agreement to
be entered into among the Company, The Chase Manhattan Bank, as Administrative
Agent, and the lenders parties thereto from time to time, as the same may be
amended, supplemented or otherwise modified from time to time and any
guarantees issued thereunder and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Senior Credit Agreement
or any other credit or other agreement or indenture).
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness
is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-
X promulgated by the SEC.
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"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means, as to any Person, any Indebtedness of such
Person (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and
one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of
such Person. Unless otherwise specified herein, each reference to a Subsidiary
shall refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Exchange Notes by a Subsidiary Guarantor pursuant to the terms of the
Indenture, and, collectively, all such Guarantees. Each such Subsidiary
Guarantee will be in the form prescribed in the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary which Guarantees the
Bank Indebtedness after the Issue Date.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States of America having capital, surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act), (iii) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Company) organized and in existence under the laws of
the United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group, (v)
Investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc. and (vi) Investments in mutual
funds whose investment guidelines restrict such funds' investments to those
satisfying the provisions of clauses (i) through (v) above.
"Total Consolidated Assets" means, as of any date of determination, the
total assets shown on the balance sheet of the Company and its Restricted
Subsidiaries as of the most recent date for which such balance sheet is
available, determined on a consolidated basis in accordance with GAAP.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may
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designate any Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any
Restricted Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of $10,000 or
less or (B) if such Subsidiary has consolidated assets greater than $10,000,
then such designation would be permitted under "Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under the covenant described in "Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, all
of the Capital Stock of which (other than directors' qualifying shares) is
owned by the Company or another Wholly-Owned Subsidiary.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences associated with the acquisition, ownership, and disposition of
the Exchange Notes by holders who exchange Original Notes for Exchange Notes.
The following summary does not discuss all of the aspects of United States
federal income taxation that may be relevant to a prospective holder of the
Exchange Notes in light of his or her particular circumstances, or to certain
types of holders (including dealers in securities, insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, S corporations,
persons who hold the Exchange Notes as part of a hedge, straddle, "synthetic
security" or other integrated investment and except as discussed below,
foreign corporations, and persons who are not citizens or residents of the
United States) which are subject to special treatment under the federal income
tax laws. This discussion also does not address the tax consequences to
nonresident aliens or foreign corporations that are subject to United States
federal income tax on a net basis on income with respect to a Note because
such income is effectively connected with the conduct of a U.S. trade or
business. Such holders generally are taxed in a similar manner to U.S. Holders
(as defined below); however, certain special rules apply. In addition, this
discussion is limited to holders who hold the Exchange Notes as capital assets
within the meaning of Section 1221 of the Code. This summary also does not
describe any tax consequences under state, local, or foreign tax laws.
The discussion is based upon currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the Exchange Notes. There can
be no assurance that the IRS will not take positions concerning the tax
consequences of the purchase, ownership or disposition of the Notes which are
different from those discussed herein.
PROSPECTIVE HOLDERS OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO
THEM, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which, for United States federal income
tax purposes, is (i) a citizen or resident of the United States; (ii) a
domestic corporation or domestic partnership; (iii) an estate other than a
"foreign estate" as defined in Section 7701(a)(31) of the Code; 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.
EXCHANGE OF ORIGINAL NOTES FOR EXCHANGE NOTES. The exchange by a U.S. Holder
of an Original Note for an Exchange Note pursuant to the Exchange Offer will
not constitute a taxable exchange of the Original Note if the economic terms
of the Exchange Note (including the interest rate) are identical to the
economic terms of the Original Note. Under recently promulgated Treasury
regulations relating to modifications and exchanges of debt instruments (the
"Section 1001 Regulations"), with certain exceptions, an alteration of a legal
right or obligation that occurs by operation of the terms of a debt instrument
is not a modification of the debt instrument and thus does not result in a
taxable exchange. Therefore, even if Liquidated Damages were payable with
respect to the Original Notes but not with respect to the Exchange Notes, the
exchange of an Original Note for an Exchange Note would not be treated as a
taxable exchange. Accordingly, the Company intends to take the position that
in the circumstances described in the preceding sentence, the exchange will
not constitute a taxable exchange of the Original Notes. As a result, there
should be no U.S. Federal income tax consequences to U.S. Holders exchanging
the Original Notes for the Exchange Notes.
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TAXATION OF STATED INTEREST. In general, U.S. Holders of the Exchange Notes
will be required to include interest received thereon in taxable income as
ordinary income at the time it accrues or is received, in accordance with the
holder's regular method of accounting for United States federal income tax
purposes.
SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES. The sale, exchange,
redemption, retirement or other taxable disposition of an Exchange Note will
result in the recognition of taxable gain or loss to a U.S. Holder in an
amount equal to the difference between (a) the amount of cash and fair market
value of property received in exchange therefor (except to the extent
attributable to the payment of accrued but unpaid stated interest) and (b) the
holder's adjusted tax basis in such Exchange Note.
A holder's initial tax basis in an Exchange Note purchased by such holder
will be equal to such holder's adjusted tax basis in the Original Note
exchange therefor.
Any gain or loss recognized on the sale or other taxable disposition of an
Exchange Note generally will be capital gain or loss and will be long-term
capital gain or loss if the Exchange Note had been held for more than one year
(the maximum rate of tax on any such long-term capital gain being further
reduced if the Exchange Note were held for more than eighteen months) and
otherwise will be short-term capital gain or loss. Payments on such
disposition for accrued interest not previously included in income will be
treated as ordinary interest income. The holding period of an Exchange Note
will include the holding period of the Original Note exchanged therefor.
BACKUP WITHHOLDING. Certain holders of the Exchange Notes may be subject to
backup withholding at the rate of 31% with respect to interest and cash
received in certain circumstances upon the disposition of an Exchange Note.
Generally, backup withholding will apply if (i) the payee fails to furnish a
taxpayer identification number ("TIN") in the prescribed manner, (ii) the IRS
notifies the payor that the TIN furnished by the payee is incorrect, (iii) the
payee has failed to report properly the receipt of "reportable payments" and
the IRS has notified the payor that withholding is required, or (iv) the payee
fails to certify under the penalty of perjury that such payee is not subject
to backup withholding. Any amounts withheld from a payment to a holder under
the backup withholding rules will be allowed as a refund or credit against
such holder's United States federal income tax liability, provided that the
required information is furnished to the IRS. Certain holders (including,
among others, corporations and certain tax-exempt organizations) are not
subject to backup withholding.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Exchange Notes. For purposes hereof, a "Non-U.S. Holder" is any person who is
not a U.S. Holder and is not subject to U.S. federal income tax on a net basis
on income with respect to an Exchange Note because such income is effectively
connected with the conduct of a U.S. trade or business.
INTEREST. Payments of interest to a Non-U.S. Holder that do not qualify for
the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income
tax treaty applies to reduce the rate of withholding. To claim a treaty
reduced rate, the beneficial owner of the Exchange Note must provide a
properly executed Form 1001 (or successor form).
Interest that is paid to a Non-U.S. Holder on an Exchange Note will not be
subject to U.S. income or withholding tax if the interest qualified as
"portfolio interest". Generally, interest on the Exchange Notes that is paid
by the Company will qualify as portfolio interest if (i) the Non-U.S. Holder
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote; (ii) the
Non-U.S. Holder is not a controlled foreign corporation that is related to the
Company actually or constructively through stock ownership for U.S. federal
income tax purposes; (iii) the Non-U.S. Holder is not a bank within the
meaning of Section 881(c)(3)(A) of the Code; and (iv) either (x) the
beneficial owner of the Exchange Note provides the Company or its paying
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agent, a properly executed certification on IRS Form W-8 (or a suitable
substitute form) signed under penalties of perjury that the beneficial owner
is not a "U.S. person" for U.S. federal income tax purposes and that provides
the beneficial owner's name and address, or (y) a securities clearing
organization, bank or other financial institution that holds a customers'
securities in the ordinary course of its business holds the Exchange Note and
certifies to the Company or its agent under penalties of perjury that the IRS
Form W-8 (or a suitable substitute) has been received by it from the
beneficial owner of the Note or a qualifying intermediary and furnishes the
payor a copy thereof.
SALE, EXCHANGE OR RETIREMENT OF EXCHANGE NOTES. Any gain realized by a Non-
U.S. Holder on the sale, exchange or retirement of the Exchange Notes, will
generally not be subject to U.S. federal income tax or withholding unless (i)
the Non-U.S. Holder is an individual who was present in the U.S. for 183 days
or more in the taxable year of the disposition and meets certain other
requirements; or (ii) the Non-U.S. Holder is an individual who is a former
citizen of the United States who lost such citizenship within the preceding
ten year period (or former long-term permanent resident of the United States
who relinquished residency on or after February 6, 1995) whose loss of
citizenship or residency had as one of its principal purposes the avoidance of
United States tax. If a Non-U.S. Holder falls under (ii) above, the holder
will be taxed on the net gain derived from the sale under the graduated U.S.
federal income tax rates that are applicable to U.S. citizens and resident
aliens, and may be subject to withholding under certain circumstances. If a
Non-U.S. Holder falls under (i) above, the holder generally will be subject to
U.S. federal income tax at a rate of 30% on the gain derived from the sale (or
reduced treaty rate) and may be subject to withholding in certain
circumstances.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. Back-up withholding
and information reporting generally will not apply to payments made on a Note
issued in registered form that is beneficially owned by a Non-U.S. Holder if
the certification of Non-U.S. Holder status is provided to the Company or its
agent as described above in "Certain Federal Income Tax Consequences to Non-
U.S. Holders--Interest", provided that the payor does not have actual
knowledge that the holder is a U.S. person. The Company may be required to
report annually to the IRS and to each Non-U.S. Holder the amount of interest
paid to, and the tax withheld, if any, with respect to each Non-U.S. Holder.
If payments of principal, and interest are made to the beneficial owner of
an Exchange Note outside the United States by or through the foreign office of
a foreign custodian, foreign nominee or other foreign agent of such beneficial
owner, or if the proceeds of the sale of Exchange Notes are paid to the
beneficial owner of a Note through a foreign office of a "broker" (as defined
in the pertinent United States Treasury Regulations), the proceeds will not be
subject to backup withholding or information reporting (absent actual
knowledge that the payee is a U.S. person). Information reporting (but not
backup withholding) will apply, however, to a payment by a foreign office of a
custodian, nominee, agent or broker that is (i) a U.S. person, (ii) a
controlled foreign corporation for U.S. federal income tax purposes, or (iii)
derives 50% or more of its gross income from the conduct of a U.S. trade or
business for a specified three year period; unless the broker has in its
records documentary evidence that the holder is a Non-U.S. Holder and certain
other conditions are met (including that the broker has no actual knowledge
that the holder is a U.S. Holder) or the holder otherwise establishes an
exemption. Payment through the U.S. office of a custodian, nominee, agent or
broker is subject to both backup withholding at a rate of 31% and information
reporting, unless the holder certifies that it is a Non-U.S. Holder under
penalties of perjury or otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such
holder's U.S. federal income tax liability, provided that certain required
information is provided by the holder to the IRS.
On October 6, 1997, the IRS released Treasury regulations that revise the
procedures for withholding tax and the associated backup withholding and
information reporting rules described above for payment of interest and gross
proceeds made after December 31, 1998. The regulations modify the requirements
imposed on a Non-U.S. Holder or certain intermediaries for establishing the
recipient's status as a Non-U.S. Holder eligible for exemption from
withholding and backup withholding.
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In particular, the final regulations impose more stringent conditions on the
ability of financial intermediaries acting for a Non-U.S. Holder to provide
certifications on behalf of the Non-U.S. Holder, which may include entering
into an agreement with the IRS to audit certain documentation with respect to
such certifications. Non-U.S. Holders should consult their tax advisors to
determine how the regulations will affect their particular circumstances.
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THE EXCHANGE OFFER
At the closing of the Initial Offering, the Company and the Initial
Purchaser entered into the Registration Rights Agreement, pursuant to which
the Company agreed to (i) file with the Commission on or prior to 90 days
after the date of issuance of the Original Notes (the "Issue Date") a
registration statement on Form S-1 or Form S-4, (the "Exchange Offer
Registration Statement') relating to the Exchange Offer for the Original Notes
under the Securities Act and (ii) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 180 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of Transfer Restricted Securities (as
defined below) who are not prohibited by any law or policy of the Commission
from participating in the Exchange Offer the opportunity to exchange their
Transfer Restricted Securities (the Exchange Notes) The Company agreed to keep
the Exchange Offer open for not less than 30 days (or longer, if required by
applicable law) after the date on which notice of the Exchange Offer is mailed
to the holders of the Original Notes.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated hereby, (ii) any Securities (as defined herein)
validly tendered pursuant to the Exchange Offer are not exchanged for Exchange
Securities within 210 days after the Issue Date, (iii) the Initial Purchaser
so requests with respect to Original Notes not eligible to be exchanged for
Exchange Notes in the Exchange Offer, (iv) any applicable law or
interpretations do not permit any holder of Original Notes to participate in
the Exchange Offer, (v) any holder of Original Notes that participates in the
Exchange Offer does not receive freely transferable Exchange Notes in exchange
for tendered Original Notes, or (vi) the Company so elects, then the Company
will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities by
such holders who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. For purposes
of the foregoing, "Transfer Restricted Securities" means each Original Note
until (i) the date on which such Original Note has been exchanged for a freely
transferable Exchange Note in the Exchange Offer; (ii) the date on which such
Original Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iii) the
date on which such Original Note is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
The Company has agreed to use its reasonable best efforts to have the
Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement (each, a "Registration Statement") declared effective
by the Commission as promptly as practicable after the filing thereof. Unless
the Exchange Offer would not be permitted by a policy of the Commission, the
Company will commence the Exchange Offer and will use its reasonable best
efforts to consummate the Exchange Offer as promptly as practicable, but in
any event prior to 210 days after the Issue Date. If applicable, the Company
will use its reasonable best efforts to keep the Shelf Registration Statement
effective for a period of two years after the Issue Date.
If (i) the Exchange Offer Registration Statement or a Shelf Registration
Statement, if applicable, is not declared effective within 180 days after the
Issue Date; (ii) the Exchange Offer is not consummated on or prior to 210 days
after the Issue Date or (iii) a Shelf Registration Statement is filed and
declared effective within 180 days after the Issue Date but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain
the effectiveness thereof) without being succeeded within 60 days by an
additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iii), a "Registration Default"), the
Company will be obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of
the Notes
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constituting Transfer Restricted Securities held by such holder until the
applicable Registration Statement is filed, the Exchange Offer Registration
Statement is declared effective and the Exchange Offer is consummated or the
Shelf Registration Statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Notes on semi-annual payment dates
which correspond to interest payment dates for the Notes. Following the cure
of all Registration Defaults, the accrual of liquidated damages will cease.
The Registration Rights Agreement also provides that the Company (i) shall,
if required under applicable securities laws, upon written request make
available for a period of 90 days after the consummation of the Exchange Offer
a prospectus meeting the requirements of the Securities Act to any broker-
dealer for use in connection with any resale of any such Exchange Notes and
(ii) shall pay all expenses incident to the Exchange Offer (including the
expense of one counsel to the holders of the Notes) and will indemnify certain
holders of the Notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
Each holder of Notes who wishes to exchange such Original Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of its business; (ii) it has no
arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Company, or if it is an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Original Notes that were
acquired as a result of market-making activities or other trading activities
(an "Exchanging Dealer"), it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Holders of the Original Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their
Original Notes included in the Shelf Registration Statement and benefit from
the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells Original Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
The summary herein of certain provisions of the Registration Rights
Agreement is a description of the material provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement.
Except as set forth herein, after consummation of the Exchange Offer,
holders of Original Notes have no registration or exchange rights under the
Registration Rights Agreement. See "--Consequences of Failure to Exchange,"
and "--Resales of Exchange Notes; Plan of Distribution."
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes which are not exchanged for Exchange Notes pursuant to an
Exchange Offer and are not included in a resale prospectus will remain
Transfer Restricted Securities. Accordingly, such Original Notes may not be
offered, sold or otherwise transferred prior to the date which is two years
after the later of the date of original issue and the last date that the
Company or any affiliate of the Company was the owner of such securities (or
any predecessor thereto) (the "Resale Restriction Termination Date") only (a)
to the Company (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) for so long as the Original
Notes are eligible for resale pursuant to rule 144A, to a person the owner
reasonably believes is a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
to an "accredited investor" within the meaning of subparagraph (1), (2), (3)
or (7) of paragraph (a) of Rule 501 under the Securities Act that is
purchasing for his own or for the account of such an "accredited investor" in
each case in a minimum of Original Notes with a purchase price of $500,000 or
(c) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing cases to
any requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their control.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Original
Notes is proposed to be made pursuant to clause (d) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee to the Company and the Trustee, which shall provide, among other
things, that the transferee is an "accredited investor" within the meaning of
subparagraphs (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the
Securities Act and that it is acquiring such Securities for investment
purposes and not for distribution in violation of the Securities Act. Prior to
any offer, sale or other transfer of Original Notes prior to the Resale
Restriction Termination Date pursuant to clauses (d) or (e) above, the issuer
and the Trustee may require the delivery of an opinion of counsel,
certification and/or other information satisfactory to each of them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in the Prospectus and
in the Letter of Transmittal, the form of which is included as Exhibit 99.1 to
the Registration Statement of which this prospectus is a part, the Company
will accept any and all Original Notes validly tendered and not withdrawn
prior to the applicable Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal
amount of Original Notes accepted in the Exchange Offer. Holders may tender
some or all of their Original Notes pursuant to the Exchange Offer. However,
Original Notes may be tendered only in integral multiples of $1,000 principal
amount.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes, except that (i) the Exchange Notes have been registered
under the Securities act and therefore will not bear legends restricting their
transfer pursuant to the Securities Act, and (ii) the holders of Exchange
Notes will not be entitled to rights under the Registration Rights Agreement
(except under certain limited circumstances). The exchange Notes will evidence
the same debt as the Original Notes (which they replace), and will be issued
under, and be entitled to the benefits of, the Indenture.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on , 1997 as the record date for the
Exchange Offer for purpose of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered
holder of Original Notes (or such holder's legal representative or attorney-
in-fact) as reflected on the records of the trustee under the governing
indenture may participate in the Exchange Offer. There will be no fixed record
date for determining registered holders of the Original Notes entitled to
participate in the relevant Exchange Offer.
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Holders of the Original Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of California or under the Indenture
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if it has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of the
Original Notes for the purposes of receiving the Exchange Notes.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be
returned without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the Instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
their Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on ,
1998, unless the Company extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which such Exchange
Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, prior to 9:00 a.m., New York City time, on the next
Business Day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) extend the Exchange Offer, (iii) if the
condition set forth below under "--Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
or (iv) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by a public announcement thereof. If the Exchange
Offer is amended in a manner determined by the Company to constitute a
material change, it will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
the Original Notes and the Exchange Offer will be extended for a period of
five to ten business days, as required by law, depending upon the significance
of the amendment and the manner of disclosure to the registered holders, if
the Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of its Exchange
Offer, the Company shall not have an obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, have the signatures thereon
guaranteed if required by such Letter of Transmittal, and mail or otherwise
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deliver such Letter of Transmittal to the Exchange Agent at the address set
forth below under "--Exchange Agent" for receipt prior to the applicable
Expiration Date. In addition, either (i) certificates for such Original Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Original Notes into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the applicable Expiration Date, or (iii) the Holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Letter of Transmittal and all other required
documents must be received by the Exchange Agent at the address set forth
below under "--Exchange Agent" prior to the applicable Expiration Date.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal applicable to such Exchange
Offer.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR
ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal designated for such Original Notes,
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a participant
in a recognized signature guarantee program within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Original Notes listed therein, such Original Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes, with signature guaranteed by an Eligible Institution.
If a Letter of Transmittal or any Original Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company, as applicable, of their authority to so act must be submitted with
the Letter of Transmittal designated for such Original Notes.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Original Notes not properly tendered or any Original Notes the issuer's
acceptance of which would, in the opinion of counsel for such Issuer, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Original Notes. The
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) by the Company will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Original Notes issued by
it, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Original Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Original Notes received by the Exchange Agent that
are not validly tendered and as to which the defects or irregularities have
not been cured or waived, or if Original Notes are submitted in a principal
amount greater than the principal amount of Original Notes being tendered by
such tendering holder, such unaccepted or non-exchanged Original Notes will be
returned by the Exchange Agent to the tendering holders (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such unaccepted or non-exchanged Original
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility), unless otherwise provided in the Letter of Transmittal designated
for such Original Notes, as soon as practicable following the applicable
Expiration Date.
By tendering Original Notes in the Exchange Offer, each registered holder
will represent to the issuer of such Original Notes that, among other things,
(i) the Exchange Notes to be acquired by the holder and any beneficial
owner(s) of such Original Notes ("Beneficial Owner(s)") in connection with the
Exchange Offer are being acquired by the holder and any Beneficial Owner(s) in
the ordinary course of business of the holder and any Beneficial Owner(s),
(ii) the holder and each Beneficial Owner are not participating, do not intend
to participate, and have no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes, (iii) the holder and
each Beneficial Owner acknowledge and agree that (x) any person participating
in an Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction with respect
to the Exchange Notes acquired by such person and cannot rely on the position
of the Staff of the Commission set forth in no-action letters that are
discussed herein under "--Resales of the Exchange Notes," and (y) any
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Original Notes pursuant to an Exchange Offer must deliver a
prospectus in connection with any resale of such Exchange Notes, but by so
acknowledging, the holder shall not be deemed to admit that, by delivering a
prospectus, it is an "underwriter" within the meaning of the Securities Act,
(iv) neither the holder nor any Beneficial Owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing, and (v) the holder and each Beneficial
Owner understands that a secondary resale transaction described in clause
(iii) above should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offers, within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing
the Book-Entry Transfer Facility to transfer such Original Notes into the
Exchange Agent's account at the
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Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Original
Notes may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the applicable Letter of Transmittal, with any required signature
guarantees and any other documents, must be transmitted to and received by the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the applicable Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original Notes
are not immediately available, or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the applicable Expiration Date, may effect a tender
if:
(1) The tender is made through an Eligible Institution;
(2) Prior to the applicable Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by mail, hand delivery or facsimile
transmission) setting forth the name and address of the Holder, the
certificate number(s) of such Original Notes and the principal amount of
the Original Notes being tendered, stating that the tender is being made
thereby and guaranteeing that, within five business days after the
applicable Expiration Date, the applicable Letter of Transmittal together
with the certificate(s) representing the Original Notes (or a Book-Entry
Confirmation) and any other documents required by the applicable Letter of
Transmittal will be delivered by the Eligible Institution to the Exchange
Agent; and
(3) Such properly completed and executed Letter of Transmittal, as well
as the certificate(s) representing all tendered Original Notes in proper
form for transfer (or a Book-Entry Confirmation) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within five business days after the applicable Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
an Exchange Offer may be withdrawn, unless theretofore accepted for exchange
as provided in the applicable Exchange Offer, at any time prior to the
Expiration Date of that Exchange Offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Original Notes to be withdrawn (the
"Depositor"), (ii) identify the Original Notes to be withdrawn (including the
certificate number or numbers and aggregate principal amount of such Original
Notes), and (iii) be signed by the holder in the same manner as the original
signature on the applicable Letter of Transmittal (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company
in its sole respective discretion, which determination shall be final and
binding on all parties. Any Original Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Original Notes so
withdrawn are retendered. Properly withdrawn Original Notes may be retendered
by following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the applicable Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the
prior termination of the applicable Exchange Offer, or which have been validly
withdrawn, will be returned to the holder thereof (unless otherwise provided
in the Letter of Transmittal), as soon as practicable following the applicable
Expiration Date
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or, if so requested in the notice of withdrawal, promptly after receipt by the
issuer of the Original Notes of notice of withdrawal without cost to such
holder.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or
the making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in commission policy such that there is a substantial question whether
the Exchange Offer is permitted by applicable federal law, the Company has
agreed to seek a no-action letter or other favorable decision from the
Commission allowing the Company to consummate the Exchange Offer.
If the Company determines that the Exchange Offer is not permitted by
applicable Federal law, it may terminate the Exchange Offer. In connection
therewith the Company may (i) refuse to accept any Original Notes and return
any Original Notes that have been tendered by the holders thereof, (ii) extend
the Exchange Offer and retain all Original Notes tendered prior to the
Expiration of the Exchange Offer, subject to the rights of such holders of
tendered Original Notes to withdraw their tendered Original Notes, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered Original Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will disclose
such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Original Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the Original Notes, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as "Exchange Agent"
for the Exchange Offer, Questions and request for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and other
documents should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
State Street Bank and Trust Company
Two International Place
4th Floor
Boston, MA 02110
Attention: Earl Dennison
Confirm by Telephone: (617) 664-5670
Facsimile Transmissions:
(ELIGIBLE INSTITUTIONS ONLY)
Delivery to other than the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
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No dealer-manager has been retained in connection with the Exchange Offer
and no payments will be made to brokers, dealers or others soliciting
acceptance of the Exchange Offer. However, reasonable and customary fees will
be paid to the Exchange Agent for its service and it will be reimbursed for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
[$ .] Such expenses include fees and expenses of the Exchange Agent and the
Trustee under the indenture, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Original Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of the Original Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The carrying values of the Original Notes are not expected to be materially
different from the fair value of the Exchange Notes at the time of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by any holder thereof (other than (i) a
broker-dealer who purchased such Original Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes.
Holders of Original Notes wishing to accept the Exchange Offer must represent
to the Company that such conditions have been met. In the event that the
Company's belief is inaccurate, holders of Exchange Notes who transfer
Exchange Notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration thereunder may incur
liability under the Securities Act. The Company does not assume or indemnify
holders against such liability.
Each affiliate of the Company must acknowledge that such person will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable. Each Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held for its own account, as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. Although a Participating Broker-Dealer may be an "underwriter" within
the meaning of the Securities Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
the purchaser or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver any by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for the Company by its counsel, Ropes & Gray, One
International Place, Boston, Massachusetts and its special California counsel
Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport
Center Drive, Newport Beach, California.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
included in this Offering Memorandum, have been audited by McGladrey & Pullen,
LLP, independent auditors, as stated in their report appearing herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report.............................................. F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995 and as of
September 30, 1997 (unaudited)........................................... F-4
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994 and for the Nine Months Ended September 30, 1997 and 1996
(unaudited).............................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1995 and 1994 and for the Nine Months Ended Sep-
tember 30, 1997 (unaudited).............................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 and the Nine Months Ended September 30, 1997 and 1996
(unaudited).............................................................. F-8
Notes to Consolidated Financial Statements................................ F-9
</TABLE>
F-1
<PAGE>
[This page intentionally left blank]
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of DirectorsDetails, Inc.Anaheim, California
We have audited the accompanying consolidated balance sheets of Details,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Details,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
Anaheim, California
February 14, 1997
F-3
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current Assets
Cash (Note 7)...................... $ 472,200 $ 168,900 $ 942,300
Trade receivables, less allowance
for doubtful accounts 1995
$330,000; 1996 $300,000; 1997
$400,000 (Note 7)................. 6,921,600 9,511,000 10,148,100
Inventories (Note 2)............... 874,900 1,237,800 2,413,700
Prepaid expenses................... 48,500 217,000 196,600
Prepaid income taxes............... -- 648,000 160,300
Deferred income taxes (Note 5)..... -- 690,000 690,000
----------- ------------- -------------
Total current assets............. 8,317,200 12,472,700 14,551,000
----------- ------------- -------------
Property and Equipment, net (Note 3). 4,701,800 12,846,900 14,931,000
----------- ------------- -------------
Unamortized Debt Issue Costs, net.... -- 2,057,500 1,542,300
Other Assets......................... 62,200 125,400 661,500
----------- ------------- -------------
62,200 2,182,900 2,203,800
----------- ------------- -------------
$13,081,200 $ 27,502,500 $ 31,685,800
=========== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Current maturities of long-term
debt (Note 4)..................... $ 1,981,900 $ 9,500,000 $ 10,625,000
Current maturities of capital
leases with stockholder (Note 4).. -- 410,900 364,700
Accounts payable................... 3,280,200 3,560,600 3,505,500
Accrued commissions................ 504,900 587,100 1,002,800
Other accrued expenses............. 729,600 1,799,500 1,858,400
Accrued bonus payable.............. -- -- 2,958,500
Dividends payable.................. 4,084,500 128,200 128,200
----------- ------------- -------------
Total current liabilities........ 10,581,100 15,986,300 20,443,100
----------- ------------- -------------
Long-Term Debt (Note 4).............. -- 78,350,300 70,229,200
Capital Leases with stockholder (Note
4).................................. -- 5,839,700 6,191,200
----------- ------------- -------------
Total liabilities (Note 6)....... 10,581,100 100,176,300 96,863,500
----------- ------------- -------------
Commitments and Contingencies (Notes
4, 6 and 10)
Temporary Stockholders' Equity
(Note 6)
Redeemable common stock, 1996 6,959
shares; 1997 6,873 shares......... -- 38,906,000 77,000,000
Redeemable common stock warrants... -- 3,200,000 6,350,000
----------- ------------- -------------
Total temporary stockholders'
equity.......................... -- 42,106,000 83,350,000
----------- ------------- -------------
Other Stockholders' Equity (Deficit)
(Notes 4 and 6)
Common stock, no par value,
authorized 100,000 shares, issued
and outstanding 1995 15,300
shares; 1996 and 1997 2,758
shares............................ 15,300 5,300,500 5,300,500
Convertible preferred stock, no par
value, authorized 1995 none; 1996
and 1997 100,000 shares, issued
and outstanding 1996 and 1997
6,601 shares...................... -- 13,531,900 13,531,900
Additional paid-in-capital......... -- -- 2,922,000
Retained earnings (deficit)........ 2,484,800 (133,612,200) (170,282,100)
----------- ------------- -------------
Total other stockholders' equity
(deficit)....................... 2,500,100 (114,779,800) (148,527,700)
----------- ------------- -------------
$13,081,200 $ 27,502,500 $ 31,685,800
=========== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales (Note 7)...... $44,085,800 $59,370,200 $67,515,000 $49,086,000 $55,420,800
Cost of Goods Sold,
including rent paid to
stockholders 1994
$452,200; 1995 $558,700
(Note 4)............... 20,415,100 25,156,400 30,504,800 21,899,100 27,018,700
----------- ----------- ----------- ----------- -----------
Gross profit........ 23,670,700 34,213,800 37,010,200 27,186,900 28,402,100
Operating Expenses
(Note 4)
Compensation to CEO... 411,900 417,900 1,055,100 836,000 811,000
General and
administration
including rent paid
to stockholder 1994
$85,200; 1995
$63,500.............. 1,384,600 1,789,700 1,929,000 1,377,500 1,624,800
Sales and marketing... 3,542,700 5,292,800 5,989,800 4,502,900 5,337,700
Stock compensation and
related bonuses...... -- -- -- -- 5,283,000
----------- ----------- ----------- ----------- -----------
Operating income.... 18,331,500 26,713,400 28,036,300 20,470,500 15,345,600
Interest Income
(Expense)
Interest income....... 13,100 41,800 102,300 71,100 55,500
Interest expense,
including interest
paid to stockholder
of $774,000 for 1996
year................. (180,900) (370,600) (9,517,800) (6,973,600) (7,427,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.............. 18,163,700 26,384,600 18,620,800 13,568,000 7,974,100
Income Tax Expense (Note
5)..................... 272,400 396,000 6,265,000 4,270,000 3,400,000
----------- ----------- ----------- ----------- -----------
Net income.......... 17,891,300 25,988,600 12,355,800 9,298,000 4,574,100
=========== =========== =========== =========== ===========
Pro forma income tax
adjustment
(Note 4)............... 7,175,000 10,425,000 1,295,000 1,295,000
----------- ----------- ----------- -----------
Pro forma net income
(Note 5)............... $10,716,300 $15,563,600 $11,060,800 $ 8,003,000
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK
------------------ -------------------
SHARES AMOUNT SHARES AMOUNT
------ ---------- ------ -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993............. 15,300 $ 15,300 -- $ --
Net income........................... -- -- -- --
Dividends declared................... -- -- -- --
------ ---------- ----- -----------
Balance, December 31, 1994............. 15,300 15,300 -- --
Net income........................... -- -- -- --
Dividends declared................... -- -- -- --
------ ---------- ----- -----------
Balance, December 31, 1995............. 15,300 15,300 -- --
Retirement of common stock (Note 6).. (8,162) (8,200) -- --
Transfer common stock subject to put
option (Note 6)..................... (6,959) (7,000) -- --
Issuance of common stock (Note 6).... 2,509 5,147,900 -- --
Issuance of preferred stock (Note 6). -- -- 6,671 13,684,400
Transfer of preferred stock to common
stock............................... 70 152,500 (70) (152,500)
Issuance of redeemable common stock
warrants (Note 6)................... -- -- -- --
Net income........................... -- -- -- --
Accretion of temporary stockholders'
equity to estimated fair value
(Note 6)............................ -- -- -- --
Dividends declared................... -- -- -- --
------ ---------- ----- -----------
Balance, December 31, 1996............. 2,758 5,300,500 6,601 13,531,900
Net income (unaudited)............... -- -- -- --
Accretion of temporary stockholders'
equity to estimated fair value
(unaudited) (Note 6)................ -- -- -- --
Stock compensation expense
(unaudited) (Note 6)................ -- -- -- --
------ ---------- ----- -----------
Balance, September 30, 1997
(unaudited)........................... 2,758 $5,300,500 6,601 $13,531,900
====== ========== ===== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TEMPORARY STOCKHOLDERS' EQUITY
----------------------------------
ADDITIONAL RETAINED REDEEMABLE COMMON
PAID-IN- EARNINGS COMMON STOCK
CAPITAL (DEFICIT) TOTAL STOCK WARRANTS TOTAL
- ---------- ------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ -- $ 2,790,700 $ 2,806,000 $ -- $ -- $ --
-- 17,891,300 17,891,300 -- -- --
-- (17,891,300) (17,891,300) -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
-- 2,790,700 2,806,000 -- -- --
-- 25,988,600 25,988,600 -- -- --
-- (26,294,500) (26,294,500) -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
-- 2,484,800 2,500,100 -- -- --
-- (104,991,800) (105,000,000) -- -- --
-- (14,967,000) (14,974,000) 14,974,000 -- 14,974,000
-- -- 5,147,900 -- -- --
-- -- 13,684,400 -- -- --
-- -- -- -- -- --
-- -- -- -- 1,300,000 1,300,000
-- 12,355,800 12,355,800 -- -- --
-- (25,832,000) (25,832,000) 23,932,000 1,900,000 25,832,000
-- (2,662,000) (2,662,000) -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
-- (133,612,200) (114,779,800) 38,906,000 3,200,000 42,106,000
-- 4,574,100 4,574,100 -- -- --
-- (41,244,000) (41,244,000) 38,094,000 3,150,000 41,244,000
2,922,000 -- 2,922,000 -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
$2,922,000 $(170,282,100) $(148,527,700) $77,000,000 $6,350,000 $83,350,000
========== ============= ============= =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income................ $ 17,891,300 $ 25,988,600 $ 12,355,800 $ 9,298,000 $ 4,574,100
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation............. 881,800 1,054,200 2,047,100 1,494,500 1,828,800
Amortization............. -- -- 844,800 619,500 644,100
Stock compensation
expense................. -- -- -- -- 2,922,000
Deferred taxes........... -- -- (690,000) (297,000) --
Bad debt expense
(recovery).............. 164,200 (21,400) (27,100) (27,100) 95,300
Change in assets and
liabilities:
(Increase) decrease in:
Receivables............ (837,000) (1,975,200) (2,562,300) (1,327,000) (732,400)
Inventories............ (142,400) (421,000) (362,900) (519,000) (1,175,900)
Prepaid expenses and
other assets.......... (46,500) 28,900 (879,700) (221,600) (28,000)
Increase (decrease) in:
Accounts payable....... 259,200 1,747,000 280,400 (309,600) (55,100)
Accrued expenses....... (76,400) (259,900) 1,152,100 2,171,400 3,433,100
------------ ------------ ------------- ------------- -----------
Net cash provided by
operating activities. 18,094,200 26,141,200 12,158,200 10,882,100 11,506,000
------------ ------------ ------------- ------------- -----------
Cash Flows from Investing
Activities
Proceeds from sale of
equipment................ -- -- 89,600 7,800 --
Purchase of equipment..... (844,100) (2,945,900) (3,666,400) (2,719,900) (3,266,600)
------------ ------------ ------------- ------------- -----------
Net cash (used in)
investing activities. (844,100) (2,945,900) (3,576,800) (2,712,100) (3,266,600)
------------ ------------ ------------- ------------- -----------
Cash Flows from Financing
Activities
Principal payments on
notes payable............ (1,716,300) (752,200) (7,982,000) (5,982,000) (7,125,000)
Principal payments on
stockholder loan......... (1,000,000) -- -- -- --
Borrowings on notes
payable.................. 585,800 1,418,600 95,000,000 95,000,000 --
Principal payments on
capital lease
to stockholder........... -- -- (364,700) (266,400) (341,000)
Cash dividends paid....... (13,025,800) (27,075,500) (6,618,300) (6,618,300) --
Proceeds from the issuance
of common and preferred
stock.................... -- -- 20,000,000 20,000,000 --
Stock issuance costs...... -- -- (1,167,700) (1,167,700) --
Debt issue costs incurred. -- -- (2,752,000) (2,752,000) --
Retirement of common
stock.................... -- -- (105,000,000) (105,000,000) --
------------ ------------ ------------- ------------- -----------
Net cash (used in)
financing activities. (15,156,300) (26,409,100) (8,884,700) (6,786,400) (7,466,000)
------------ ------------ ------------- ------------- -----------
Net increase
(decrease) in cash... 2,093,800 (3,213,800) (303,300) 1,383,600 773,400
Cash
Beginning................. 1,592,200 3,686,000 472,200 472,200 168,900
------------ ------------ ------------- ------------- -----------
Ending.................... $ 3,686,000 $ 472,200 $ 168,900 $ 1,855,800 $ 942,300
============ ============ ============= ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
The Company manufactures and sells printed circuit boards (PCB) to the
electronics industry throughout the United States on credit terms that the
Company establishes for individual customers. A majority of the Company's
sales are for the time critical segment (quick turn) of the PCB industry.
Quick turn PCB's are manufactured within 10 days.
Subsequent to the Recapitalization discussed in Note 10, the Company changed
its name to Details Holdings Corp. and incorporated Details, Inc. as a wholly-
owned subsidiary and contributed substantially all of its assets, subject to
certain liabilities to Details, Inc.
Environmental matters:
The Company's operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with
these environmental laws are major considerations for all PCB manufacturers
because metals and other hazardous materials are used in the manufacturing
process. In addition, because the Company is a generator of hazardous wastes,
the Company, along with any other person who arranges for the disposal of such
wastes, may be subject to potential financial exposure for costs associated
with an investigation and remediation of sites at which it has arranged for
the disposal of hazardous wastes, if such sites become contaminated. This is
true even if the Company fully complies with applicable environmental laws. In
addition, it is possible that in the future new or more stringent requirements
could be imposed. Management believes it has complied with all applicable
environmental laws and regulations. There have been no claims asserted nor is
management aware of any unasserted claims for environmental matters.
Interim financial information:
The financial information presented as of and for the periods ending
September 30, 1996 and 1997 has been prepared from the books and records
without audit. Such financial information does not include all disclosures
required by generally accepted accounting principles. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of financial information for the periods
indicated have been included. The results of the Company's operations for any
interim period are not necessarily indicative of the results attained for a
full fiscal year. The data disclosed in these notes to financial statements
related to the interim information is also unaudited.
A summary of the Company's significant accounting policies is as follows:
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 their reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation:
In December 1996, the Company incorporated Details Europe Limited in the
United Kingdom and a foreign sales corporation. These subsidiaries had no
transactions during 1996.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
F-9
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment:
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using both the straight-line and
declining balance methods. For leasehold improvements, depreciation is
provided over the shorter of the estimated useful lives of the assets or the
lease term. Amortization of capitalized lease payments are included with
depreciation expense.
Unamortized debt issue costs:
Unamortized debt issue costs represent the portion of costs incurred in
connection with Company financing. These costs are being amortized over the
term of the credit agreement using the interest method. Accumulated
amortization as of December 31, 1996 was $692,500.
Revenue recognition:
The Company recognizes revenue from the sale of its products upon delivery
of its products to its customers. The Company provides a normal warranty on
its products and accrues an estimated amount for this expense at the time of
the sale.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fair value of financial instruments:
The methods and assumptions used to estimate the fair value of the following
classes of financial instruments were as follows:
Debt--For fixed-rate instruments with a maturity in excess of one year,
the fair value of the debt is estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements. The carrying value of these fixed rate
instruments approximates their fair value. For variable-rate instruments,
the carrying amount approximates fair value.
Interest rate cap agreement--The carrying amount approximates the fair
value based on the fair value of instruments with similar remaining terms.
NOTE 2. INVENTORIES
Inventories as of December 31, 1995 and 1996 and September 30, 1997 consist
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $498,300 $ 800,000 $ 985,000
Work-in-process............................ 376,600 437,800 1,428,700
-------- ---------- ----------
$874,900 $1,237,800 $2,413,700
======== ========== ==========
</TABLE>
F-10
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Buildings and leasehold improvements................ $ 1,003,700 $ 5,845,600
Machinery and equipment............................. 7,733,200 12,053,500
Office furniture and equipment...................... 1,487,100 2,136,600
Waste treatment system.............................. 262,100 288,700
Vehicles............................................ 384,400 378,600
----------- -----------
10,870,500 20,703,000
Less accumulated depreciation....................... 6,168,700 7,856,100
----------- -----------
$ 4,701,800 $12,846,900
=========== ===========
</TABLE>
Buildings and leasehold improvements include buildings under a capitalized
lease of approximately $4,496,500 with related accumulated depreciation of
$449,600 at December 31, 1996. Machinery and equipment include a capitalized
lease of $2,118,900 with related accumulated depreciation of $211,900 at
December 31, 1996.
NOTE 4. LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Term A senior debt(A)........................................... $53,000,000
Term B senior debt(A)........................................... 21,000,000
Subordinated debt, net of discount(B)........................... 13,850,300
Capital leases(C)............................................... 6,250,600
-----------
94,100,900
Less current maturities......................................... 9,910,900
-----------
$84,190,000
===========
</TABLE>
- --------
(A) The Term A senior debt requires quarterly principal payments at increasing
amounts (ranging from $2,375,000 to $5,000,000) plus interest through
December 2000. The Term B senior debt requires quarterly interest only
payments with the principal due in January 2002. All interest is
calculated based upon LIBOR (5.53% at December 31, 1996) plus 3% or the
prime rate (8.25% at December 31, 1996) plus 1.75% at the Company's
option. The loans also contain a mandatory prepayment provision which
requires 100% of the cash proceeds upon the sale of stock or certain asset
sales and recoveries; and 75% of the "Excess Cash Flow Payment Periods",
as defined, through December 1997 and 50% thereafter. Included in the
credit facility with the Term A and B senior debt, is a $7,500,000
revolving note available to the Company. The revolving note bears interest
at similar rates to the Term notes as discussed above and is due and
payable in January 2002. At December 31, 1996 there is no balance
outstanding on this revolving note.
(B) The subordinated debt requires monthly interest payments at 12%. Principal
is due in two installments of $7,500,000 in February 2003 and 2004. The
debt is subordinate to the senior debt discussed above. In the event the
Company prepays the principal amount of this debt prior to maturity, the
Company is subject to a prepayment penalty ranging from 5% in year 1 to 0%
after year five. This prepayment penalty is reduced by 50% upon an Initial
Public Offering (IPO) and is
F-11
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
eliminated upon the attainment of a certain internal rate of return by the
note holder. The subordinated debt holders also received warrants to
purchase 706.3 shares of the Company's common stock for a nominal price.
Management determined the fair value of the warrants and allocated the
proceeds to the subordinated debt and the warrants issued based upon their
relative fair value. The resulting discount is being amortized over the
life of the note using the interest method (Note 6).
Both the senior and the subordinated debt are secured by substantially all
assets of the Company, contain certain debt covenants which the Company is
required to meet and include restrictions on the payment of dividends.
(C) On January 1, 1996, the Company and its major stockholder renegotiated the
two existing operating leases for its facilities and certain equipment.
The terms of the new leases require monthly payments totaling
approximately $95,000 over the ten-year term of the leases. The leases
contain an option for the Company to renew the leases for an additional
ten years at the end of the initial term. The leases also contain an
option for the Company to purchase the buildings and the machinery at its
fair value at the end of the initial term and at the end of the second
term. The building lease requires the Company to pay maintenance,
insurance and taxes and contains a provision to adjust the lease rate for
increases in the Consumer Price Index rate. These leases have been
accounted for as capital leases with an implicit interest rate of 12%.
Rent expense for 1994 and 1995 was $541,400 and $622,200, respectively
under the previous operating leases.
Floating-rate hedge:
The Company has entered into interest rate cap and interest rate floor
agreements having notional principal amounts of $40 million to reduce the
impact of changes in interest rates on its floating-rate debt. This agreement
effectively limits the Company's interest rate exposure on $40 million of
floating-rate debt should the three-month LIBOR rate exceed 8.5% or fall below
4.7% through April 1998, the term of the agreement. The Company is exposed to
credit loss in the event of nonperformance by the counterparties to the
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE
-------------------------------------
PRESENT
TOTAL LESS VALUE OF NET
MINIMUM AMOUNT MINIMUM OTHER
YEAR ENDING LEASE REPRESENTING LEASE LONG-TERM
DECEMBER 31, PAYMENTS INTEREST PAYMENTS DEBT TOTAL
------------ ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1997.................... $ 1,138,900 $ 728,000 $ 410,900 $ 9,500,000 $ 9,910,900
1998.................... 1,138,900 675,800 463,100 11,000,000 11,463,100
1999.................... 1,138,900 617,100 521,800 12,500,000 13,021,800
2000.................... 1,138,900 550,900 588,000 20,000,000 20,588,000
2001.................... 1,138,900 476,300 662,600 -- 662,600
Thereafter.............. 4,555,800 951,600 3,604,200 36,000,000 39,604,200
----------- ---------- ---------- ----------- -----------
$10,250,300 $3,999,700 $6,250,600 $89,000,000 95,250,600
=========== ========== ========== ===========
Less discount on subordinated debt........................................ 1,149,700
-----------
$94,100,900
===========
</TABLE>
F-12
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS
For the year ended December 31, 1995 and prior years, the Company, with the
consent of its stockholder, elected to be taxed under sections of federal and
state income tax law, which provide that, in lieu of corporation income taxes,
the stockholder separately accounts for his pro rata share of the Company's
income, deductions, losses and credits. An additional state income tax is
imposed at a 1.5% rate. The Company's stockholder terminated this election
effective on February 1, 1996. The Company has presented pro forma net income
as if the Company had been a taxable entity.
As a result of this termination, the Company recorded a net deferred tax
asset of $297,000 on February 1, 1996 by a credit against income tax expense,
for temporary differences between the financial reporting and the income tax
basis of assets and liabilities.
Current deferred tax assets consist of the following components as of
December 31, 1996:
<TABLE>
<S> <C>
Receivables........................................................ $120,000
Other.............................................................. 91,000
California Franchise tax........................................... 479,000
--------
$690,000
========
</TABLE>
The provision for income taxes charged to income consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current income tax expense..................... $272,400 $396,000 $6,955,000
Deferred income tax (benefit).................. -- -- (690,000)
-------- -------- ----------
$272,400 $396,000 $6,265,000
======== ======== ==========
</TABLE>
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to income before income taxes due to
the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense...... $ 6,357,000 $ 9,235,000 $6,517,000
Increase (decrease) in income taxes
resulting from:
State taxes, net of credits........ 272,400 396,000 981,000
Effect of change in tax status..... -- -- (297,000)
Income not subject to federal
corporate tax..................... (6,357,000) (9,235,000) (996,000)
Other.............................. -- -- 60,000
----------- ----------- ----------
$ 272,400 $ 396,000 $6,265,000
=========== =========== ==========
</TABLE>
NOTE 6. STOCKHOLDERS' EQUITY
In January 1996, the Company declared a dividend of $2,662,000 payable to
its sole stockholder. On January 31, 1996, the Company redeemed 8,162 shares
of its common stock from this stockholder for $105 million. The Company funded
this redemption through the issuance of $95 million of debt and
F-13
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the sale of stock. In addition, the Company granted this stockholder the right
to put back to the Company, for cash, his remaining 6,959 shares of stock at
its fair value upon the earlier of January 2002 or 90 days after the full
payment of the Senior Debt (Note 4). The put expires upon a qualified public
offering, as defined. The Company also granted this stockholder certain
antidilution rights in connection with his remaining shares of stock. The
stockholder agreed to forfeit to the Company .64 shares of common stock for
each share of the common stock warrants and Tranche I options which are
canceled (up to a maximum of 1,018 shares). During the period ended September
30, 1997, 86 shares were forfeited (unaudited). Due to the existence of the
put option, the estimated fair value of these shares have been classified as
temporary stockholders' equity.
On January 31, 1996, the Company issued 6,671 shares of convertible
preferred stock for $14,533,338. In addition, the Company issued 2,509 shares
of common stock for $5,466,662. In connection with these issuances, the
Company incurred costs of $1,167,700. These costs have been applied against
the proceeds from the sale of stock.
In order to accomplish the sale of stock, the Company amended its articles
of incorporation to authorize the Company to issue up to 100,000 shares of
convertible preferred stock. The preferred stock is convertible into an equal
number of common shares of stock at the option of the holders. The holders of
the convertible preferred stock cast two votes for each share of stock held;
share equally with common stockholders as to dividends and have a preference
in the event of liquidation. Upon the occurrence of an Initial Public
Offering, the preferred stock will automatically convert to common stock.
Common stock warrants:
In connection with the issuance of $15 million of subordinated debt (Note
4), the Company issued warrants to acquire 706.3 shares of common stock at a
nominal price. Management estimated the value of these warrants at $1,300,000
at the time of issuance. The warrants contain certain antidilution provisions
and are exercisable through 2004. After five years, the warrant holders may
require the Company to repurchase the warrants or the stock purchased with the
warrants for fair value. The warrants also contain a "clawback" provision
which requires the holders of the warrants to surrender up to 282 of the
warrants upon the attainment of certain earnings targets by the Company in
1996 and 1997. The Company met the earnings target in 1996 and anticipates
that 141 of the warrants will be canceled. Due to the put provisions in the
warrants, the Company adjusts the recorded amount of the warrants to their
estimated fair value by a charge or credit to retained earnings. At December
31, 1996, management estimated the fair value of the remaining 565.3 warrants
at $3,200,000. Due to the existence of the put option, the estimated fair
value of these warrants has been classified as temporary stockholders' equity.
Stock options:
On February 1, 1996, the Company granted stock options to various employees
under two programs. All options expire 10 years after the date they are
granted and contain a provision which requires the option holder to return the
option or the related stock purchased under the option to the Company at no
gain or a reduced gain should their employment with the Company be terminated
prior to five years from the date of grant. The options with senior management
include a provision which requires the Company to pay the optionee a bonus in
an amount sufficient to cover taxes that the optionee will incur upon exercise
of the option.
Senior management was granted options to purchase a total of 1,809 shares of
common stock at an exercise price of $2,179 per share. Options to purchase 880
shares of common stock (Tranche I) vest at the rate of 176 shares per year
through 2000 upon the attainment of certain annual earnings
F-14
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
targets. If the earnings target for a specific year is not met, the options
related to that year are canceled. Any future unearned options will become
100% vested upon the sale of the Company or an initial public offering of the
Company's stock. During 1996, the Company met the 1996 earnings target and 176
common stock options vested on May 1, 1997.
The remaining options to purchase 929 shares of common stock (Tranche II)
vest 185 shares in 1996 and 186 shares in 1997 through 2000 upon the
attainment of certain annual or cumulative earnings targets which are higher
than the targets discussed above. Any future unearned options become 100%
vested upon the sale of the Company. Tranche II option to purchase 106 shares
of common stock were transferred to middle management. During 1996, the
Company did not meet the earnings target for the Tranche II options and no
options were vested. Further, the Company does not believe that it is likely
that the Tranche II earnings targets will be met in the future.
The Company also issued to middle management options to purchase 247 shares
of common stock (including the 106 shares discussed above) at an exercise
price of $2,179 per share. The options vest based on the discretion of the
Compensation Committee. No options have been exercised.
The Company accounts for these stock options using APB Opinion No. 25 and
related interpretations. All stock options are accounted for as a variable
awards. Accordingly, the difference between the exercise price and the
estimated market price of the stock is recorded as compensation when the
number of shares is known. Although there is no established market for the
Company's stock, management estimated that the exercise price was at or above
the estimated market price for the common stock of the Company for the options
earned in 1996, and no compensation expense was recorded. However, options
which are earned in the future may result in a charge to earnings. Had
compensation cost for the stock options been determined based on the grant
date fair values as required by FASB Statement No. 123, there would have been
the following effect on the Company's reported net income for the year ended
December 31, 1996:
<TABLE>
<S> <C>
As reported.................................................... $12,355,800
===========
Pro forma...................................................... $12,355,800
===========
</TABLE>
Fair value was estimated using the minimum-value method, a risk-free
interest rate of 7.1% and an expected life of five years. No dividends were
assumed to be declared. Although there is no established market for the
Company's common stock, management believes the exercise price of the options
was at or above the fair value of the Company's stock on the grant date. The
weighted average value per option (computed using the minimum value method) of
the stock options granted in 1996 was $-0-.
F-15
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. CONCENTRATIONS
Major customers:
The Company had sales to the following customers that individually accounted
for more than 10% of the Company's total revenue. Revenue from these customers
and accounts receivable as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
NET REVENUE ACCOUNTS RECEIVABLE
----------------------------------- -------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Customer A.............. $12,573,156 $11,484,195 $ 5,889,401 $ 879,238 $ 528,927
Customer B.............. 4,737,816 4,939,054 10,709,947 989,091 931,130
</TABLE>
- --------
* Under 10% of sales
Cash concentration:
The Company has approximately $1,003,500 at December 31, 1996 invested with
one fund.
NOTE 8. EMPLOYEE BENEFIT PLAN
The Company has adopted a 401(k) plan subsequent to year end which is
effective January 1997. All employees of the Company over the age of 21 and
having at least one year of service, are eligible to participate in the plan.
The eligible employees may contribute 1% to 15% of their annual compensation
and there is currently no matching contribution required to be made by the
Company. At the discretion of the board of directors, they may elect to make a
nonelective contribution which vests at various rates depending on the years
of service until after six years when an employee would be 100% vested.
NOTE 9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash payments for:
Income taxes.......... $ -- $632,523 $7,638,914 $6,036,800 $7,437,600
======== ======== ========== ========== ==========
Interest.............. $112,800 $401,500 $7,774,034 $3,732,900 $2,912,300
======== ======== ========== ========== ==========
Supplemental Schedule of
Investing and Financing
Activities, capital
leases incurred for
acquisition of property
and equipment.......... $ -- $ -- $6,615,400 $6,615,400 $ 646,300
======== ======== ========== ========== ==========
</TABLE>
NOTE 10. SUBSEQUENT EVENTS (UNAUDITED)
On or about October 4, 1997, Holdings and Holdings' stockholders entered
into the Recapitalization Agreement with DIA which provided for the
Recapitalization by means of the Merger of DIA with and into Holdings.
F-16
<PAGE>
DETAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 28, 1997, the Merger was consummated. In connection with the
Recapitalization, (i) certain stockholders and optionholders of Holdings
received an aggregate amount of cash equal to approximately $184.3 million,
(ii) Chase Manhattan Capital, L.P., an affiliate of the Initial Purchaser,
retained a portion of their investment in Holdings, representing approximately
7.7%, and certain other stockholders of Holdings retained a portion of their
investments in Holdings representing approximately 2.8%, of the fully-diluted
equity of Holdings (in each case after giving effect to the Recapitalization
and related transactions) (collectively, the "Existing Owner Rollover"), and
(iii) management retained certain shares and certain options to acquire shares
of common stock of Holdings representing approximately 17.1% of the fully-
diluted equity of Holdings (after giving effect to the Recapitalization and
related transactions), (the "Management Rollover Equity"). In addition, in
connection with the Recapitalization, management acquired additional shares
and options to acquire additional shares representing 10.4% of the fully-
diluted equity of Holdings (after giving effect to the Recapitalization and
related transactions). After the Recapitalization, management held shares and
options representing approximately 27.5% of the fully-diluted equity of
Holdings.
Financing for the Recapitalization, and the related fees and expenses,
consisted of (i) $46.3 million of equity capital provided by investment funds
associated with Bain Capital, Inc. (the "Bain Capital Funds"); (ii) $11.2
million of equity capital provided by an affiliate of CMC; (iii) $4.9 million
of equity capital provided by certain other investors; (iv) the $16.1
Management Rollover Equity; (v) the $10.5 million Existing Owner Rollover; (v)
a senior subordinated loan facility of up to $85 million; (vi) a senior
unsecured credit facility of up to $55 million of Holdings; and (vii) a
syndicated senior secured Tranche A term loan facility of up to $41.4 million
as of the Recapitalization closing date, a syndicated senior secured Tranche B
term loan facility of up to $50 million and a senior secured revolving credit
facility of up to $30 million.
The effect of the above Recapitalization and related transaction increased
stockholders' (deficit) to approximately $196.2 million and resulted in
charges to earnings of $23 million, net of estimated income tax of $16
million, in the fourth quarter of 1997 related to accelerated vesting of stock
options under variable awards and related cash bonuses, write-off of deferred
financing fees, amortization of remaining debt discount on existing debt and
other fees and expenses related to the Recapitalization. Because the merger
has been accounted for as a recapitalization, the historical basis of the
Company's assets and liabilities was not affected.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 1
Risk Factors............................................................... 15
Use of Proceeds............................................................ 22
Capitalization............................................................. 23
Unaudited Pro Forma Financial Data......................................... 24
Selected Historical Consolidated Financial Data............................ 33
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 34
The Industry............................................................... 39
Business................................................................... 41
Management................................................................. 48
Principal Stockholders..................................................... 54
Certain Relationships and Related Transactions............................. 56
Description of Senior Credit Facilities.................................... 58
Description of Exchange Notes.............................................. 60
Certain Federal Income Tax Consequences.................................... 89
The Exchange Offer......................................................... 93
Plan of Distribution....................................................... 102
Legal Matters.............................................................. 102
Independent Auditors....................................................... 102
Index to Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DETAILS, INC.
EXCHANGE OFFER
$100,000,000
10% SENIOR SUBORDINATED
NOTES DUE 2005
--------------------------
LOGO
--------------------------
-----------------
PROSPECTUS
-----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability for (i) acts or omissions that involve intentional misconduct or
knowing and culpable violation of law, (ii) acts or omissions that a director
believes to be contrary to the best interests of the Registrant or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for
the director's duty to the Registrant or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
Registrant or its shareholders, (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (vi) any improper
transactions between the corporation and a director in which a director has a
material financial interest, and (vii) liability for unlawful distributions,
loans or guarantees. This provision does not eliminate the directors' duty of
care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and By-laws contain provisions covering
indemnification to the maximum extent permitted by the California General
Corporation Law of corporate directors, officers and other agents against
certain liabilities and expenses incurred as a result of proceedings involving
such persons in their capacities as directors, officers, employees or agents,
including proceedings under the Securities Act or the Securities Exchange Act
of 1934, as amended.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Details, Inc. Articles of Incorporation, as amended.
3.2 Details, Inc. By-laws.
4.1 Indenture dated as of November 18, 1997.
4.2 Exchange and Registration Rights Agreement dated as of November 18,
1997.
5.1 Opinion of Ropes & Gray re: legality.
5.2 Opinion of Stradling Yocca Carlson & Rauth re: legality.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 Credit Agreement dated as of October 28, 1997.
10.2* Management Agreement dated October 28, 1997.
10.3* Amended and Restated Recapitalization Agreement dated as of October
4, 1997
10.4 Stockholders Agreement dated October 28, 1997
10.5 1997 Details, Inc. Equity Incentive Plan
10.6 1996 Employee Stock Option Plan dated December 31, 1996
10.7 1996 Performance Stock Option Plan dated December 31, 1996
10.8 Real Property Master Lease Agreement dated January 1, 1996
10.9 Personal Property Master Lease Agreement dated January 1, 1996
10.10 McMaster Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
10.11 Gisch Employment Agreement dated September 19, 1995 as amended
October 28, 1997.
10.12 Muse Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
10.13 Wright Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
12.1 Statement regarding computation of ratio of earnings to fixed
charges.
23.1 Consent of McGladrey & Pullen LLP.
23.2 Consent of Ropes & Gray (included in Exhibit 5.1).
23.3 Consent of Stradling Yocca Carlson & Rauth (included in Exhibit
5.2).
24.1 Powers of Attorney (included on signature page).
25.1 Statement of Eligibility on Form T-1 of State Street Bank and Trust
Company
as Trustee under the Indenture.
27.1 Financial Data Schedules.
99.1* Form of Letter of Transmittal used in connection with the Exchange
Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection with The
Exchange Offer.
99.3* Exchange Agent Agreement.
</TABLE>
- --------
* To be filed separately by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 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 any such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of their counsel the matter has been settled by
II-2
<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether or not such indemnification is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
(2) 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.
(3) 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.
(4) 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anaheim, state of
California, on the 26th day of November, 1997.
DETAILS, INC.
/s/ Bruce D. McMaster
By: _________________________________
NAME: BRUCE D. MCMASTER
TITLE: PRESIDENT
We, the undersigned officers and directors of Details, Inc., hereby
severally constitute Bruce D. McMaster, Joseph P. Gisch, Edward Conard,
Stephen M. Zide and Prescott Ashe, and each of them singly, our true and
lawful attorneys-in-fact with full power of substitution and resubstitution,
for them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including pre-effective and
post-effective amendments), and generally to do all such things in our name
and behalf in our capacities as officers and directors to enable Details, Inc.
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys-in-fact,
or any of them, to said Registration Statement and any and all amendments
thereto.
Witness our hands and common seal on the dates set forth below.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Bruce D. McMaster President (principal November 26,
- ------------------------------------- executive officer) 1997
BRUCE D. MCMASTER
/s/ Joseph P. Gisch Vice President and November 26,
- ------------------------------------- Chief Financial 1997
JOSEPH P. GISCH Officer (principal
financial and
accounting officer)
/s/ Stephen M. Zide Vice President and November 26,
- ------------------------------------- Director 1997
STEPHEN M. ZIDE
/s/ Edward Conard Director November 26,
- ------------------------------------- 1997
EDWARD CONARD
/s/ Prescott Ashe Director November 26,
- ------------------------------------- 1997
PRESCOTT ASHE
/s/ Christopher Behrens Director November 26,
- ------------------------------------- 1997
CHRISTOPHER BEHRENS
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.1 Details, Inc. Articles of Incorporation, as amended.
3.2 Details, Inc. By-laws.
4.1 Indenture dated as of November 18, 1997.
4.2 Exchange and Registration Rights Agreement dated as of
November 18, 1997.
5.1 Opinion of Ropes & Gray re: legality.
5.2 Opinion of Stradling Yocca Carlson & Rauth re: legality.
10.1 Credit Agreement dated as of October 28, 1997.
10.2* Management Agreement dated October 28, 1997.
10.3* Amended and Restated Recapitalization Agreement dated as of
October 4, 1997
10.4 Stockholders Agreement dated October 28, 1997
10.5 1997 Details, Inc. Equity Incentive Plan
10.6 1996 Employee Stock Option Plan dated December 31, 1996
10.7 1996 Performance Stock Option Plan dated December 31, 1996
10.8 Real Property Master Lease Agreement dated January 1, 1996
10.9 Personal Property Master Lease Agreement dated January 1,
1996
10.10 McMaster Employment Agreement dated September 1, 1995, as
amended October 28, 1997.
10.11 Gisch Employment Agreement dated September 19, 1995 as
amended October 28, 1997.
10.12 Muse Employment Agreement dated September 1, 1995, as
amended October 28, 1997.
10.13 Wright Employment Agreement dated September 1, 1995, as
amended October 28, 1997.
12.1 Statement regarding computation of ratio of earnings to
fixed charges.
23.1 Consent of McGladrey & Pullen LLP.
23.2 Consent of Ropes & Gray (included in Exhibit 5.1).
23.3 Consent of Stradling Yocca Carlson & Rauth (included in
Exhibit 5.2).
24.1 Powers of Attorney (included on signature page).
25.1 Statement of Eligibility on Form T-1 of State Street Bank
and Trust Company
as Trustee under the Indenture.
27.1 Financial Data Schedules.
99.1* Form of Letter of Transmittal used in connection with the
Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection
with The Exchange Offer.
99.3* Exchange Agent Agreement.
</TABLE>
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* To be filed separately by amendment.
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
DETAILS, INC.
ARTICLE ONE: NAME
The name of this Corporation is: Details, Inc.
ARTICLE TWO: PURPOSE
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE THREE: LIMITATION OF DIRECTORS' LIABILITY
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE FOUR: INDEMNIFICATION
This Corporation is authorized to indemnify the directors and officers
of this Corporation to the fullest extent permissible under California law and
in excess of that otherwise permitted under Section 317 of the California
Corporations Code.
<PAGE>
ARTICLE FIVE: AUTHORIZED SHARES
The total number of shares which the Corporation is authorized to
issue is 1,000 shares, all of the same class, designated "Common Stock".
ARTICLE SIX: AGENT FOR SERVICE
The name and address in the State of California of the Corporation's
initial agent for service of process is K.C. Schaaf, 660 Newport Center Drive,
Suite 1600, Newport Beach, California 92660.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on October 31, 1997.
/s/ Lisa Busalacchi
------------------------------------
Lisa Busalacchi, Incorporator
<PAGE>
DETAILS, INC.
BY-LAWS
<PAGE>
DETAILS, INC.
BY-LAWS
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 1
CORPORATE OFFICES............................................................ 5
1.1. PRINCIPAL OFFICE.................................................. 5
1.2. OTHER OFFICES..................................................... 5
ARTICLE II
MEETINGS OF SHAREHOLDERS..................................................... 5
2.1. PLACE OF MEETINGS................................................. 5
2.2. ANNUAL MEETING.................................................... 5
2.3. SPECIAL MEETING................................................... 5
2.4. NOTICE OF SHAREHOLDERS' MEETINGS.................................. 6
2.5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE...................... 6
2.6. QUORUM............................................................ 7
2.7. ADJOURNED MEETING; NOTICE......................................... 7
2.8. VOTING............................................................ 7
2.9. VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................. 8
2.10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........... 9
2.11. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS....... 10
2.12. PROXIES........................................................... 10
2.13. INSPECTORS OF ELECTION............................................ 11
ARTICLE III
DIRECTORS.................................................................... 11
3.1. POWERS............................................................ 11
3.2. NUMBER OF QUALIFICATION OF DIRECTORS.............................. 12
3.3. ELECTION AND TERM OF OFFICE OF DIRECTORS.......................... 12
3.4. RESIGNATION AND VACANCIES......................................... 12
3.5. PLACE OF MEETINGS; MEETINGS BY TELEPHONE.......................... 13
3.6. REGULAR MEETINGS.................................................. 13
3.7. SPECIAL MEETINGS; NOTICE.......................................... 13
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
3.8. QUORUM............................................................ 13
3.9. WAIVER OF NOTICE.................................................. 14
3.10. ADJOURNMENT....................................................... 14
3.11. NOTICE OF ADJOURNMENT............................................. 14
3.12. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................. 14
3.13. FEES AND COMPENSATION OF DIRECTORS................................ 14
3.14. APPROVAL OF LOANS TO OFFICERS..................................... 14
ARTICLE IV
COMMITTEES................................................................... 15
4.1. COMMITTEES OF DIRECTORS............................................ 15
4.2. MANAGEMENT AND COMPENSATION COMMITTEES............................. 15
4.3. MEETINGS AND ACTION OF COMMITTEES.................................. 16
4.4. ADVISORY DIRECTORS................................................. 16
ARTICLE V
OFFICERS..................................................................... 17
5.1. OFFICERS........................................................... 17
5.2. ELECTION OF OFFICERS............................................... 17
5.3. SUBORDINATE OFFICERS............................................... 17
5.4. REMOVAL AND RESIGNATION OF OFFICERS................................ 17
5.5. VACANCIES OF OFFICES............................................... 17
5.6. CHAIRMAN OF THE BOARD.............................................. 17
5.7. PRESIDENT.......................................................... 18
5.8. VICE PRESIDENTS.................................................... 18
5.9. SECRETARY.......................................................... 18
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.......... 19
6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................... 19
6.2. INDEMNIFICATION OF OTHERS.......................................... 19
6.3. PAYMENT OF EXPENSES IN ADVANCE..................................... 19
6.4. INDEMNITY NOT EXCLUSIVE............................................ 19
6.5. INSURANCE INDEMNIFICATION.......................................... 20
6.6. CONFLICTS.......................................................... 20
ARTICLE VII
RECORDS AND REPORTS.......................................................... 20
7.1. MAINTENANCE AND INSPECTION OF SHARE REGISTER....................... 20
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
7.2. MAINTENANCE AND INSPECTION OF BY-LAWS.............................. 21
7.3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.............. 21
7.4. INSPECTION BY DIRECTORS............................................ 21
7.5. ANNUAL REPORT TO SHAREHOLDERS; WAIVER.............................. 22
7.6. FINANCIAL STATEMENTS............................................... 22
7.7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS..................... 22
ARTICLE VIII
GENERAL MATTERS.............................................................. 23
8.1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.............. 23
8.2. CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS........................... 23
8.3. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.................. 23
8.4. CERTIFICATE FOR SHARES............................................. 24
8.5. LOST CERTIFICATES.................................................. 24
8.6. CONSTRUCTION; DEFINITIONS.......................................... 24
ARTICLE IX
AMENDMENTS................................................................... 24
9.1. AMENDMENT BY SHAREHOLDERS.......................................... 24
9.2. AMENDMENT BY DIRECTORS............................................. 25
</TABLE>
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<PAGE>
DETAILS, INC.
BY-LAWS
ARTICLE I
CORPORATE OFFICES
1.1. PRINCIPAL OFFICE. The board of directors shall fix the location of
----------------
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
such state and the corporation has one or more business offices in such state,
then the board of directors shall fix and designate a principal business office
in the State of California.
1.2. OTHER OFFICES. The board of directors may at any time establish
-------------
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any
-----------------
place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
2.2. ANNUAL MEETING. The annual meeting of shareholders shall be held
--------------
each year on a date and at a time designated by the board of directors. However,
if such day falls on a legal holiday, then the meeting shall be held at the same
time and place on the next succeeding full business day. At the meeting,
directors shall be elected, and any other proper business may be transacted.
2.3. SPECIAL MEETING. A special meeting of the shareholders may be called
---------------
at any time by the board of directors, or by the chairman of the board, or by
the president, or by one or more shareholders holding shares in the aggregate
entitled to cast not less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to
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<PAGE>
the shareholders entitled to vote, in accordance with the provisions of Sections
2.4 and 2.5 of these by-laws, that a meeting will be held at the time requested
by the person or persons calling the meeting, so long as that time is not less
than 25 nor more than 45 days after the receipt of the request. If the notice is
not given within 10 days after receipt of the request, then the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing or
affecting the time when a meeting of shareholders called by action of the board
of directors may be held.
2.4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
--------------------------------
shareholders shall be sent or otherwise given in accordance with Section 2.5 of
these by-laws not less than 10 (or, if sent by third-class mail pursuant to
Section 2.5 of these by-laws, 30) nor more then 60 days before the date of the
meeting. The notice shall specify the place, date and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the shareholders (but subject to the provisions of the next paragraph
of this Section 2.4 any proper matter may be presented at the meeting for such
action). The notice of any meeting at which directors are to be elected shall
include the name of any nominee or nominees who, at the time of the notice, the
board intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the General Corporation Law of the State of
California (the "Code"), (ii) an amendment of the articles of incorporation,
pursuant to Section 902 of the Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the
corporation, pursuant to Section 1900 of the Code, or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of the Code, then the notice shall also state
the general nature of that proposal.
2.5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE. Written notice of any
--------------------------------------------
meeting of shareholders shall be given either (i) personally or (ii) by
first-class mail or (iii) by third-class mail but only if the corporation has
outstanding shares held of record by 500 or more persons (determined as provided
in Section 605 of the Code) on the record date for the shareholders' meeting, or
(iv) by telegraphic or other written communication. Notices not personally
delivered shall be sent charges prepaid and shall be addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have
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<PAGE>
been given at the time when delivered personally or deposited in the mail or
sent by telegraph or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the Shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6. QUORUM. The presence in person or by proxy of the holders of a
------
majority of the shares entitled to vote thereat constitutes a quorum for the
transaction of business at all meetings of shareholders. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or
-------------------------
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy. In the absence of a quorum, no other business may be
transacted at that meeting except as provided in Section 2.6 of these by-laws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than 45 days from the date set for the original meeting,
then notice of the adjourned meeting shall be given. Notice of any such
adjourned meeting shall be given to each shareholder of record entitled to vote
at the adjourned meeting in accordance with the provisions of Section 2.4 and
2.5 of these by-laws. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
2.8. VOTING. The shareholders entitled to vote at any meeting of
------
shareholders shall be determined in accordance with the provisions of Section
2.11 of these by-laws, subject to the provisions of Sections 702 through 704 of
the Code (relating to voting shares held by a fiduciary, in the name of a
corporation or in joint ownership).
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<PAGE>
The shareholders' vote may be by voice vote or by ballot; provided,
--------
however, that any election for directors must be by ballot if demanded by any
- -------
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
Each shareholder entitled to vote at any election of directors shall have
the right to cumulate his votes and give candidate a number of votes equal to
the number of directors to be elected multiplied by the number of votes to which
his shares are normally entitled, or to distribute his votes on the same
principle among as many candidates as he desires. No shareholder shall be
entitled to cumulate votes unless the candidate's or candidates' names for whom
he desires to vote have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of his intention
to cumulate his votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination. In any
election of directors, the candidates receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of directors to be elected by such shares, shall be elected; votes against the
director and votes withheld shall have no legal effect. In voting on all other
matters submitted to a vote of the shareholders, each shall be entitled to one
vote, unless provided otherwise in the Articles of Incorporation.
2.9. VALIDATION OF MEETINGS; WAIVER OF NOTICE: CONSENT. The transactions of
-------------------------------------------------
any meeting of shareholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, and if, either
before or after the meeting, each person entitled to vote, who was not present
in person or by proxy, signs a written waiver of notice or a consent to the
holding of the meeting or an approval of the minutes thereof. The waiver of
notice or consent or approval need not specify either the business to be
transacted or the purpose of any annual or
-8-
<PAGE>
special meeting of shareholders, except that if action is taken or proposed to
be taken for approval of any of those matters specified in the second paragraph
of Section 2.4 of these by-laws, the waiver of notice or consent or approval
shall state the general nature of the proposal. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of a presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
-------------------------------------------------------
which may be taken at any annual or special meeting of shareholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the action to be taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares entitled to vote
on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these by-laws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of
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<PAGE>
the Code, the notice shall be given at least 10 days before the consummation of
any action authorized by that approval.
2.11. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS. For
purposes of determining the shareholders entitled to notice of any meeting or to
vote thereat or entitled to give consent to corporate action without a meeting,
the board of directors may fix, in advance, a record date, which shall not be
more than 60 days nor less than 10 days before the date of any such meeting nor
more than 60 days before any such action without a meeting, and in such event
only shareholders of record on the date so fixed are entitled to notice and to
vote or to give consents, as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action by the board has been
taken, shall be at the close of business on the date on which the board
adopts the resolution relating to that action, or the 60th day before the
date of such other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these by-laws.
2.12. PROXIES. Every person entitled to vote for directors, or on any
-------
other matter, shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i) the
person who executed the proxy revokes it prior to the time of voting by
delivering a writing to the corporation stating that the proxy is revoked or by
executing a subsequent proxy and presenting it to the meeting or by voting in
person at the meeting, or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the corporation before the vote pursuant to
the proxy is counted; provided, however, that no proxy shall be valid after the
-------- -------
expiration of eleven (11) months from the date of the proxy, unless otherwise
provided in the proxy. The dates contained on the forms of
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<PAGE>
proxy presumptively determine the order of execution, regardless of the postmark
date on the envelopes in which they are mailed. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION. Before any meeting of shareholders, the
----------------------
board of directors may appoint an inspector or inspectors of election to act at
the meeting or its adjournment. If no inspector of election is so appointed,
then the chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint an inspector or inspectors of election to act
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting pursuant to the request of one (1) or
more shareholders or proxies, then the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, then the chairman of the meeting may, and
upon the request of any shareholder or a shareholder's proxy shall, appoint a
person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1. POWERS. Subject to the provisions of the Code and any limitations in
------
the articles of incorporation and these by-laws relating to action required to
be approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be
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<PAGE>
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
3.2 NUMBER AND QUALIFICATION OF DIRECTORS. As provided in the articles of
-------------------------------------
incorporation of the corporation, the authorized number of directors shall be
five. Directors need not be residents of the State of California nor
shareholders of the Corporation.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected
----------------------------------------
at each annual meeting of shareholders to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES. Any director may resign effective on giving
-------------------------
written notice to the chairman of the board, the president, the secretary or the
board of directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of a director is effective
at a future time, the board of directors may elect a successor to take office
when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified. Whenever the holders of any class or
series of the corporation's stock are entitled to elect one or more directors by
the provisions of the articles of incorporation, the provisions of this section
shall apply, with respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, an any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
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<PAGE>
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5. PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the
----------------------------------------
board of directors may be held at any place within or outside the State of
California that have been designated from time to time by resolution of the
board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special meetings of the board
may be held at any place within or outside the State of California that has been
designated in the notice of the meeting or, if not stated in the notice or if
there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6. REGULAR MEETINGS. Regular meetings of the board of directors may
----------------
be held without notice if the times of such meetings are fixed by the board of
directors.
3.7. SPECIAL MEETINGS; NOTICE. Special meetings of the board of
------------------------
directors for any purpose or purposes may be called at any time by the chairman
of the board, the president, any vice president, the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally, by facsimile or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least 48 hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8. QUORUM. A majority of the authorized number of directors shall
------
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.10 of these by-laws. Every act or decision done or made by
a majority of the directors present at a duly held meeting at which a quorum is
present shall be regarded as the act of the board of directors, subject to the
provisions of Section 310 of the Code (as to approval of contracts or
transactions in which a director has a director or indirect material financial
interest), Section
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311 of the Code (as to appointment of committees), Section 317(e) of the code
(as to indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9. WAIVER OF NOTICE. Notice of a meeting need not be given to any
----------------
director (i) who signs a waiver of notice or a consent to holding the meeting or
any approval of the minutes thereof, whether before or after the meeting or (ii)
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents,
and approvals shall be filed with the corporate records or made part of the
minutes of the meeting. A waiver of notice need not specify the purpose of any
regular or special meeting of the board of directors.
3.10. ADJOURNMENT. A majority of the directors present, whether or not
-----------
constituting a quorum, may adjourn any meeting to another time and place.
3.11. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
---------------------
adjourned meeting need not be given unless the meeting is adjourned for more
than 24 hours. If the meeting is adjourned for more than 24 hours, then notice
of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.7 of these
by-laws, to the directors who were not present at the time of the adjournment.
3.12. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
-------------------------------------------------
required or permitted to be taken by the board of directors may be taken without
a meeting, provided that all members of the Board individually or collectively
consent in writing to that action. Such action by written consent shall have the
same force and effect as a unanimous vote of the board of directors. Such
written consent and any counterparts thereof shall be filed with the minutes of
the proceedings of the board.
3.13. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
----------------------------------
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. This Section 3.13 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
3.14. APPROVAL OF LOANS TO OFFICERS. The corporation may, upon the
-----------------------------
approval of the board of directors alone, make loans of money or property to, or
guarantee the obligations of, any officer of the corporation or its parent or
subsidiary, whether or not a director, or adopt an employee benefit plan or
plans authorizing such loans or guaranties
-14-
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provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1. COMMITTEES OF DIRECTORS. The board of directors may, by
-----------------------
resolution adopted by a majority of the authorized number of directors,
designate one (1) or more committees, each consisting of two or more directors,
to serve at the pleasure of the board. The board may designate one (1) or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any committee, to the extent provided in the resolution of the
board, shall have all the authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the board or any committee;
(d) the amendment or repeal of these by-laws or the adoption of
new by-laws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation
(except at a rate or in a periodic amount or within a price range
determined by the board of directors); or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2. MANAGEMENT AND COMPENSATION COMMITTEES. Without limiting the
--------------------------------------
generality of Section 4.1, there shall be a committee comprised of the two
directors specified in the next sentence to be known as the "Management and
Compensation Committee." The Management and Compensation Committee shall be
comprised of the two
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Class I Directors. The Management and Compensation Committee will have exclusive
authority over all aspects of the employment and compensation (cash and
non-cash) of all members of senior management of the corporation, including,
without limitation, the administration of the corporation's employee stock
purchase, stock option and other equity incentive plans (including, the grant of
awards, options or benefits thereunder and the determination of the terms and
conditions of such awards, options and benefits, including particularly those
under the Performance Stock Option Plan of the corporation) and the
corporation's management bonus program and other employee benefit plans and
programs. All determinations of the Management and Compensation Committee shall
be conclusive with respect to the corporation.
4.3. MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees
---------------------------------
shall be governed by, and held and taken in accordance with, the bylaw
provisions applicable to meetings and actions of the board of directors as
provided in Section 3.5 (place of meetings), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of
adjournment), and Section 3.12 (action without meeting), with such changes in
the context of those by-laws as are necessary to substitute the committee and
its members for the board of directors and its members; provided, however, that
-------- -------
the time of regular meetings of committees may be determined either by
resolution of the board of directors (other than the Management and Compensation
Committee) or by resolution of the committee, that special meetings of
committees (other than the Management and Compensation Committee) may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee (other than the
Management and Compensation Committee). The board of directors may adopt rules
for the government of any committee not inconsistent with the provisions of
these by-laws.
4.4. ADVISORY DIRECTORS. The board of directors may, in its discretion,
------------------
designate by resolution one or more individuals as advisory directors of the
corporation (the "Advisory Directors"). The Advisory Directors shall from time
to time render such advice to the board of directors as it may request with
respect to the business and affairs of the corporation and shall serve such
other purposes as the board of directors may, by resolution, lawfully determine.
ARTICLE V
OFFICERS
5.1. OFFICERS. The officers of the corporation shall be a president, a
--------
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be appointed in
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accordance with the provisions of Section 5.3 of these by-laws. Any number of
offices may be held by the same person.
5.2 ELECTION OF OFFICERS. The officers of the corporation, except such
--------------------
officers as may be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of these by-laws, shall be chosen by the board, subject to the
rights, if any, an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS. The board of directors may appoint, or may
--------------------
empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these by-laws or as
the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any,
-----------------------------------
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these by-laws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer
---------------------
be elected, shall, if present, preside at all meetings of the shareholders and
at meetings of the board of directors and exercise and perform such other powers
and duties as may from time to time be assigned to him by the board of
directors or as may be prescribed by these by-laws. He shall have the general
powers and duties of management usually vested in the office of the chairman of
the board of a corporation, and shall have such other powers and duties as may
be prescribed by the board of directors or these by-laws.
5.7 PRESIDENT. The President shall be the chief operating officer of the
---------
corporation and shall, subject to the control of the board of directors, have
general responsibility for the operation of the business of the corporation. The
President shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the
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corporation. In the absence or disability of the chairman of the board, the
President shall perform all of the duties of the chairman of the board and when
so acting shall have all the powers of, and be subject to all the restrictions
upon, the chairman of the board.
5.8. VICE PRESIDENTS. In the absence or disability of the president, the
---------------
vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these by-laws, the president or the chairman of the board.
5.9. SECRETARY. The secretary shall keep or cause to be kept, at the
---------
principal executive office of the corporation or such other place as the board
of directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificate evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these by-laws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these by-laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to
-----------------------------------------
the maximum extent and in the manner permitted by the Code, indemnify each of
its directors and officers against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such
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person is or was an agent of the corporation. For purposes of this Article VI,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director of officer of the corporation (ii) who 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, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2. INDEMNIFICATION OF OTHERS. The corporation shall have the power, to
-------------------------
the extent and in the manner permitted by the Code, to indemnify each of its
employees and agents (other than directors and officers) against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any proceeding
(as defined in Section 317(a) of the Code), arising by reason of the fact that
such person is or was an agent of the corporation. For purposes of this Article
VI, an "employee" or "agent" of the corporation (other than a director or
officer) includes any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3. PAYMENT OF EXPENSE IN ADVANCE. Expenses incurred in defending any
-----------------------------
civil or criminal action or proceeding for which indemnification is required
pursuant to Section 6.1 or for which indemnification is permitted pursuant to
Section 6.2 following authorization thereof by the Board of Directors may be
paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on be half of the indemnified
party to repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified as authorized in this
Article VI.
6.4. INDEMNITY NOT EXCLUSIVE. The indemnification provided by this
-----------------------
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitles under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent that such additional rights to indemnification are
authorized in the Articles of Incorporation.
6.5. INSURANCE INDEMNIFICATION. The corporation shall have the power to
-------------------------
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against or incurred by such person in such capacity or arising out of
such person's status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of this
Article VI.
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6.6. CONFLICTS. No indemnification or advance shall be made under this
---------
Article VI, except where such indemnification or advance is mandated by law or
other order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the Articles
of Incorporation, these by-laws, a resolution of the shareholders or an
agreement in effect at the time the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance And Inspection Of Share Register. The corporation shall
--------------------------------------------
keep either at its principal executive office or at the office of its transfer
agent or registrar (if either be appointed), as determined by resolution of the
board of directors, a record of its shareholders listing the names and addresses
of all shareholders and the number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent in the aggregate of the outstanding voting shares of the corporation or
who holds at least one percent of such voting shares and has filed a Schedule
14B with the Securities and Exchange Commission relating to the election of
directors, may (i) inspect and copy the records of shareholders' names,
addresses, and shareholdings during usual business hours on five days' prior
written demand on the corporation, (ii) obtain from the transfer agent of the
corporation, on written demand and on the tender of such transfer agent's usual
charges for such list, a list of the names and addresses of the shareholders who
are entitled to vote for the election of directors, and their shareholdings, as
of the most recent record date, for which that list has been compiled or as of a
date specified by the shareholder after the date of demand. Such list shall be
made available to any such shareholder by the transfer agent on or before the
later of five days after the demand is received or five days after the date
specified in the demand as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to he holder's
interests as a shareholder or as the holder of a voting trust certificate.
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Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2. MAINTENANCE AND INSPECTION OF BY-LAWS. The corporation shall keep at
-------------------------------------
its principal executive office or, if its principal executive office is not in
the State of California, at its principal business office in California the
original or a copy of these by-laws as amended to date, which by-laws shall be
open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California and the corporation has no principal business office in such
state, then the secretary shall, upon the written request of any shareholder,
furnish to that shareholder a copy of these by-laws as amended to date.
7.3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting
-----------------------------------------------------
books and records and the minutes of proceedings of the shareholders, of the
board of directors, and of any committee or committees of the board of directors
shall be kept at such place or places as are designated by the board of
directors or, in absence of such designation, at the principal executive office
of the corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4. INSPECTION BY DIRECTORS. Every director shall have the absolute right
-----------------------
at any reasonable time to inspect all books, records, and documents of every
kind as well as the physical properties of the corporation and each of its
subsidiary corporations. Such inspection by a director may be made in person or
by an agent or attorney. The right of inspection includes the right to copy and
make extracts of documents.
7.5. ANNUAL REPORT TO SHAREHOLDERS; WAIVER. The board of directors shall
-------------------------------------
cause an annual report to be sent to the shareholders not later than 120 days
after the close of the fiscal year adopted by the corporation. Such report shall
be sent at least 15 days (or, if sent by third-class mail, 35 days) before the
annual meeting of shareholders to be held during the next fiscal year and in the
manner specified in Section 2.5 of these by-laws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv)
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any report of independent accountants or, if there is no such report, the
certificate of an authorized officer of the corporation that the statements were
prepared without audit from the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than 100 holders of record.
7.6. FINANCIAL STATEMENTS. If no annual report for the fiscal year has
--------------------
been sent to shareholders, then the corporation shall, upon the written request
of any shareholder made more than 120 days after the close of such fiscal year,
deliver or mail to the person making the request, within 30 days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than 30 days before the date of the request, and for a balance sheet
of the corporation as of the end of that period, then the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within 30 days after the receipt of the request. If the
corporation has not sent to the shareholders its annual report for the last
fiscal year, the statements referred to in the first paragraph of this Section
7.6 shall likewise be delivered or mailed to the shareholder or shareholders
within 30 days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of the independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of
----------------------------------------------
the board, the president or any vice president, the chief financial officer, the
secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
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8.1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
-----------------------------------------------------
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the shareholders
entitled to exercise any rights in respect of any lawful action (other than
action by shareholders by written consent without a meeting), the board of
directors may fix, in advance, a record date, which shall not be more than 60
days before any such action. In that case, only shareholders of record at the
close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Code.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
60th day before the date of that action, whichever is later.
8.2. CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS. From time to time, the
----------------------------------------
board of directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes or
other evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
8.3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
-------------------------------------------------
directors, except as otherwise provided in these by-laws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4. CERTIFICATE FOR SHARES. A certificate or certificates for shares
----------------------
of the corporation shall be issued to each shareholder when any of such shares
are fully paid. The board of directors may authorize the issuance of
certificates for shares partly paid provided that these certificates shall state
the total amount of the consideration to be paid for them and the amount
actually paid. All certificates shall be signed in the name of the corporation
by the chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
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In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5. LOST CERTIFICATES. Except as provided in this Section 8.5, no new
-----------------
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and canceled at
the same time. The board of directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of replacement certificates on such terms and conditions as the board
may require; the board may require indemnification of the corporation secured by
a bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of the certificate or the
issuance of the replacement certificate.
8.6. CONSTRUCTION; DEFINITIONS. Unless the context requires
--------------------------
otherwise, the general provisions, rules of construction, and definitions in the
Code shall govern the construction of these by-laws. Without limiting the
generality of this provision, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both a
corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1. AMENDMENT BY SHAREHOLDERS. New by-laws may be adopted or these
-------------------------
by-laws may be amended or repealed by the vote or written consent of holders of
a majority of the outstanding shares entitled to vote; provided, however, that
-------- -------
if the articles of incorporation of the corporation set forth the number of
authorized directors of the corporation, then the authorized number of directors
may be changed only by an amendment of the articles of incorporation.
9.2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders
----------------------
as provided in Section 9.1 of these by-laws, by-laws, other than a bylaw or an
amendment of a bylaw changing the authorized number of directors (except to fix
the authorized number of directors pursuant to a bylaw providing for a variable
number of directors), may be adopted, amended or repealed by the board of
directors.
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<PAGE>
EXECUTION COPY
================================================================================
DETAILS, INC.,
as Issuer
and
STATE STREET BANK AND TRUST COMPANY,
as Trustee
--------------------
Indenture
Dated as of November 18, 1997
--------------------
10% Senior Subordinated Notes due 2005
================================================================================
<PAGE>
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of November 18, 1997 *
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
(S) 310(a)(1) ................................... 608
(a)(2) ................................... 608
(b) ................................... 609
(S) 312(a) ................................... 701
(c) ................................... 702
(S) 313(a) ................................... 703
(c) ................................... 703
(S) 314(a)(4) ................................... 1010(a)
(c)(1) ................................... 102
(c)(2) ................................... 102
(e) ................................... 102
(S) 315(a) ................................... 601(a)
(b) ................................... 602
(c) ................................... 601(b)
(d) ................................... 601(c), 603
316(a)(last sentence) ...................................
101 ("Outstanding")
(a)(1)(A) ................................... 502, 512
(a)(1)(B) ................................... 513
(b) ................................... 508
(c) ................................... 104(d)
(S) 317(a)(1) ................................... 503
(a)(2) ................................... 504
(b) ................................... 1003
(S) 318(a) ................................... 111
</TABLE>
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* Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS*
ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
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SECTION 101. Definitions................................................... 1
SECTION 102. Compliance Certificates and Opinions.......................... 18
SECTION 103. Form of Documents Delivered to Trustee........................ 18
SECTION 104. Acts of Holders............................................... 19
SECTION 105. Notices, Etc., to Trustee, the Company and any Subsidiary
Guarantor................................................... 20
SECTION 106. Notice to Holders; Waiver..................................... 20
SECTION 107. Effect of Headings and Table of Contents...................... 21
SECTION 108. Successors and Assigns........................................ 21
SECTION 109. Separability Clause........................................... 21
SECTION 110. Benefits of Indenture......................................... 21
SECTION 111. Governing Law................................................. 21
SECTION 112. Legal Holidays................................................ 21
SECTION 113. No Personal Liability of Directors, Officers, Employees,
Stockholders or Incorporators............................... 22
SECTION 114. Counterparts.................................................. 22
SECTION 115. Communications by Holders with Other Holders.................. 22
ARTICLE TWO. NOTE FORMS
SECTION 201. Forms Generally............................................... 22
SECTION 202. Restrictive Legends........................................... 24
SECTION 203. Form of Note.................................................. 26
SECTION 204. Form of Trustee's Certificate of Authentication............... 40
SECTION 205. Form of Regulation S Certificate.............................. 40
ARTICLE THREE. THE NOTES
SECTION 301. Title and Terms............................................... 41
SECTION 302. Denominations................................................. 42
SECTION 303. Execution, Authentication, Delivery and Dating................ 42
SECTION 304. Temporary Notes............................................... 43
SECTION 305. Registration, Registration of Transfer and Exchange........... 43
SECTION 306. Book-Entry Provisions for Global Notes........................ 44
SECTION 307. Special Transfer Provisions................................... 45
SECTION 308. Form of Certificate to Be Delivered in Connection with
Transfers to Institutional Accredited Investors............. 48
SECTION 309. Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S.......................... 49
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes................... 50
SECTION 311. Payment of Interest; Interest Rights Preserved................ 51
SECTION 312. Persons Deemed Owners......................................... 52
SECTION 313. Cancellation.................................................. 52
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* Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
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SECTION 314. Computation of Interest....................................... 52
SECTION 315. CUSIP Numbers................................................. 53
ARTICLE FOUR. SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture....................... 53
SECTION 402. Application of Trust Money.................................... 54
ARTICLE FIVE. REMEDIES
SECTION 501. Events of Default............................................. 55
SECTION 502. Acceleration of Maturity; Rescission and Annulment............ 56
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee..................................................... 57
SECTION 504. Trustee May File Proofs of Claim.............................. 57
SECTION 505. Trustee May Enforce Claims Without Possession of Notes........ 58
SECTION 506. Application of Money Collected................................ 58
SECTION 507. Limitation on Suits........................................... 59
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest................................................ 59
SECTION 509. Restoration of Rights and Remedies............................ 59
SECTION 510. Rights and Remedies Cumulative................................ 60
SECTION 511. Delay or Omission Not Waiver.................................. 60
SECTION 512. Control by Holders............................................ 60
SECTION 513. Waiver of Past Defaults....................................... 60
SECTION 514. [Intentionally Omitted]....................................... 61
SECTION 515. Undertaking for Costs......................................... 61
ARTICLE SIX. THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities........................... 61
SECTION 602. Notice of Defaults............................................ 62
SECTION 603. Certain Rights of Trustee..................................... 62
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes..... 64
SECTION 605. May Hold Notes................................................ 64
SECTION 606. Money Held in Trust........................................... 64
SECTION 607. Compensation and Reimbursement................................ 64
SECTION 608. Corporate Trustee Required; Eligibility....................... 65
SECTION 609. Resignation and Removal; Appointment of Successor............. 65
SECTION 610. Acceptance of Appointment by Successor........................ 66
SECTION 611. Merger, Conversion, Consolidation or Succession to Business... 67
SECTION 612. Trustee's Application for Instructions from the Company....... 67
ARTICLE SEVEN. HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses................ 68
SECTION 702. Disclosure of Names and Addresses of Holders.................. 68
SECTION 703. Reports by Trustee............................................ 68
ARTICLE EIGHT. MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.......... 68
SECTION 802. Successor Substituted......................................... 69
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ARTICLE NINE. SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders............ 70
SECTION 902. Supplemental Indentures with Consent of Holders............... 70
SECTION 903. Execution of Supplemental Indentures.......................... 71
SECTION 904. Effect of Supplemental Indentures............................. 71
SECTION 905. Conformity with Trust Indenture Act........................... 71
SECTION 906. Reference in Notes to Supplemental Indentures................. 72
SECTION 907. Notice of Supplemental Indentures............................. 72
SECTION 908. Effect on Senior Indebtedness................................. 72
ARTICLE TEN. COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.......... 72
SECTION 1002. Maintenance of Office or Agency.............................. 72
SECTION 1003. Money for Note Payments to Be Held in Trust.................. 73
SECTION 1004. Corporate Existence.......................................... 74
SECTION 1005. Payment of Taxes and Other Claims............................ 74
SECTION 1006. [Intentionally Omitted]...................................... 74
SECTION 1007. [Intentionally Omitted]...................................... 74
SECTION 1008. [Intentionally Omitted]...................................... 74
SECTION 1009. Limitation on Restricted Payments............................ 74
SECTION 1010. Limitation on Indebtedness................................... 77
SECTION 1011. Limitation on Layering....................................... 78
SECTION 1012. Limitation on Affiliate Transactions......................... 78
SECTION 1013. Limitation on Restrictions on Distributions from Restricted
Subsidiaries............................................... 79
SECTION 1014. Limitation on Liens.......................................... 80
SECTION 1015. Change of Control............................................ 80
SECTION 1016. Limitation on Sales of Assets and Subsidiary Stock........... 81
SECTION 1017. SEC Reports.................................................. 82
SECTION 1018. Future Subsidiary Guarantors................................. 82
SECTION 1019. Limitation on Lines of Business.............................. 83
SECTION 1020. Statement by Officers as to Default.......................... 83
ARTICLE ELEVEN. REDEMPTION OF NOTES
SECTION 1101. Optional Redemption.......................................... 84
SECTION 1102. Applicability of Article..................................... 84
SECTION 1103. Election to Redeem; Notice to Trustee........................ 84
SECTION 1104. Selection by Trustee of Notes to Be Redeemed................. 84
SECTION 1105. Notice of Redemption......................................... 84
SECTION 1106. Deposit of Redemption Price.................................. 85
SECTION 1107. Notes Payable on Redemption Date............................. 85
SECTION 1108. Notes Redeemed in Part....................................... 86
ARTICLE TWELVE. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant
Defeasance................................................. 86
SECTION 1202. Legal Defeasance and Discharge............................... 86
SECTION 1203. Covenant Defeasance.......................................... 87
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance........ 87
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SECTION 1205. Deposited Money and Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions..................... 88
SECTION 1206. Reinstatement................................................ 89
ARTICLE THIRTEEN. SUBORDINATION OF NOTES
SECTION 1301. Notes Subordinate to Senior Indebtedness..................... 89
SECTION 1302. Payment over of Proceeds upon Dissolution, Etc............... 89
SECTION 1303. Suspension of Payment When Senior Indebtedness in Default.... 90
SECTION 1304. Acceleration of Notes........................................ 90
SECTION 1305. When Distribution Must Be Paid Over.......................... 91
SECTION 1306. Notice by Company............................................ 91
SECTION 1307. Payment Permitted If No Default.............................. 91
SECTION 1308. Subrogation to Rights of Holders of Senior Indebtedness...... 91
SECTION 1309. Provisions Solely to Define Relative Rights.................. 92
SECTION 1310. Trustee to Effectuate Subordination.......................... 92
SECTION 1311. Subordination May Not Be Impaired by Company................. 92
SECTION 1312. Distribution or Notice to Representative..................... 92
SECTION 1313. Notice to Trustee............................................ 93
SECTION 1314. Reliance on Judicial Order or Certificate of Liquidating
Agent..................................................... 93
SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.......................... 93
SECTION 1316. Article Applicable to Paying Agents.......................... 94
SECTION 1317. No Suspension of Remedies.................................... 94
SECTION 1318. Modification of Terms of Senior Indebtedness................. 94
SECTION 1319. [Intentionally Omitted]...................................... 94
SECTION 1320. Trust Moneys Not Subordinated................................ 94
</TABLE>
iv
<PAGE>
INDENTURE, dated as of November 18, 1997, between DETAILS, INC., a
California corporation (the "Company"), having its principal office at 1231
Simon Circle, Anaheim, California 92806, and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, as trustee (the "Trustee"), having its
principal corporate trust office at Two International Place, 4th Floor, Boston,
Massachusetts 02110.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of (i)
the Company's 10% Senior Subordinated Notes due 2005 (the "Senior Subordinated
Notes" or the "Initial Notes") and (ii) if and when issued in exchange for
Senior Subordinated Notes as provided in the Registration Rights Agreement (as
defined herein), the Company's 10% Series B Senior Subordinated Notes due 2005
(the "Exchange Notes") (collectively, the Senior Subordinated Notes and the
Exchange Notes are referred to herein as the "Notes"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness
of the Shelf Registration Statement (as defined herein), this Indenture will be
subject to, and shall be governed by, the provisions of the Trust Indenture Act
of 1939, as amended, that are required or deemed to be part of and to govern
indentures qualified thereunder.
All things necessary have been done to make the Notes, when executed
and duly issued by the Company and authenticated and delivered hereunder by the
Trustee or the Authenticating Agent, the valid obligations of the Company and to
make this Indenture a valid agreement of the Company in accordance with their
and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 100.
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and words in the singular include the plural as well
as the singular, and words in the plural include the singular as well as
the plural;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, or defined by SEC
rule and not otherwise defined herein have the meanings assigned to them
therein, and the terms "cash transaction" and "self-liquidating paper", as
used in TIA Section 311, shall have the meanings assigned to them in the
rules of the SEC adopted under the Trust Indenture Act;
<PAGE>
2
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (as defined herein);
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) the word "or" is not exclusive; and
(f) provisions of this Indenture apply to successive events and
transactions.
Certain terms, used principally in Articles Two, Ten, Twelve and
Thirteen, are defined in those Articles.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of the Company; provided, however, that, in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a
Related Business.
"Administrative Agent" means the Chase Manhattan Bank and any and all
successors thereto.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Note at any Redemption
Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value at such time of (1) the redemption price of such
Note at November 15, 2001 (such redemption price being specified in the Form of
Note) plus (2) all required interest payments due on such Note through November
15, 2001, computed using a discount rate equal to the Treasury Rate plus 50
basis points, over (B) the principal amount of such Note.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale
of Cash Equivalents or Temporary Cash Investments in the ordinary course of
business, (iii) a disposition of inventory or a licensing of intellectual
property in the ordinary course of business, (iv) a disposition of obsolete or
worn out equipment or equipment that is no longer useful or to be used in the
conduct of the business of the Company and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (v) transactions
permitted under Section 801, (vi) for purposes of Section 1016 only, a
disposition subject to Section 1009 and (vii) the sale, discount or factoring,
in each case without recourse, of accounts receivable arising in the ordinary
course of business.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
greater of (i) the interest rate implicit in such Sale/Leaseback Transaction and
(ii) the interest rate borne by the Notes, in each case, compounded semi-
<PAGE>
3
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Bank Indebtedness" means any and all amounts, whether outstanding on
the Issue Date or thereafter incurred, payable by the Company under or in
respect of the Senior Credit Agreement and any related notes, collateral
documents, letters of credit and guarantees, including principal, premium, if
any, interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof and refinancings thereof.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banking institutions are authorized or required by law to
close in New York City or Boston, Massachusetts.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Ratings Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Ratings Group or "P-2" or the equivalent thereof by
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Change of Control" means (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Company or Holdings (or its successor by merger,
consolidation or
<PAGE>
4
purchase of all or substantially all of its assets) (for the purposes of this
clause, such person shall be deemed to beneficially own any Voting Stock of the
Company or Holdings held by a parent corporation, if such person "beneficially
owns" (as defined above), directly or indirectly, more than 50% of the voting
power of the Voting Stock of such parent corporation); (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company or Holdings (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company or Holdings was approved by a vote
of at least a majority of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved or is a designee of the
Permitted Holders or was nominated or elected by such Permitted Holders or any
of their designees) cease for any reason to constitute a majority of the Board
of Directors of the Company or Holdings then in office; (iii) the 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 Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) other than a Permitted Holder or Holdings; or (iv)
the adoption by the stockholders of a plan for the liquidation or dissolution of
the Company or Holdings.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Details, Inc., a California corporation and any and
all successors thereto.
"Consolidated Coverage Ratio" as of any date of determination means,
with respect to any Person, the ratio of (i) the aggregate amount of
Consolidated EBITDA of such Person for the period of the most recent four
consecutive fiscal quarters ending prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters (in each case,
determined, for each fiscal quarter (or portion thereof) of the four fiscal
quarters ending prior to or including the Issue Date, on a pro forma basis to
give effect to the Transactions, the Offering and the application of proceeds
thereof as if they had occurred at the beginning of such four quarter period
adjusted for any pro forma expense and cost reductions and related adjustments
that are directly attributable to the Transactions and the Offering); provided,
however, that (1) If the Company or any Restricted Subsidiary (x) has Incurred
any Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period (except that
in making such computation, the amount of Indebtedness under any revolving
credit facility outstanding on the date of such calculation shall be computed
based on (A) the average daily balance of such Indebtedness during such four
fiscal quarters or such shorter period for which such facility was outstanding
or (B) if such facility was created after the end of such four fiscal quarters,
the average daily balance of such Indebtedness during the period from the date
of creation of such facility to the date of such calculation) and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, or (y) has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of the period that is
no longer outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (in each case other than Indebtedness incurred under
any revolving credit facility unless such Indebtedness has been permanently
repaid), Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such discharge
of such Indebtedness, including with the proceeds of such new Indebtedness, as
if such discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Asset Disposition, the
Consolidated EBITDA for such period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an amount
equal to the Consolidated EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the
<PAGE>
5
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period (adjusted for any pro forma expense and cost reductions and
related adjustments calculated on a basis consistent with Regulation S-X under
the Act) and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Restricted Subsidiary during such period, Consolidated EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition or Investment occurred on the first
day of such period. For purposes of this definition, whenever pro forma effect
is to be given to an acquisition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
officer of the Company. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated EBITDA" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such non-
cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation) and less, to the extent
added in calculating Consolidated Net Income, non-cash items increasing
Consolidated Net Income (excluding such non-cash items to the extent they
represent an accrual for cash receipts to be received prior to the Stated
Maturity of the Notes) for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the interest,
depreciation and amortization of, a Restricted Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA of such Person
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Restricted Subsidiaries on a
consolidated basis determined in accordance with GAAP, plus, to the extent not
included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations and the interest portion of rent expense
associated with Attributable Indebtedness in respect of the relevant lease
giving rise thereto, determined as if such lease were a capitalized lease in
accordance with GAAP, (ii) amortization of debt discount and debt issuance cost,
(iii) capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) interest actually paid by the Company or any
such Subsidiary under any
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6
Guarantee of Indebtedness or other obligation of any other Person, (vii) net
costs associated with Hedging Obligations (including amortization of fees),
(viii) dividends in respect of all Disqualified Stock of the Company and any
Restricted Subsidiaries, in each case, held by Persons other than the Company or
a Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust to
purchase Capital Stock of the Company; provided, however, that there shall be
excluded therefrom any such interest expense of any Unrestricted Subsidiary to
the extent the related Indebtedness is not Guaranteed or paid by the Company or
any Restricted Subsidiary. For purposes of the foregoing, total interest expense
shall be determined after giving effect to any net payments made or received by
the Company and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company that was not a Wholly-Owned Subsidiary
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and shall not include interest on the Holdings Senior Discount Notes
incurred or accrued by the Company.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its Restricted Subsidiaries on a consolidated basis
determined in accordance with GAAP; provided, however, that there shall not be
included in such Consolidated Net Income: (i) any net income (loss) of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the limitations contained in (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
a Restricted Subsidiary, to the limitations contained in clause (iii) below) and
(B) the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income to the extent such loss has been funded with cash from
the Company or a Restricted Subsidiary; (ii) any net income (loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Restricted Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in (iv) below the
Company's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any property, plant or equipment of the Company
or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person; (v) any extraordinary gain or loss, (vi) any
non-cash compensation charge for employee stock options or other stock awards,
(vii) non-cash, non-recurring charges reducing Consolidated Net Income
(excluding any such non-cash charge to the extent it represents an accrual of or
reserve for cash charges in any future period or amortization of prepaid cash
expense that was paid in a prior period not included in the calculation); (viii)
non-cash, non-recurring items increasing Consolidated Net Income (excluding such
non-cash items to the extent they represent an accrual for cash receipts to be
received prior to the Stated Maturity of the Notes); and (ix) the cumulative
effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as
<PAGE>
7
of the end of the most recent fiscal quarter of the Company ending prior to the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of the Company
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Consolidated Tangible Assets" means, as of any date of determination,
the total assets, less goodwill, deferred financing costs and other intangibles
less accumulated amortization, shown on the balance sheet of the Company and its
Restricted Subsidiaries as of the most recent date for which such balance sheet
is available, determined on a consolidated basis in accordance with GAAP.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP;
provided, however, that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of the Company in any
Unrestricted Subsidiary will be accounted for as an Investment. The term
"Consolidated" has a correlative meaning.
"Corporate Trust Office" means the office of State Street Bank and
Trust Company at Two International Place, 4th Floor, Boston, Massachusetts 02110
or such other office as it may designate by written notice to the Company and
the Noteholders.
"Credit Facilities" means the senior subordinated loan facility of up
to $85 million of the Company, the senior unsecured credit facility of up to $55
million of Holdings and the credit facilities under the Senior Credit Agreement.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depository institution
hereinafter appointed by the Company.
"Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Disposition that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate executed
by the principal executive officer and the principal financial officer of the
Company or such Restricted Subsidiary, less the amount of cash or Cash
Equivalents received in connection with a sale of such Designated Noncash
Consideration. Such Officers' Certificate shall state the basis of such
valuation, which shall be as determined by an Independent Appraiser with respect
to the receipt in one or a series of related transactions of Designated Noncash
Consideration with a fair market value in excess of $10 million.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness in
the case of the Company and (ii) any other Senior Indebtedness which, at the
date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $10.0 million and is specifically designated in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable)
<PAGE>
8
or upon the happening of any event (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness or Disqualified Stock (excluding capital stock
which is convertible or exchangeable solely at the option of the Company or a
Restricted Subsidiary) or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the Stated Maturity of
the Notes, provided, that only the portion of Capital Stock which so matures or
is mandatorily redeemable, is so convertible or exchangeable or is so redeemable
at the option of the holder thereof prior to such Stated Maturity shall be
deemed to be Disqualified Stock.
"Equity Offering" means an offering for cash by either of the Company
or Holdings of its respective common stock, or options, warrants or rights with
respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer by the Company to exchange all of the
Initial Notes for a like aggregate principal amount of Exchange Notes, as
provided in the Registration Rights Agreement and this Indenture.
"Exchange Offer Registration Statement" has the meaning ascribed
thereto in the Registration Rights Agreement.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Indenture, including those
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 approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, the following obligations, whether outstanding on the date of the
Indenture or thereafter issued, without duplication: (i) any Subsidiary
Guarantee of the Bank Indebtedness by such Subsidiary Guarantor and all other
Subsidiary Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the
Company or Guarantor Senior Indebtedness for any other Subsidiary Guarantor; and
(ii) all obligations consisting of the principal of and premium, if any, and
accrued and unpaid interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Subsidiary
Guarantor regardless of whether postfiling interest is allowed in such
proceeding) on, and fees and other amount owing in respect of, all other
Indebtedness of the Subsidiary Guarantor, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that the obligations in respect of such Indebtedness are not
senior in right of payment to the obligations of such Subsidiary Guarantor under
the Subsidiary Guarantee; provided, however, that Guarantor Senior Indebtedness
shall not include (1) any
<PAGE>
9
obligations of such Subsidiary Guarantor to the Subsidiary Guarantor or any
other Subsidiary of the Subsidiary Guarantor, (2) any liability for Federal,
state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Subsidiary Guarantor
that is expressly subordinate in right of payment to any of the Indebtedness of
such Subsidiary Guarantor, including any Guarantor Senior Subordinated
Indebtedness and Guarantor Subordinated Obligations of such Subsidiary Guarantor
or (5) any Capital Stock.
"Guarantor Senior Subordinated Indebtedness" means with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and any other Indebtedness of such Subsidiary Guarantor
that specifically provides that such Indebtedness is to rank pari passu in right
of payment with the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and is not expressly subordinated by its terms in right of
payment to any Indebtedness of such Subsidiary Guarantor which is not Guarantor
Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter Incurred) which is expressly
subordinate in right of payment to the obligations of such Subsidiary Guarantor
under its Subsidiary Guarantee pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered in the Register.
"Holdings" means Details Holding Corp. (formerly known as Details,
Inc.), a California corporation, and any corporation which is the direct or
indirect sole stockholder of the Company or Holdings.
"Holdings Senior Discount Notes" means the 12 1/2% Senior Discount
Notes due 2007 issued by Holdings.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock (but excluding, in each case, any
accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and
<PAGE>
10
(B) the amount of such Indebtedness of such other Persons; (viii) all
Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix)
to the extent not otherwise included in this definition, net obligations of such
Person under Currency Agreements and Interest Rate Agreements (the amount of any
such obligations to be equal at any time to the termination value of such
agreement or arrangement giving rise to such obligation that would be payable by
such Person at such time). The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Independent Appraiser" means, with respect to any transaction or
series of related transactions, an independent, nationally recognized appraisal
or investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of Section 1009, (i) "Investment" shall include the portion (proportionate to
the Company's equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary) of the fair market value of the net assets of such
Restricted Subsidiary of the Company at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors of the Company. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
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 Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Initial Notes are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
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11
"Merger" means the merger of DI Acquisition Corp. with and into
Holdings, with Holdings as the surviving corporation on October 28, 1997.
"Management Agreement" means the Management Agreement between the
Company and Bain Capital, Inc. (and its permitted successors and assigns
thereunder) as in effect on the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) the deduction of appropriate amounts to be provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"Offering" means the offering and sale of the Initial Notes.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Bain Capital, Inc. and any Affiliate thereof
(or any wholly-owned subsidiary of Holdings for purposes of the definition of
"Change of Control.")
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) cash, Cash Equivalents and Temporary Cash Investments; (iv) receivables
owing to the Company or any Restricted Subsidiary created or acquired in the
ordinary course of business; (v) payroll, travel and similar advances made in
the ordinary course of business; (vi) loans or advances to employees and
officers made in the ordinary course of business; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; and (viii) Currency Agreements and Interest Rate
Agreements entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (ix) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar
<PAGE>
12
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (x) the Subsidiary Guarantees and guarantees by the Company of
Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of
the Company under the Indenture; (xi) Investments the payment for which consists
exclusively of Capital Stock (other than Disqualified Stock) of the Company;
provided that the fair market value of such Investments shall not be counted
under clause (3)(B) of paragraph (a) of Section 1009; (xii) Investments received
by the Company or its Restricted Subsidiaries as consideration for asset
dispositions, including Asset Dispositions; provided in the case of an Asset
Disposition, such Asset Disposition is effected in compliance with Section 1016;
and (xiii) other Investments in an aggregate amount outstanding at any time not
to exceed the greater of (A) $7.5 million and (B) 5% of Total Consolidated
Assets.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate proceedings and
as to which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof.
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default under Section
501;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary course of
business, provided, however, that (A) the related purchase money Indebtedness
shall not exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Restricted Subsidiary of the
Company other than the property and assets so acquired and (B) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment, or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
<PAGE>
13
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(xi) Liens securing Hedging Obligations that are otherwise permitted under
the Indenture;
(xii) Liens securing Indebtedness of foreign Restricted Subsidiaries of the
Company incurred in reliance on clause (b)(vii) of Section 1010;
(xiii) Liens securing acquired Indebtedness incurred in reliance on clause
(b) of Section 1010; provided that such Liens do not extend to or cover any
property or assets of the Company or any of its Restricted Subsidiaries other
than the property or assets that secured the acquired Indebtedness prior to the
time such Indebtedness became acquired Indebtedness of the Company or a
Restricted Subsidiary of the Company;
(xiv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries;
(xv) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvi) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of custom duties in connection with the importation of
goods; and
(xvii) Liens existing on the Issue Date, together with any Liens securing
Indebtedness incurred in reliance on clause (b) of Section 1010 in order to
refinance the Indebtedness secured by Liens existing on the Issue Date; provided
that the Liens securing Refinancing Indebtedness shall not extend to property
other than that pledged under the Liens securing the Indebtedness being
refinanced.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock of
the Company or Holdings, as the case may be, if the common stock of the Company
or Holdings, as the case may be, is then registered with the SEC pursuant to
Section 12(b) or 12(g) of Exchange Act and traded either on a national
securities exchange or in the National Association of Securities Dealers
Automated Quotation System.
"QIB" shall have the meaning ascribed thereto under Rule 144A of the
Securities Act.
"Recapitalization" means the recapitalization of Holdings pursuant to the
Recapitalization Agreement dated as of October 4, 1997, as amended, among
Holdings, Holdings' stockholders and DI Acquisition Corp.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
<PAGE>
14
date of the Indenture or Incurred in compliance with the Indenture (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness, provided, however, that (i) only with
respect to Indebtedness described under subclause (y) of clause (b)(iv) in
Section 1010, the Refinancing Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being refinanced (other than Indebtedness which is Senior
Indebtedness referred to in clause (iv) under Section 1010) and (ii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding (plus
fees and expenses, including any premium and defeasance costs) of the
Indebtedness being refinanced.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement dated as of November 18, 1997 between the Company and Chase Securities
Inc.
"Regular Record Date" means, with respect to any Interest Payment Date, the
May 1 or November 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses in which the Company and its
Restricted Subsidiaries are primarily engaged on the date of the Indenture.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Agreement" means (i) the senior secured Credit Agreement
dated October 28, 1997, among the Company, The Chase Manhattan Bank, as
Administrative Agent, and the lenders parties thereto from time to time, as the
same may be amended, supplemented or otherwise modified from time to time and
any guarantees issued thereunder and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Senior Credit Agreement or
any other credit or other agreement or indenture).
"Senior Indebtedness" is defined, whether outstanding on the Issue Date or
thereafter issued, created, incurred or assumed, as the Bank Indebtedness and
all other Indebtedness of the Company, including interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) thereon and fees relating
thereto, unless, in the instrument creating or evidencing the same
<PAGE>
15
or pursuant to which the same is outstanding, it is provided that the
obligations in respect of such Indebtedness are not superior in right of, or are
subordinate to, payment to the Notes; provided, however, that Senior
Indebtedness will not include (i) any obligation of the Company to any
Subsidiary, (ii) any liability for Federal, state, foreign, local or other taxes
owed or owing by the Company, (iii) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness,
Guarantee or obligation of the Company that is expressly subordinate or junior
in right of payment to any other Indebtedness, Guarantee or obligation of the
Company, including any Senior Subordinated Indebtedness and any Subordinated
Obligations or (v) any Capital Stock.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Shelf Registration Statement" has the meaning ascribed thereto in the
Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means, as to any Person, any Indebtedness of such
Person (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture, and,
collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the
form prescribed in the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary which Guarantees the
Bank Indebtedness after the Issue Date.
"Successor Company" shall have the meaning assigned thereto in Section 801.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
<PAGE>
16
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, (v) Investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc. and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb).
"Total Consolidated Assets" means, as of any date of determination, the
total assets shown on the balance sheet of the Company and its Restricted
Subsidiaries as of the most recent date for which such balance sheet is
available, determined on a consolidated basis in accordance with GAAP.
"Transactions" means, collectively, the Recapitalization, the Merger, the
initial borrowings under the Credit Facilities and all other transactions
relating to the Recapitalization, the Merger or the financing thereof.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to November 15, 2001; provided, however, that if
the period from the Redemption Date to November 15, 2001 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to November 15, 2001
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means an officer of the Trustee assigned by the Trustee to
administer its corporate trust matters or to any other officer of the Trustee to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
<PAGE>
17
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any Restricted Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 1009. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 1010 and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, all
of the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly-Owned Subsidiary.
SECTION 102. 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 and any Subsidiary
Guarantor (if applicable) and any other obligor on the Notes (if applicable)
shall furnish to the Trustee an Officers' Certificate in form and substance
reasonably acceptable to the Trustee 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.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (including certificates provided
pursuant to Section 1020(a)) shall include:
<PAGE>
18
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) 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;
(3) a statement that, in the opinion of each such individual or such firm,
he or it has made such examination or investigation as is necessary to enable
him or it to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any Subsidiary
Guarantor or other obligor on the Notes 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 representations 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, any Subsidiary Guarantor or other obligor on the Notes
stating that the information with respect to such factual matters is in the
possession of the Company, any Subsidiary Guarantor or other obligor on the
Notes 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 104. 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 agents 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 conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section 104.
<PAGE>
19
( b )
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is
by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of authority.
The fact and date of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in any other
manner that the Trustee deems sufficient.
( c )
The principal amount and serial numbers of Notes held by any Person, and
the date of holding the same, shall be proved by the Note Register.
( 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 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), such
record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and not 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 outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent 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 of the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof (including in accordance with
Section 310) in respect of anything done, omitted or suffered to be done by the
Trustee, any Paying Agent or the Company or any Subsidiary Guarantor in reliance
thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, Etc., to Trustee, the Company and any Subsidiary
---------------------------------------------------------
Guarantor.
- ---------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or any Subsidiary Guarantor
or any other obligor on the Notes or the Administrative Agent or any
representative of the holder of Senior Indebtedness shall be sufficient for
every purpose hereunder if made, given, furnished or delivered in writing and
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to or with the Trustee and received at its Corporate Trust Office,
Attention: Corporate Trust Administration-Details, Inc.
<PAGE>
20
(2) the Company or any Subsidiary Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or delivered, in writing, or
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to the Company or such Subsidiary Guarantor addressed to it and
received at the address of its principal office specified in the first
paragraph of this Indenture, or at any other address previously furnished in
writing to the Trustee by the Company or such Subsidiary Guarantor.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder, at his address as it appears in the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
If the Company mails any notice or communication to any Holder, it shall
mail a copy to the Trustee at the same time.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
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 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, (other than the parties hereto, any agent and their successors
hereunder and each of the Holders and, with respect to
<PAGE>
21
any provisions hereof relating to the subordination of the Notes or the rights
of holders of Senior Indebtedness, the holders of Senior Indebtedness) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK EXCLUDING (TO THE GREATEST
EXTENT PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. UPON THE
ISSUANCE OF THE EXCHANGE NOTES OR THE EFFECTIVENESS OF THE SHELF REGISTRATION
STATEMENT, THIS INDENTURE SHALL BE SUBJECT TO THE PROVISIONS OF THE TRUST
INDENTURE ACT THAT ARE REQUIRED TO BE PART OF THIS INDENTURE AND SHALL, TO THE
EXTENT APPLICABLE, BE GOVERNED BY SUCH PROVISIONS. EACH OF THE PARTIES HERETO
AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND
THE U.S. FEDERAL COURTS, IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN, AND
WAIVES ANY OBJECTION AS TO VENUE OR FORUM NON CONVENIENS.
SECTION 112. Legal Holidays.
--------------
In any case where any interest payment date, any date established for
payment of Defaulted Interest pursuant to Section 311 or redemption date or
Stated Maturity of any Note shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Notes) payment of principal (or
premium, if any) or interest 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 311, Redemption Date, or at the Stated Maturity or Maturity;
provided that no interest shall accrue for the period from and after such
interest payment date, redemption date or date established for payment of
Defaulted Interest pursuant to Section 311, Stated Maturity or Maturity, as the
case may be, to the next succeeding Business Day.
SECTION 113. No Personal Liability of Directors, Officers, Employees,
--------------------------------------------------------
Stockholders or Incorporators.
- -----------------------------
No director, officer, employee, incorporator or stockholders, as such, of
the Company or any Subsidiary Guarantor of the Notes shall have any liability
for any obligations of the Company or such Subsidiary Guarantor under the Notes,
this Indenture or any Guarantee of the Notes or for any claim based on, in
respect of, or by reason of, such obligations or their creations. Each Holder
by accepting a Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Notes.
SECTION 114. Counterparts.
------------
This Indenture may be signed in any number of counterparts each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Indenture.
SECTION 115. Communications by Holders with Other Holders.
--------------------------------------------
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Note Registrar and anyone else shall have the protection of TIA (S)
312(c).
<PAGE>
22
200. ARTICLE TWO. NOTE FORMS
SECTION 201. Forms Generally.
---------------
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with applicable laws or the rules of any securities exchange
or Depositary or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note. Each Note shall be dated
the date of its authentication.
Initial Notes offered and sold to the qualified institutional buyers (as
defined in Rule 144A under the Securities Act) in the United States of America
("Rule 144A Note") will be issued on the Issue Date in the form of a permanent
global Note, without interest coupons, substantially in the form set forth in
Sections 204 and 205 (a "Rule 144A Global Note") deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The Rule 144A Global Note may be
represented by more than one certificate, if so required by the Depositary's
rules regarding the maximum principal amount to be represented by a single
certificate. The aggregate principal amount of the Rule 144A Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold outside the United States of America
("Regulation S Note") in reliance on Regulation S shall be issued on the Issue
Date in the form of a temporary global Note, without interest coupons,
substantially in the form set forth in Sections 204 and 205 (a "Regulation S
Temporary Global Note"). Beneficial interests in a Regulation S Temporary
Global Note will be exchangeable for beneficial interests in a single permanent
global security (the "Regulation S Permanent Global Note", together with the
Regulation S Temporary Global Note, the "Regulation S Global Note") on or after
the expiration of the Restricted Period (the "Release Date") upon the receipt by
the Trustee or its agent of a certificate certifying that the Holder of the
beneficial interest in the Regulation S Temporary Global Note is a non-United
States Person within the meaning of Regulation S (a "Regulation S Certificate"),
substantially in the form set forth in Section 206. Upon receipt by the Trustee
or Paying Agent of a Regulation S Certificate, (i) with respect to the first
such Regulation S Certificate, the Company shall execute and upon receipt of a
Company Order for authentication, the Authenticating Agent shall authenticate
and deliver to the custodian, the applicable Regulation S Permanent Global Note
and (ii) with respect to the first and all subsequent Regulation S Certificates,
the custodian shall exchange on behalf of the applicable beneficial owners the
portion of the applicable Regulation S Temporary Global Note covered by such
Regulation S Certificates for a comparable portion of the applicable Regulation
S Permanent Global Note. Upon any exchange of a portion of a Regulation S
Temporary Global Note for a comparable portion of a Regulation S Permanent
Global Note, the custodian shall endorse on the schedules affixed to each of
such Regulation S Global Note (or on continuations of such schedules affixed to
each of such Regulation S Global Note and made parts thereof) appropriate
notations evidencing the date of transfer and (x) with respect to the applicable
Regulation S Temporary Global Note, a decrease in the principal amount thereof
equal to the amount covered by the applicable certification and (y) with respect
to the applicable Regulation S Permanent Global Note, an increase in the
principal amount thereof equal to the principal amount of the decrease in the
applicable Regulation S Temporary Global Note pursuant to clause (x) above. The
Regulation S Global Note will be deposited with the Trustee, as custodian for
the Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Regulation S Global Note may be represented by more
than one certificate, if so required by the Depositary's rules
<PAGE>
23
regarding the maximum principal amount to be represented by a single
certificate. The aggregate principal amount of the Regulation S Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold to institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) in the
United States of America ("Institutional Accredited Investor Note") will be
issued in the form of a permanent global Note substantially in the form set
forth in Sections 204 and 205 (a "Institutional Accredited Investor Global
Note") deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The Institutional Accredited Investor Global Note may be represented
by more than one certificate, if so required by the Depositary's rules regarding
the maximum principal amount to be represented by a single certificate. The
aggregate principal amount of the Institutional Accredited Investor Global Note
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
The Rule 144A Global Note, the Regulation S Global Note and the
Institutional Accredited Investor Global Note are sometimes collectively herein
referred to as the "Global Notes".
The definitive Notes shall be printed, lithographed or engraved on steel-
engraved borders or may be produced in any other manner, all as determined by
the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
SECTION 202. Restrictive Legends.
-------------------
Unless and until (i) an Initial Note is sold under an effective
Registration Statement or (ii) an Initial Note is exchanged for an Exchange Note
in connection with an effective Registration Statement, in each case pursuant to
the Registration Rights Agreement, such Rule 144A Global Note and the
Institutional Accredited Investor Global Note shall bear the following legend
(the "Private Placement Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR
SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF
<PAGE>
24
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF SECTION 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SUCH
SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR
(F) ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE
FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
The Regulation S Global Note shall bear the following legend on the face
thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) BY ITS ACCEPTANCE
HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
ACCREDITED INVESTOR WITHIN THE MEANING OF SECTION 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE
IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SUCH
SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR
(F) ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE
FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS
<PAGE>
25
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE
TRUSTEE. THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON
AND INCLUDING THE LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO
PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE
OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
The Global Notes, whether or not an Initial Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("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 REPRESENTATIVE OF DTC AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
The Regulation S Temporary Global Note shall also bear the following legend
on the face thereof:
THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").
NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE OFFERED,
SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO
RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED
CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE.
SECTION 203. Form of Note.
------------
No. ___ Principal Amount $______________
CUSIP NO. ____________
<PAGE>
26
10% [Series B]/1/ Senior Subordinated Note due 2005
Details, Inc., a California corporation promises to pay to ___________, or
registered assigns, the principal sum of __________________ Dollars on November
15, 2005.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Additional provisions of this Note are set forth on the other side of this
Note.
D a t e d : N o v e m b e r _ _ , 1 9 9 7
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its authorized Officers.
DETAILS, INC.
By:
-----------------------
Name
Title
By:
-----------------------
Name
Title
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
S T A T E S T R E E T B A N K A N D T R U S T C O M P A N Y
as Trustee, certifies
that this is one of the
Notes referred to
in the Indenture.
- -------------------------------
/1/ Include only for the Exchange Notes
<PAGE>
27
By
-----------------------------
Authorized Signatory
<PAGE>
28
[FORM OF REVERSE SIDE OF NOTE]
10% [Series B]/2/ Senior Subordinated Note due 2005
1. Interest
--------
Details, Inc., a California corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company")) promises to pay interest on the principal amount of this
Note at the rate per annum shown above.
The Company will pay interest semiannually in cash and in arrears on May 15
and November 15 of each year, commencing May 15, 1998 to holders of record at
the close of business on the May 1 and November 1 immediately preceding the
interest payment date. Interest on the Notes will accrue from the most recent
date to which interest has been paid on the Notes or, if no interest has been
paid, from November 18, 1997. The Company shall pay interest on overdue
principal or premium, if any (plus interest on such interest to the extent
lawful), at the rate borne by the Notes 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
-----------------
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on the Notes is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest. The Company will pay interest
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the May 1 or November 1 next preceding the interest
payment date even if the Notes are cancelled, repurchased or redeemed after the
record date and on or before the interest payment date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company will pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay interest by check payable in such money. It may
mail an interest check to a Holder's registered address.
3. Trustee, Paying Agent and Registrar
-----------------------------------
Initially, State Street Bank and Trust Company, a Massachusetts trust
company (the "Trustee"), will act as Trustee, Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Noteholder. The Company or any of its domestically
incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or co-
registrar.
4. Indenture
---------
The Company issued the Notes under an Indenture dated as of November 18,
1997 (as it may be amended or supplemented from time to time in accordance with
the terms thereof, 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 (15 U.S.C. (S)(S)
77aaa-77bbbb) (the "Act"). Capitalized terms used herein and not defined herein
have the meanings ascribed thereto in the Indenture.
- -------------------------------
/2/ Include only for the Exchange Notes
<PAGE>
29
The Notes are subject to all such terms, and Noteholders are referred to the
Indenture and the Act for a statement of those terms.
The Notes are general unsecured senior subordinated obligations of the
Company limited to $100 million aggregate principal amount (subject to Section
310 of the Indenture). This Note is one of the [Initial]/3/ Notes referred to
in the Indenture. The Notes include the Initial Notes and any Exchange Notes
issued in exchange for the Initial Notes pursuant to the Indenture and the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the payment of dividends on, and the purchase or
redemption of, Capital Stock of the Company and its Restricted Subsidiaries,
certain purchases or redemptions of Subordinated Indebtedness, the sale or
transfer of assets and Capital Stock of Restricted Subsidiaries, investments of
the Company and its Restricted Subsidiaries and transactions with Affiliates.
In addition, the Indenture limits the ability of the Company and its
Subsidiaries to restrict distributions and dividends from Restricted
Subsidiaries.
5. Optional Redemption
-------------------
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to November 15, 2001. On and after such date, the Notes will
be redeemable, at the Company's option, in whole or in part, at any time upon
not less than 30 nor more than 60 days prior notice mailed by first-class mail
to each holder's registered address, at the following redemption prices
(expressed in percentages of principal amount), plus accrued and unpaid interest
to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
If redeemed during the 12-month period commencing on November 15 of the years
set forth below:
<TABLE>
<CAPTION>
Period Redemption
----------------------------- Price
-----------
<S> <C>
2001............................................. 105.000%
2002............................................. 103.333%
2003............................................. 101.667%
2004 and thereafter.............................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to November 15, 2000, the
Company may redeem in the aggregate up to 40% of the original principal amount
of the Notes with the proceeds of one or more Equity Offerings received by, or
invested in, the Company so long as there is a Public Market at the time of such
redemption, at a redemption price (expressed as a percentage of principal
amount) of 110% plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 60% of the original principal amount of the Notes must remain
outstanding after each such redemption.
At any time on or prior to November 15, 2001, the Notes may also be redeemed
as a whole at the option of the Company upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days prior notice (but in no
event more than 90 days after the occurrence of such Change of Control) mailed
by first-class mail to each holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued and unpaid interest, if any, to, the date of redemption
- -------------------------------
/3/ Include only for the Initial Notes.
<PAGE>
30
(the "Redemption Date") (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
6. Selection
---------
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less will be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note.
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 of Notes to be redeemed at his
registered address. Notes in denominations of principal amount larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued and unpaid interest on all
Notes (or portions thereof) to be redeemed on the redemption date is deposited
with the Paying Agent on or before the redemption date and certain other
conditions are satisfied, on and after such date interest ceases to accrue on
such Notes (or such portions thereof) called for redemption.
8. Put Provisions
--------------
Upon the occurrence of a Change of Control, unless the Company shall have
exercised its right to redeem the Notes as described under Optional Redemption
above, each holder will have the right to require the Company to repurchase all
or any part of such holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
9. Subordination and Ranking
-------------------------
The Notes are subordinated to Senior Indebtedness, as defined in the
Indenture. To the extent provided in the Indenture, Senior Indebtedness must be
paid before the Notes may be paid. The Company agrees, and each Noteholder by
accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give them effect and appoints the
Trustee as attorney-in-fact for such purpose. The Notes will in all respects
rank pari passu with all other Senior Subordinated Indebtedness of the Company.
10. Denominations; Transfer; Exchange
---------------------------------
The Notes are in registered form without coupons in denominations of
principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need
<PAGE>
31
not register the transfer of or exchange of (i) any Note selected for redemption
(except, in the case of a Note to be redeemed in part, the portion of the Note
not to be redeemed) for a period beginning 15 days before a selection of Notes
to be redeemed and ending on the date of such selection or (ii) any Notes for a
period beginning 15 days before an interest payment date and ending on such
interest payment date.
11. Persons Deemed Owners
---------------------
The registered holder of this Note may be treated as the owner of it for
all purposes.
12. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment.
13. Defeasance
----------
Subject to certain conditions set forth in the Indenture, the Company at
any time may terminate some or all of its obligations under the Notes and the
Indenture if the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Notes to redemption
or maturity, as the case may be. The Company in its sole discretion can defease
the Notes.
14. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Notes may be amended with the written consent of the Holders of at least
a majority in principal amount of the Notes then outstanding and (ii) any past
default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Without the consent of any Noteholder, the Company and the Trustee
may amend the Indenture or the Notes to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article Eight of the Indenture, or to provide
for uncertificated Notes in addition to or in place of certificated Notes, or to
add guarantees with respect to the Notes or to secure the Notes, or to add
additional covenants or surrender rights and powers conferred on the Company, or
to comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any change that does not adversely affect
the rights of any Noteholder, or to provide for the issuance of Exchange Notes.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
15. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) a default in any payment
of interest on any Note when due (whether or not such payment is prohibited by
Article Thirteen of the Indenture), continued for 30 days, (ii) a default in the
payment of principal of any Note when due at its Stated Maturity, upon optional
redemption,
<PAGE>
32
upon required repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by Article Thirteen of the Indenture, (iii) the failure by
the Company to comply for 30 days after written notice with any of its
obligations under Section 801 of the Indenture or Sections 1009, 1010, 1011,
1012, 1013, 1014, 1015, 1016, 1017, 1018 or 1019 of the Indenture (in each case,
other than a failure to purchase Notes which shall constitute an Event of
Default under clause (ii) above), (iv) the failure by the Company to comply for
60 days after notice with its other agreements contained in the Indenture, (v)
the failure by the Company or any Restricted Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default and if the
total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million,
(vi) certain events of bankruptcy, insolvency or reorganization of the Company
or a Significant Subsidiary, (vii) the rendering of any judgment or decree for
the payment of money in an amount in excess of $10.0 million against the Company
or a Significant Subsidiary and such judgment or decree remains undischarged or
unstayed for a period of 60 days after such judgment or decree becomes final and
non-appealable and is not discharged, waived or stayed or (viii) the failure of
any Guarantee of the Notes by a Subsidiary Guarantor made pursuant to Section
1018 of the Indenture to be in full force and effect (except as contemplated by
the terms thereof or of the Indenture) or the denial or disaffirmation in
writing by any such Subsidiary Guarantor of its obligations under the Indenture
or any such Guarantee. If a default under clauses (iii) and (iv) occurs and is
continuing, it will not be deemed an Event of Default until the Trustee or the
Holders of at least 25% in principal amount of the outstanding applicable Notes
notify the Company of the default and the Company does not cure such defect
within the time specified in clauses (iii) and (iv) above. Certain events of
bankruptcy or insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of Default.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the outstanding Notes by notice to the
Company and the Trustee may declare the principal of and accrued and unpaid
interest, if any, on all the Notes to be due and payable. Upon such a
declaration, such principal and accrued and unpaid interest shall be due and
payable immediately. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
Noteholders may not enforce the Indenture or the Notes except as provided in
the Indenture. The Trustee may refuse to enforce the Indenture or the Notes
unless it receives reasonable indemnity or security. Subject to certain
limitations, Holders of a majority in principal amount of the Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Noteholders notice of any continuing Default or Event of Default (except a
Default or Event of Default in payment of principal or interest) if it
determines that withholding notice is in their interest.
16. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations set forth in the Indenture, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with and collect obligations owed to it
by the Company or its affiliates and may otherwise deal with the Company or its
affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any
<PAGE>
33
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Note, each Noteholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Notes.
18. Authentication
--------------
This Note shall not be valid until an authorized signatory of the Trustee
(or an authenticating agent acting on its behalf) manually signs the certificate
of authentication on the other side of this Note.
19. Registration Rights
-------------------
The Holder of this Note is entitled to the benefits of the Exchange and
Registration Rights Agreement, dated as of November 18, 1997 (the "Registration
Rights Agreement"), between the Company and the Initial Purchaser named therein.
In the event that either (i) an Exchange Offer Registration Statement is not
filed with the SEC on or prior to 90 days after the Issue Date, (A) an Exchange
Offer Registration Statement or a Shelf Registration Statement is not declared
effective within 180 days after the Issue Date, or (B) the Exchange Offer is not
consummated on or prior to 210 days after the Issue Date in respect of tendered
Notes and a Shelf Registration Statement has not been declared effective or a
Shelf Registration Statement is filed and declared effective within 180 days
after the Issue Date but shall thereafter cease to be effective (at any time
that the Company is obligated to maintain the effectiveness thereof) without
being succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (A) and (B), a
"Registration Default"), the Company will pay liquidated damages to each holder
of Transfer Restricted Securities (as defined in the Registration Rights
Agreement), during the period of one or more such Registration Defaults, in an
amount equal to $.192 per week per $1,000 principal amount of the Notes
constituting Transfer Restricted Securities held by such holder until the
applicable Registration Statement is filed or declared effective, the Exchange
Offer is consummated or the Shelf Registration Statement again becomes
effective, as the case may be, provided that, except in certain limited
circumstances, the Company's obligation to pay liquidated damages will terminate
upon consummation of the Exchange Offer. All accrued liquidated damages shall
be paid to holders in the same manner as interest payments on the Notes on semi-
annual payment dates which correspond to interest payment dates for the Notes.
Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease.]/4/
20. Abbreviations
-------------
Customary abbreviations may be used in the name of a Noteholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification
- ------------------------------
/4/ Include only for the Initial Notes
<PAGE>
34
Procedures, the Company has caused CUSIP numbers to be printed on the Notes and
has directed the Trustee to use CUSIP numbers in notices of redemption as a
convenience to Noteholders. 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.
22. Governing Law
-------------
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY
RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
The Company will furnish to any Noteholder upon written request and without
charge to the Noteholder a copy of the Indenture. Requests may be made to:
Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention of Joseph P. Gisch
<PAGE>
35
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on the books of the
Company. The agent may substitute another to act for him.
- -------------------------------------------------------------------------------
D a t e:_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Your Signature:___________________
Signature Guarantee:_____________________________________
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Note.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for, STAMP), pursuant to S.E.C. Rule
17Ad-15.
[In connection with any transfer or exchange of any of the Notes evidenced by
this certificate occurring prior to the date that is two years after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Notes are being:
CHECK ONE BOX BELOW:
1 [_] acquired for the undersigned's own account, without transfer; or
2 [_] transferred to the Company; or
3 [_] transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933; or
<PAGE>
36
4 [_] transferred pursuant to an effective registration statement under
the Securities Act; or
5 [_] transferred pursuant to and in compliance with Regulation S under
the Securities Act of 1933; or
6 [_] transferred to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933), that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter appears as Section 308 of the Indenture); or
7 [_] transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee may refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (5), (6) or (7) is
checked, the Trustee or the Company may require, prior to registering any such
transfer of the Notes, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
______________________________
Signature
Signature Guarantee:
__________________________________________________________
(Signature must be guaranteed)
____________________________________________________________
Signature
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule
17Ad-15]./5/
- ---------------------------
/5/ Include only for the Initial Notes
<PAGE>
37
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been
made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Date of Principal Amount of Principal Amount of Global Note following signatory of Trustee
Exchange this Global Note this Global Note such decrease or increase or Notes Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
38
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 1015 or 1016 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 1015 or 1016 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $________.
Date: __________ Your Signature _____________________________________________
(Sign exactly as your name appears on the
other side of the Note)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule
17Ad-15.
<PAGE>
39
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL 144A CERTIFICATES]
In connection with any transfer of this Note occurring prior to the
date that is the earlier of the date of an effective Registration Statement (as
defined in the Registration Rights Agreement dated as of November 18, 1997) or
November 18, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
---------
[_] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided
by Rule 144A thereunder.
or
--
[_] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished that comply with the conditions of
transfer set forth in this Note and the Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: ____________________ _________________________________________________
NOTICE: The signature must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee: _____________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date: _____________ ___________________________________________________
NOTICE: To be executed by an executive officer.
<PAGE>
40
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned Indenture.
State Street Bank and Trust
Company, as Trustee
By _____________________________
Authorized Signatory
Dated: __________________
SECTION 205. Form of Regulation S Certificate.
--------------------------------
[date-on or after Release Date]
State Street Bank and Trust Company, as Trustee
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Administration
Re: Details, Inc. (the "Company") 10% Senior Subordinated Notes
due 2005 (the "Notes") [CINS No. ______] [ISIN No. ____]
--------------------------------------------------------
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of November 18,
1997 (the "Indenture"), between the Company and State Street Bank and Trust
Company. Capitalized terms used herein and not otherwise defined have the
meanings set forth in the Indenture.
[For purposes of acquiring a beneficial interest in the Regulation S
Permanent Global Security upon the expiration of the Restricted Period,][For
purposes of receiving payments under the Regulation S Temporary Global
Security,]/1/ the undersigned holder of a beneficial interest in the Regulation
S Temporary Global Security issued under the Indenture certifies that it is not
a U.S. person as defined by Regulation S under the Securities Act of 1933, as
amended.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened
- ------------------------------
/1/ Select, as applicable.
<PAGE>
41
in connection with which this certificate is or would be relevant, we
irrevocably authorize you to produce this certificate to any interested party in
such proceeding.
Very truly yours,
[Name of Holder]
By:
--------------------------
Authorized Signatory
ARTICLE THREE. THE NOTES
300. SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $100 million, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 307, 310,
906, 1015, 1016 or 1108 or pursuant to an Exchange Offer.
The Initial Notes shall be known and designated as the "10% Senior
Subordinated Notes due 2005," and the Exchange Notes shall be known and
designated as the "10% Series B Senior Subordinated Notes due 2005," in each
case, of the Company. The Stated Maturity of the Notes shall be November 15,
2005, and they shall bear interest at the rate of 10% per annum from November
18, 1997, or from the most recent interest payment date to which interest has
been paid or duly provided for, payable semiannually in cash and in arrears on
May 15 and November 15 of each year, commencing May 15, 1998, to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the May 1 and November 1 immediately preceding the interest payment
date . Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months, until the principal thereof is paid or duly provided for.
Interest on any overdue principal, interest (to the extent lawful) or premium,
if any, shall be payable on demand.
The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that, at the option of the
Company, interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register.
Holders shall have the right to require the Company to purchase their
Notes, in whole or in part, in the event of a Change of Control pursuant to
Section 1015.
The Notes shall be subject to repurchase by the Company pursuant to an
Asset Disposition as provided in Section 1016.
The Notes shall be redeemable as provided in Article Eleven and in the
Notes.
The Indebtedness evidenced by the Notes shall be subordinated in right
of payment to Senior Indebtedness as provided in Article Thirteen.
<PAGE>
42
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in fully registered form, without
coupons, and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by two Officers,
of which at least one Officer shall be the President or the Chief Financial
Officer of the Company. The signature of any Officer on the Notes may be manual
or facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Notes executed by the Company to
the Trustee for authentication, together with an order for the authentication
and delivery of such Notes (the "Company Order"), and the Trustee in accordance
with such Company Order shall authenticate and deliver such Initial Notes
directing the Trustee to authenticate the Notes and certifying that all
conditions precedent to the issuance of Notes contained herein have been fully
complied with, and the Trustee in accordance with such Company Order shall
authenticate and deliver such Initial Notes. Upon receipt of the Company Order,
the Trustee shall authenticate for original issue Exchange Notes in an aggregate
principal amount not to exceed $100,000,000; provided that such Exchange Notes
shall be issuable only upon the valid surrender for cancellation of Initial
Notes of a like aggregate principal amount in accordance with an Exchange Offer
pursuant to the Registration Rights Agreement. The Trustee shall be entitled to
receive an Officers' Certificate and an Opinion of Counsel of the Company that
it may reasonably request in connection with such authentication of Notes. Such
order shall specify the amount of Notes to be authenticated and the date on
which the original issue of Initial Notes or Exchange Notes is to be
authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon
<PAGE>
43
Company Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section 303 in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option of
the Holders but without expense to them, shall provide for the exchange of all
Notes at the time Outstanding for Notes authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes on behalf of the Trustee. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Note Registrar or Paying Agent
to deal with the Company hereunder.
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination. Temporary Notes shall be
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as
security registrar (the Trustee in such capacity, together with any successor of
the Trustee in such capacity, the "Note Registrar") for the purpose of
registering Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of a Global Note shall, by acceptance of such
Global Note, agree that transfers of beneficial interest in such Global Note may
be effected only through a book-entry system
<PAGE>
44
maintained by the Holder of such Global Note (or its agent), and that ownership
of a beneficial interest in the Note shall be required to be reflected in a book
entry.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination (not less than $1,000) and of a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange (including an
exchange of Initial Notes for Exchange Notes), the Company shall execute, and
the Trustee shall authenticate and deliver, the Notes which the Holder making
the exchange is entitled to receive; provided that no exchange of Initial Notes
for Exchange Notes shall occur until an Exchange Offer Registration Statement
shall have been declared effective by the SEC, the Trustee shall have received
an Officers' Certificate confirming that the Exchange Offer Registration
Statement has been declared effective by the SEC and the Initial Notes to be
exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, 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 or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1015, 1016 or 1108, not involving any
transfer.
The Register shall be in written form in the English language or in
any other form including computerized records, capable of being converted into
such form within a reasonable time.
SECTION 306. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) Each Global Note initially shall (i) be registered in the name of
the Depositary for such global Note or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear legends
as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall 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 Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 307. If required to do so pursuant to any applicable
law or regulation, beneficial owners may obtain Notes in definitive form
("Physical Notes") in exchange for their beneficial interests in a Global
<PAGE>
45
Note upon written request in accordance with the Depositary's and the
Registrar's procedures. In addition, Physical Notes shall be transferred to all
beneficial owners in exchange for their beneficial interests in a Global Note if
(i) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Note or the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the Depositary
is required to be so registered in order to act as Depositary, and in each case
a successor depositary is not appointed by the Company within 90 days of such
notice or, (ii) the Company executes and delivers to the Trustee and Note
Registrar an Officers' Certificate stating that such Global Note shall be so
exchangeable or (iii) an Event of Default has occurred and is continuing and the
Note Registrar has received a request from the Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in a Global Note pursuant to subsection (b) of this Section to
beneficial owners who are required to hold Physical Notes, the Note Registrar
shall reflect on its books and records the date and a decrease in the principal
amount of such Global Note in an amount equal to the principal amount of the
beneficial interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more Physical
Notes of like tenor and amount.
(d) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to subsection (b) of this Section, such Global Note
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in such Global Note, an equal aggregate principal amount of Physical
Notes of authorized denominations.
(e) Any Physical Note delivered in exchange for an interest in a
Global Note pursuant to subsection (c) or subsection (d) of this Section shall,
except as otherwise provided by paragraph (c) of Section 307, bear the
applicable legend regarding transfer restrictions applicable to the Physical
Note set forth in Section 202.
(f) The registered holder of a Global Note 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 Indenture or the Notes.
SECTION 307. Special Transfer Provisions.
---------------------------
(a) The following provisions shall apply with respect to any proposed
transfer of a Rule 144A Note or an Institutional Accredited Investor Note prior
to the expiration of the Resale Restriction Termination Date (as defined in
Section 202 hereof):
(i) a transfer of a Rule 144A Note or an Institutional Accredited
Investor Note or a beneficial interest therein to a QIB (as defined herein)
shall be made upon the representation of the transferee that it is
purchasing the Note for its own account or an account with respect to which
it exercises sole investment discretion and that it and any such account is
a "qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule
144A or has determined not to request such information and that it is aware
that the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A;
(ii) a transfer of a Rule 144A Note or an Institutional
Accredited Investor Note or a beneficial interest therein to an
institutional accredited investor shall be made upon receipt by the
<PAGE>
46
Trustee or its agent of a certificate substantially in the form set forth
in Section 308 hereof from the proposed transferee and, if requested by the
Company or the Trustee, the delivery of an opinion of counsel,
certification and/or other information satisfactory to each of them; and
(iii) a transfer of a Rule 144A Note or an Institutional
Accredited Investor Note or a beneficial interest therein to a Non-U.S.
Person shall be made upon receipt by the Trustee or its agent of a
certificate substantially in the form set forth in Section 309 hereof from
the proposed transferee and, if requested by the Company or the Trustee,
the delivery of an opinion of counsel, certification and/or other
information satisfactory to each of them.
(b) The following provisions shall apply with respect to any proposed
transfer of a Regulation S Note prior to the expiration of the Restricted
Period:
(i) a transfer of a Regulation S Note or a beneficial interest
therein to a QIB shall be made upon the representation of the transferee
that it is purchasing the Note for its own account or an account with
respect to which it exercises sole investment discretion and that it and
any such account is a "qualified institutional buyer" within the meaning of
Rule 144A under the Securities Act and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A;
(ii) a transfer of a Regulation S Note or a beneficial interest
therein to an institutional accredited investor shall be made upon receipt
by the Trustee or its agent of a certificate substantially in the form set
forth in Section 308 hereof from the proposed transferee and, if requested
by the Company or the Trustee, the delivery of an opinion of counsel,
certification and/or other information satisfactory to each of them; and
(iii) a transfer of a Regulation S Note or a beneficial
interest therein to a Non-U.S. Person shall be made upon, if requested by
the Company or the Trustee, receipt by the Trustee or its agent of an
opinion of counsel, certification and/or other information satisfactory to
each of them.
Prior to or on the expiration of the Restricted Period, beneficial
interests in a Regulation S Global Note may only be held through Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear") or Cedel Bank, societe anonyme ("Cedel") (as indirect participants
in DTC) or another agent member of Euroclear and Cedel acting for and on behalf
of them, unless exchanged for interests in the Rule 144A Global Note or the
Institutional Accredited Investor Global Note in accordance with the
certification requirements hereof. During the Restricted Period, interests in
the Regulation S Global Note, if any, may be exchanged for interests in the Rule
144A Global Note, the Institutional Accredited Investor Global Note or for
Physical Notes only in accordance with the certification requirements described
in Section 201.
After the expiration of the Restricted Period, interests in the
Regulation S Note may be transferred without requiring certification set forth
in Section 308 or any additional certification.
(c) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless there is
<PAGE>
47
delivered to the Note Registrar an Opinion of Counsel reasonably satisfactory to
the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
-------
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
(e) The Company shall deliver to the Trustee an Officer's Certificate
setting forth the dates on which the Restricted Period terminates (the "Resale
Restriction Termination Date").
The Note Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. 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 Note Registrar.
(f) No Obligation of the Trustee: (i) The Trustee shall have no
----------------------------
responsibility or obligation to any beneficial owner of a Global Note, a member
of, or a participant in the Depository or other Person with respect to any
ownership interest in the Notes, with respect to the accuracy of the records of
the Depository or its nominee or of any participant or member thereof or with
respect to the delivery to any participant, member, beneficial owner or other
Person (other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such Notes.
All notices and communications to be given to the Holders and all payments to be
made to Holders under the Notes shall be given or made only to the registered
Holders (which shall be the Depository or its nominee in the case of a Global
Note). The rights of beneficial owners in any Global Note in global form shall
be exercised only through the Depository subject to the applicable rules and
procedures of the Depository. The Trustee may rely and shall be fully protected
and indemnified pursuant to Section 607 in relying upon information furnished by
the Depository with respect to any beneficial owners, its members and
participants.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Note (including without limitation any transfers between or
among Depository participants, members or beneficial owners in any Global Note)
other than to require delivery of such certificates and other documentation of
evidence as are expressly required by, and to do so if and when expressly
required by, the terms of this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
SECTION 308. Form of Certificate to Be Delivered in Connection with
------------------------------------------------------
Transfers to Institutional Accredited Investors.
- -----------------------------------------------
[date]
DETAILS, INC.
c/o State Street Bank and Trust Company, as Trustee
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Administration
Ladies and Gentlemen:
<PAGE>
48
This certificate is delivered to request a transfer of $______
principal amount of the 10% Senior Subordinated Notes due 2005 (the "Notes") of
Details, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrants to you that:
(1) We are an institutional "accredited investor" (as defined in Rules
501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as amended (the
"Securities Act")), purchasing for our own account or for the account of an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes and
invest in or purchase securities similar to the Notes in the normal course of
our business. We and any
accounts for which we are acting are each able to bear the economic risk of our
or its investment.
(2) We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act that is purchasing for its own account
or for the account of such an institutional "accredited investor", in each case
in a minimum principal amount of Notes of $250,000 or (f) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring
such Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Termination Date of the Notes pursuant to clauses (d), (e) or (f) above to
require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
<PAGE>
49
TRANSFEREE:
BY:
Upon transfer the Notes would be registered in the name of the new beneficial
owner as follows:
<TABLE>
<CAPTION>
Taxpayer ID
Name Address Number:
- ------ ------- -----------
<S> <C> <C>
</TABLE>
Very truly yours,
[Name of Transferor]
By:
------------------------------ ---------------------------------
Name: Signature Medallion Guaranteed
Title:
SECTION 309. Form of Certificate to Be Delivered in Connection with
------------------------------------------------------
Transfers Pursuant to Regulation S.
- ----------------------------------
[date]
State Street Bank and Trust Company, as Trustee
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Administration
Re: Details, Inc. (the "Company")
10% Senior Subordinated Notes due 2005 (the "Notes")
----------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate principal
--------
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, we represent that:
(a) the offer of the Notes was not made to a person in the United
States;
(b) either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was
<PAGE>
50
outside the United States or (ii) the transaction was executed in, on or
through the facilities of a designated off-shore securities market and
neither we nor any person acting on our behalf knows that the transaction
has been pre-arranged with a buyer in the United States;
(c) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------- -------------------------------
Authorized Signature Signature Medallion Guaranteed
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company,
any Subsidiary Guarantor (if applicable) and the Trustee such security or
indemnity, in each case, as may be required by them to save each of them
harmless, then, in the absence of notice to the Company, any Subsidiary
Guarantor (if applicable) or the Trustee that such Note has been acquired by a
bona fide purchaser, the Company shall execute and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated Note
or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor
and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) in connection therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, any Subsidiary Guarantor (if
applicable) and any other obligor upon the Notes, whether or not the mutilated,
destroyed, lost
<PAGE>
51
or stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 311. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any interest payment date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002; provided,
however, that each installment of interest may at the Company's option be paid
by (i) mailing a check for such interest, payable to or upon the written order
of the Person entitled thereto pursuant to Section 312, to the address of such
Person as it appears in the Note Register or (ii) wire transfer to an account
located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not paid when the
same becomes due and payable and such nonpayment continues for a period of 30
days shall forthwith cease to be payable to the Holder on the Regular Record
Date by virtue of having been such Holder, and such defaulted interest and (to
the extent lawful) interest on such defaulted interest at the rate borne by the
Notes (such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") shall be paid by the Company, at its election in each
case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
(not less than 30 days after such notice) of the proposed payment (the
"Special Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a record date
(the "Special Record Date") for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
Special Interest Payment Date and not less than 10 days after the receipt
by the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date, and in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date and Special
Interest Payment Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date and Special Interest Payment Date therefor having been so
given, such Defaulted Interest shall be paid on the Special Interest
Payment Date to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause
(b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the
<PAGE>
52
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 312. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company, any Subsidiary Guarantor
(if applicable) or the Trustee may treat the Person in whose name such Note is
registered as the owner of such Note for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 305 and 311)
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and none of the Company, any Subsidiary Guarantor (if
applicable), the Trustee nor any agent of the Company, any Subsidiary Guarantor
(if applicable) or the Trustee shall be affected by notice to the contrary.
SECTION 313. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. If the
Company shall acquire any of the Notes other than as set forth in the preceding
sentence, the acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 313. No
Notes shall be authenticated in lieu of or in exchange for any Notes cancelled
as provided in this Section, except as expressly permitted by this Indenture.
All cancelled Notes held by the Trustee shall be destroyed by the Trustee and
the Trustee shall send a certificate of such destruction to the Company.
SECTION 314. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 315. CUSIP Numbers.
-------------
The Company in issuing Notes may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers; if so, the Trustee shall use
such "CUSIP" numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such CUSIP numbers,
either as printed on the Notes or as contained in any notice of a redemption or
repurchase and that reliance may be placed only on the serial or other
identification numbers printed on the Notes, and any such redemption or
repurchase shall not be affected by any defect in or omission of such CUSIP
numbers. The Company will promptly notify the Trustee of any change in the
CUSIP numbers.
<PAGE>
53
ARTICLE FOUR. SATISFACTION AND DISCHARGE
400.
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes expressly provided for herein or pursuant hereto) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(i) either
(A) all Notes theretofore authenticated and delivered (other than
(1) Notes which have been lost, stolen or destroyed and which have
been replaced or paid as provided in Section 310 and (2) Notes for
whose payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such
trust, as provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(B) all Notes not theretofore delivered to the Trustee for
cancellation
(1) have become due and payable by reason of the making of a
notice of redemption or otherwise; or
(2) will become due and payable at their Stated Maturity
within one year; or
(3) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company in the case of (1), (2) or (3) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust for such purpose an amount in cash or Government Obligations
sufficient to pay and discharge the entire indebtedness on such Notes
not theretofore delivered to the Trustee for cancellation, for
principal of (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be;
(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 or agreement to which the Company or any Subsidiary Guarantor of
the Notes is a party or by which it is bound;
(iii) the Company or any Subsidiary Guarantor has paid or caused to
be paid all sums payable hereunder by the Company or any Subsidiary
Guarantor in connection with all the Notes including all fees and expenses
of the Trustee;
(iv) the Company has delivered irrevocable instructions to the Trustee
to apply the deposited money toward the payment of such Notes at maturity
or the Redemption Date, as the case may be; and
<PAGE>
54
(v) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture and the termination of the Company's obligation hereunder have
been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (i) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive any such satisfaction and discharge.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 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 its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Obligations in accordance with Section 401 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and any Subsidiary Guarantor's obligations under this Indenture and
the Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 401; 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 Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE. REMEDIES
500.
SECTION 501. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) a default in any payment of interest on any Note when due,
continued for 30 days, whether or not such payment is prohibited by Article
Thirteen;
(ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by
Article Thirteen;
(iii) the failure by the Company to comply for 30 days after the
notice specified below with any of its obligations under Article Eight and
Sections 1009 through 1019 (other than a failure to purchase Notes when
required under Sections 1015 and 1016 which shall constitute an Event of
Default under clause (ii) above);
<PAGE>
55
(iv) the failure by the Company to comply for 60 days after the notice
specified below with any of its other agreements contained in this
Indenture or the Note (other than those referred to in (i), (ii) or (iii)
above);
(v) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million;
(vi) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property;
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant Subsidiary
in an involuntary case;
(B) appoints a Custodian of the Company or any Significant Subsidiary
for all or substantially all of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 90 consecutive days;
(viii) any judgment or decree for the payment of money in excess of
$10 million is rendered against the Company or any Significant Subsidiary
and such judgment or decree remains undischarged or unstayed for a period
of 60 days after such judgment becomes final and non-appealable; or
(ix) the failure of any Subsidiary Guarantee by a Subsidiary Guarantor
made pursuant to Section 1018 to be in full force and effect (except as
contemplated by the terms thereof or of this Indenture) or the denial or
disaffirmation in writing by any such Subsidiary Guarantor of its
obligations under this Indenture or any such Guarantee of the Notes.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
<PAGE>
56
A default under clauses (iii) and (iv) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iii) and (iv) after
receipt of such notice. Such notice must specify the Default, demand that it is
to be remedied and state that such notice is a "Notice of Default."
The Company also is required to deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any events that would become an
Event of Default under clause (iii), (iv) or (vii) above, their status and what
action the Company is taking or proposes to take in respect thereof.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of, premium,
if any, or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its Trust officers in good faith determines that withholding
notice is in the interests of the Noteholders.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than by reason of an Event of Default
specified in Section 501(vi) or 501(vii)) occurs and is continuing, the Trustee
by notice to the Company or the Holders of at least 25% in principal amount of
the applicable Notes Outstanding may declare the principal (and premium, if
any), accrued and unpaid interest and any other monetary obligations on all such
then outstanding Notes to be due and payable immediately, by a notice in writing
to the Company (and to the Trustee if given by Holders). Upon the effectiveness
of such declaration, such principal (and premium, if any) and interest will be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default specified in Section 501(vi) or 501(vii) occurs and is
continuing, then the principal amount of all the Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
The Holders of a majority in principal amount of the outstanding Notes
by notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. The Trustee may
rely upon such notice of rescission without any independent investigation as to
the satisfaction of the conditions in the preceding sentence. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
If an Event of Default specified in Section 501(i) or 501(ii) occurs
and is continuing, the Trustee, in its own name as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any Subsidiary Guarantor (in accordance
with the applicable Guarantee of the Notes) or any other obligor upon the Notes
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company, any Subsidiary Guarantor or any other
obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture or any Guarantee of the Notes by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce any
<PAGE>
57
such rights, including, seeking recourse against any Subsidiary Guarantor
pursuant to the terms of any Guarantee of the Notes, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy
including, without limitation, seeking recourse against any Subsidiary Guarantor
pursuant to the terms of a Guarantee of the Notes, or to enforce any other
proper remedy, subject however to Section 513. No recovery of any such judgment
upon any property of the Company or any Subsidiary Guarantor shall affect or
impair any rights, powers or remedies of the Trustee or the Holders.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor, including any
Subsidiary Guarantor, upon the Notes or the property of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the
Notes, to take such other actions (including participating as a member,
voting or otherwise, of any official committee of creditors appointed in
such matter) and to file such other papers or documents and take such other
actions as the Trustee (including, participating as a member of any
creditors committee) may deem 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 of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due 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 607.
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 thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of such Holders, vote for the election of a trustee in
bankruptcy or other similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture, the Notes or the
Guarantees of the Notes may be prosecuted and enforced by the Trustee without
the possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
<PAGE>
58
and counsel, be for the ratable benefit of the Holders of the Notes in respect
of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Subject to Article Thirteen, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
Notes and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To holders of Senior Indebtedness to the extent required by
Article Thirteen;
THIRD: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and interest,
respectively; and
FOURTH: The balance, if any, to the Person or Persons entitled
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct,
provided that all sums due and owing to the Holders and the Trustee have
been paid in full as required by this Indenture.
SECTION 507. Limitation on Suits.
-------------------
Except to enforce the right to receive payment of principal, premium,
if any, or interest when due, no holder may pursue any remedy with respect to
the Indenture or the Notes unless:
(i) such holder has previously given the Trustee notice that an
Event of Default is continuing;
(ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy;
(iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity;
and
(v) the holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction that, in the opinion of the
Trustee, is inconsistent with such request within such 60-day period.
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Note or any Guarantee of the Notes to affect, disturb or
prejudice the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under this
Indenture, any Note or any Guarantee of the Notes, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
<PAGE>
59
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
--------------------
Notwithstanding any other provision in this Indenture (other than
Article Thirteen), the Holder of any Note shall have the right, which is
absolute and unconditional, to receive payment, as provided herein (including,
if applicable, Article Eleven) and in such Note of the principal of (and
premium, if any) and (subject to Section 311) interest on such Note on the
respective Stated Maturities expressed in such Note (or, in the case of
redemption or repurchase, on the Redemption Date or repurchase) and to institute
suit for the enforcement of any such payment, and such rights shall not be
impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Guarantee of the Notes and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, any
Subsidiary Guarantor, any other obligor on the Notes, the Trustee and the
Holders shall be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 310, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
------------------
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee,
provided that
(i) such direction shall not be in conflict with any rule of law or
the Indenture;
(ii) the Trustee need not take any action which might be unduly
prejudicial to the rights of any other Holder or would involve the Trustee
in personal liability; and
(i) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
<PAGE>
60
Prior to taking any action under the Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
SECTION 513. Waiver of Past Defaults.
-----------------------
Subject to Sections 508 and 902, the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes) may on behalf
of the Holders of all the Notes, by written notice to the Trustee, waive any
existing Default or Event of Default and its consequences under this Indenture
or any Guarantee of the Notes except a continuing Default or Event of Default in
the payment of interest on, premium, if any, or the principal of, any such Note
held by a non-consenting Holder, or in respect of a covenant or a provision
which cannot be amended or modified without the consent of all Holders.
In the event that any Event of Default specified in Section 501(v)
shall have occurred and be continuing, such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or the Holders of the Notes, if within 30 days
after such Event of Default arose (i) the Indebtedness that is the basis for
such Event of Default has been discharged, or (ii) the holders thereof have
rescinded or waived the acceleration, notice or action (as the case may be)
giving rise to such Event of Default, or (iii) if the Default that is the basis
for such Event of Default has been cured.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. [Intentionally Omitted].
-----------------------
SECTION 515. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, 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,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the outstanding Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of (or premium, if any) or interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the Redemption Date).
<PAGE>
61
600. ARTICLE SIX. THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of a Default or an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and the Trustee
should not be liable except for the performance of such duties as
specifically set forth in the Indenture and no others; and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith or willful misconduct 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; but in the case of any such certificates or opinions, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture, but not to verify
the contents thereof.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Trust Officer of the Trustee has actual knowledge or of
which written notice of such Default or Event of Default shall have been given
to the Trustee by the Company, any other obligor of the Notes or by any Holder,
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 their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(i) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in aggregate principal amount of
the outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture.
(iv) the Trustee shall not be required to examine any of the
reports, information or documents filed with it pursuant to Section 1017 to
determine whether there has been any breach of the covenants of the Company
set forth in Sections 1004 through 1016.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section and to the TIA.
<PAGE>
62
SECTION 602. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder actually known to a Trust Officer of
the Trustee, unless such Default shall have been cured or waived; provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any) or interest on any Note, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Trust Officers of
the Trustee in good faith determine that the withholding of such notice is in
the interest of the Holders. Notwithstanding anything to the contrary expressed
in this Indenture, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default hereunder unless and until the Trustee shall have
received written notice thereof from the Company at its principal Corporate
Trust Office as specified in Section 105, except in the case of an Event of
Default under Sections 501(i) or 501(ii) (provided that the Trustee is the
Paying Agent).
SECTION 603. Certain Rights 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 their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Subject to the provisions of TIA Sections 315(a) through 315(d):
(i) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon (whether in its original or facsimile
form) any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties
and the Trustee need not investigate any fact or matter stated in the
documents;
(ii) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and
any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(iii) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith or willful misconduct on its part, request and rely
upon an Officers' Certificate or an Opinion of Counsel and shall not liable
for any action it takes or omits to take in good faith reliance on such
Officer's Certificate or Opinion of Counsel;
(iv) the Trustee may consult with counsel of its selection and
any advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(v) 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 pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
satisfactory to the Trustee against the costs, expenses, losses and
liabilities which might be incurred by it in compliance with such request
or direction;
<PAGE>
63
(vi) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder; and
(viii) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture; provided, however, that the Trustee's conduct does not
constitute willful misconduct or negligence.
(c) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
-----
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness and
it shall not be responsible for the Company's use of the proceeds from the
Notes. The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Notes, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the Notes
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of the proceeds of
the Notes.
SECTION 605. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Note Registrar, any Authenticating
Agent or any other agent of the Company or of the Trustee, in its individual or
any other capacity, may become the owner or pledgee of Notes and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Note Registrar,
Authenticating Agent or such other agent.
SECTION 606. Money Held in Trust.
-------------------
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust hereunder for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.
<PAGE>
64
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees:
(i) to pay to the Trustee from time to time such compensation
as shall be agreed to in writing between the Company and the Trustee for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any provision of this Indenture (including the reasonable compensation
and the expenses and disbursements of its agents, consultants and counsel
and costs and expenses of collection), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(iii) to indemnify each of the Trustee or any predecessor Trustee
(and their respective directors, officers, stockholders, employees and
agents) for, and to hold them harmless against, any and all loss, damage,
claim, liability or expense, including taxes (other than taxes based on the
income of the Trustee) incurred without negligence, willful misconduct or
bad faith on their part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of the Trustee's powers
or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a lien prior to the Holders
of the Notes upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the payment of principal of (and premium,
if any) or interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(vi) or (vii), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1), and which may have an
office in The City of New York and shall have a combined capital and surplus of
at least $50,000,000. If the Trustee does not have an office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the Company to conduct any activities which the Trustee may be
required under this Indenture to conduct in The City of New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section 608,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee
<PAGE>
65
shall cease to be eligible in accordance with the provisions of this Section
608, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of this Section.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors, a copy of which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance required by this Section shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the outstanding Notes, delivered
to the Trustee and to the Company. The Trustee so removed may, at the expense
of the Company, petition any court of competent jurisdiction for the appointment
of a successor Trustee if no successor Trustee is appointed within 30 days of
such removal.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(ii) the Trustee shall cease to be eligible under Section 608
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Note for at least six
months, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a Custodian of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (A) the Company, by a Board Resolution, may remove the
Trustee, or (B) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any
<PAGE>
66
Holder who has been a bona fide Holder of a Note for at least six months may, at
the expense of the Company on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Notes in the manner provided for in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Notwithstanding the replacement of the Trustee
pursuant to this Section 610, the Company's obligations under Section 607 shall
continue for the benefit of the retiring Trustee with regard to expenses and
liabilities incurred by it and compensation earned by it prior to such
replacement or otherwise under the Indenture. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
--------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
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67
SECTION 612. Trustee's Application for Instructions from the Company.
-------------------------------------------------------
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. Subject to Section 610, the Trustee shall not be liable for any
action taken by, or omission of, the Trustee in accordance with a proposal
included in such application on or after the date specified in such application
(which date shall not be less than three Business Days after the date any
officer of the Company actually receives such application, unless any such
officer shall have consented in writing to any earlier date) unless prior to
taking any such action (or the effective date in the case of an omission), the
Trustee shall have received written instructions in response to such application
specifying the action to be taken or omitted.
700. ARTICLE SEVEN. HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses.
----------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in Subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
SECTION 702. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 703. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Notes, the Trustee shall transmit to the Holders,
in the manner and to the extent provided in TIA Section 313(c), a brief report
dated as of such May 15 if required by TIA Section 313(a). Delivery of such
reports, information and documents to the Trustee is for informational purposes
only and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to conclusively rely exclusively on
Officer's Certificates).
<PAGE>
68
The Trustee also shall comply with TIA (S) 313(b). A copy of each
report at the time of its mailing to Holders shall be filed by the Trustee with
the SEC and each stock exchange (if any) on which the Notes are listed. The
Company agrees to notify promptly the Trustee whenever the Notes become listed
on any stock exchange and of any delisting thereof.
800. ARTICLE EIGHT. MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company will not in a single transaction or series of related
transactions consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and hereunder;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Company or the Successor Company if the Company is not the continuing
obligor under this Indenture would at the time of such transaction or
series of transactions, after giving pro forma effect to such transaction
have a Consolidated Net Worth not less than that of the Company immediately
prior to the transaction;
(iv) immediately after giving effect to such transaction, the
Successor Company would at the time of such transaction or series of
transactions, after giving pro forma effect to such transaction be able to
Incur at least $1.00 of Indebtedness pursuant to Section 1010; and
(v) the Company shall have delivered to the Trustee (A) an
Officers' Certificate, stating that (1) such Officers are not aware of any
Default or Event of Default that shall have happened and be continuing and
(2) such consolidation, merger or transfer and such supplemental indenture
comply with this Indenture; provided that no Officers' Certificate will be
required as to matters described in clause (A)(1) of this clause (v) for a
consolidation, merger or transfer described in the last paragraph of this
Section 801, and (B) an Opinion of Counsel, stating that such
consolidation, merger or transfer and such supplemental indenture comply
with this Indenture, both in the form required by this Indenture; provided
that (1) in giving such opinion such counsel may rely on such officer's
certificate as to any matters of fact (including without limitation as to
compliance with the foregoing clauses (ii) and (iii)), and (2) no Opinion
of Counsel will be required for a consolidation, merger or transfer
described in the last paragraph of this Section 801.
Notwithstanding the foregoing clauses (ii) and (iii), (x) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company and (y) the Company may merge with
an Affiliate incorporated solely for the purpose of reincorporating the Company
in another jurisdiction to realize tax or other benefits.
<PAGE>
69
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any conveyance, transfer, lease or other
disposition of all or substantially all of the assets of the Company to any
Person in accordance with Section 801, the Successor Company will succeed to,
and be substituted for, and may exercise every right and power of, the Company
hereunder and thereafter the predecessor Company shall be released from all
obligations and covenants hereunder, but, in the case of conveyance, transfer or
lease of all or substantially all its assets, the predecessor Company will not
be released from the obligation to pay the principal of and interest on the
Notes.
900. ARTICLE NINE. SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, the Subsidiary
Guarantors, if any (with respect to a Guarantee of the Notes to which it is a
party), and the Trustee, at any time and from time to time, may enter into one
or more indentures supplemental hereto, in form satisfactory to the Trustee, for
any of the following purposes:
(i) to cure any ambiguity, omission, defect or inconsistency;
or
(ii) to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in
a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code); or
(iii) to add Guarantees with respect to the Notes; or
(iv) to provide for the assumption by a successor corporation,
partnership, trust or limited liability company of the obligations of the
Company hereunder; or
(v) to secure the Notes; or
(vi) to provide that any Indebtedness that becomes or will
become an obligation of the Successor Company pursuant to a transaction
governed by Section 801 (and that is not a Subordinated Obligation) is
Senior Subordinated Indebtedness for purposes of this Indenture; or
(vii) to add to the covenants of the Company for the benefit
of the Holders or to surrender any right or power conferred upon the
Company; or
(viii) to make any other change that does not adversely affect
the rights of any Holder; or
(ix) to comply with any requirement of the SEC in connection
with the qualification of this Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of
the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
<PAGE>
70
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of at least a majority in principal
amount of the outstanding Notes (including consents obtained in connection with
a tender offer or exchange offer for the Notes), the Company, and the Trustee
may enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby (with respect to any Notes held by a nonconsenting Holder of
the Notes):
(i) reduce the amount of Notes whose Holders must consent to an
amendment; or
(ii) reduce the stated rate of or extend the stated time for
payment of interest on any Note; or
(iii) reduce the principal of or extend the Stated Maturity of any
Note; or
(iv) reduce the premium payable upon the redemption or repurchase
of any Note or change the time at which any Note may be redeemed as described in
Section 1101; or
(v) make any Note payable in money other than that stated in the
Note; or
(vi) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes; or
(vii) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions.
The consent of the Holders is not necessary under this Indenture to
approve the particular form of any proposed amendment or supplemental indenture.
It is sufficient if such consent approves the substance of the proposed
amendment or supplemental indenture.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities, as determined by the Trustee in its sole discretion under this
Indenture or otherwise. In signing or refusing to sign any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby (except as provided in Section 902).
<PAGE>
71
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee
shall so determine, new Notes so modified as to conform to any such supplemental
indenture may be prepared and executed by the Company, and the Company shall
issue and the Trustee shall authenticate a new Note that reflects the changed
terms, the cost and expense of which will be borne by the Company in exchange
for outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture. The failure to give such notice to
all the Holders, or any defect therein, will not impair or affect the validity
of the supplemental indenture.
SECTION 908. Effect on Senior Indebtedness.
-----------------------------
No supplemental indenture shall adversely affect the rights of any
holders of Senior Indebtedness under Article Thirteen unless the requisite
holders of each issue of Senior Indebtedness (or any group or representative
thereof authorized to give consent) affected thereby shall have consented to
such supplemental indenture.
1000. ARTICLE TEN. COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York, an office or agency
where the Notes may be presented or surrendered for payment, where, if
applicable, the 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 corporate trust office of the
Trustee c/o State Street Bank and Trust Company, N.A., 61 Broadway, New York,
New York 10006 shall be such office or agency of the Company, unless the Company
shall designate and maintain some other office or agency for one or more of such
purposes. 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
<PAGE>
72
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 also 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 any such designation; provided, however, that no such designation
or rescission 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 rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note 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 (or 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 of (or 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 to so 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 (or 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) that shall be available to
the Trustee by 10:00 a.m. Eastern Standard Time on such due date sufficient to
pay the principal (and premium, if any) or interest so becoming due, 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 to so 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:
(i) hold all sums held by it for the payment of the principal
of (and 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;
(ii) 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
(and premium, if any) or interest; and
(iii) 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.
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
by Company Order 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 sums.
<PAGE>
73
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 (or premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company 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 to the Company, may at the expense of the Company
cause to be published once, in a leading daily newspaper (if practicable, The
Wall Street Journal (Eastern Edition)) printed in the English language and of
general circulation in New York City, 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 publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve any such existence (except the Company) right, license or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not, and will not be, disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (ii)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a material liability or lien upon the property of the Company or any
Restricted Subsidiary; 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 for which appropriate reserves, if
necessary (in the good faith judgment of management of the Company) are being
maintained in accordance with GAAP.
SECTION 1006. [Intentionally Omitted].
-----------------------
SECTION 1007. [Intentionally Omitted].
-----------------------
SECTION 1008. [Intentionally Omitted].
-----------------------
<PAGE>
74
SECTION 1009. Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) and
(B) dividends or distributions payable to the Company or a Restricted Subsidiary
of the Company (and if such Restricted Subsidiary is not a Wholly-Owned
Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Company held by Persons other than a Restricted Subsidiary of the Company or any
Capital Stock of a Restricted Subsidiary of the Company held by any Affiliate of
the Company, other than another Restricted Subsidiary (in either case, other
than in exchange for its Capital Stock (other than Disqualified Stock)), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
in clauses (i) through (iv) as a "Restricted Payment"), if at the time the
Company or such Restricted Subsidiary makes such Restricted Payment: (1) a
Default shall have occurred and be continuing (or would result therefrom); or
(2) the Company is not able to incur an additional $1.00 of Indebtedness
pursuant to Section 1010; or (3) the aggregate amount of such Restricted Payment
and all other Restricted Payments declared or made subsequent to the Issue Date
would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from, but excluding, the Issue
Date to, but excluding, the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate net proceeds, including the fair market value of property other than
cash (determined in good faith by the Board of Directors as evidenced by a
certificate filed with the Trustee, except that in the event the value of any
non-cash consideration shall be $10 million or more, the value shall be as
determined in writing by an Independent Appraiser) received by the Company from
the issue or sale of its Capital Stock (other than Disqualified Stock) or other
capital contributions subsequent to the Issue Date (other than net proceeds
received from an issuance or sale of such Capital Stock to a Subsidiary of the
Company or an employee stock ownership plan or similar trust to the extent such
sale to an employee stock ownership plan or similar trust is financed by loans
from the Company or any Restricted Subsidiary unless such loans have been repaid
with cash on or prior to the date of determination); (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); (D) the
amount equal to the net reduction in Investments made by the Company or any of
its Restricted Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds realized upon the sale
of such Investment to an unaffiliated purchaser, repayments of loans or advances
or other transfers of assets (including by way of dividend or distribution) by
such Person to the Company or any Restricted Subsidiary of the Company or (ii)
the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included under
this clause (D) to the extent it is already included in Consolidated Net Income.
<PAGE>
75
(b) The provisions of paragraph (a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or similar trust to the extent
such sale to an employee stock ownership plan or similar trust is financed by
loans from the Company or any Restricted Subsidiary unless such loans have been
repaid with cash on or prior to the date of determination); provided, however,
that (A) such purchase or redemption shall be excluded in subsequent
calculations of the amount of Restricted Payments and (B) the aggregate net
proceeds from such sale shall be excluded from clause (3) (B) of paragraph (a);
(ii) any purchase or redemption of Subordinated Obligations of the Company made
by exchange for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Company; provided, however, that such purchase
or redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under Section 1016;
provided, however, that such purchase or redemption shall be excluded in
subsequent calculations of the amount of Restricted Payments; (iv) dividends
paid within 60 days after the date of declaration if at such date of declaration
such dividend would have complied with this provision; provided, however, that
such dividend shall be included in subsequent calculations of the amount of
Restricted Payments; (v) payments for the purpose of, and in amounts equal to,
amounts required to permit Holdings to redeem or repurchase Capital Stock of
Holdings from existing or former employees or management of the Company or any
Subsidiary or their assigns, estates or heirs, in each case in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees; provided that
such redemption or repurchases pursuant to this clause shall not exceed $5.0
million (and such maximum amount shall be increased by the amount of any
proceeds to the Company from (x) sales of Capital Stock of Holdings to
management employees subsequent to the Issue Date and (y) any "key-man" life
insurance policies which are used to make such redemptions or repurchases) in
the aggregate; provided, however, that such payments shall be included in the
calculation of the amount of Restricted Payments; provided, further, that the
cancellation of Indebtedness owing to the Company from members of management of
the Company or any of its Restricted Subsidiaries in connection with a
repurchase of Capital Stock of Holdings will not be deemed to constitute a
Restricted Payment under the Indenture; (vi) loans or advances made after the
Issue Date to employees or directors of the Company or any Subsidiary the
proceeds of which are used to purchase Capital Stock of Holdings, in an
aggregate amount not in excess of $1.0 million at any one time outstanding;
provided, however, that such payments shall be included in the calculation of
the amount of Restricted Payments; (vii) cash dividends to Holdings in amounts
equal to (A) the amounts required for Holdings to pay any Federal, state or
local income taxes to the extent that such income taxes are attributable to the
income of the Company and its Subsidiaries, (B) the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its legal
existence, (C) an amount not to exceed $250,000 in any fiscal year to permit
Holdings to pay its corporate overhead expenses incurred in the ordinary course
of business, and to pay salaries or other compensation of employees who perform
services for both Holdings and the Company, (D) so long as no Default or Event
of Default shall have occurred and be continuing, an amount not to exceed
$100,000 in the aggregate, to enable Holdings to make payments to holders of its
Capital Stock in lieu of issuance of fractional shares of its Capital Stock, (E)
the amounts required for Holdings to make indemnification payments under the
Recapitalization Agreement, and (F) on or about the Issue Date the amount
required to enable Holdings to repay the Holdings Facility in an amount not to
exceed the difference between all amounts then owing by Holdings in respect of
the Holdings Facility less the net proceeds to Holdings from the issuance of the
Holdings Senior Discount Notes; provided, however, that such payments shall not
be included in the calculation of the amount of Restricted Payments; (viii)
repurchases of Capital Stock deemed to occur upon the exercise of stock options
if such Capital Stock represents a portion of the exercise price hereof;
provided, however, that such repurchases shall not be included in the
calculation of the amount of Restricted Payments; and (ix) so long as (A) no
Default or Event of Default has occurred and is continuing and (B) immediately
before and immediately after giving effect
<PAGE>
76
thereto, the Company would have been permitted to Incur at least $1.00 of
additional Indebtedness under Section 1010, on and after May 15, 2003, payments
of cash dividends to Holdings in an amount sufficient to enable Holdings to make
payments of interest required to be made in respect of the Holdings Senior
Discount Notes in accordance with the terms thereof in effect on the date of the
Indenture, provided, that such interest payments are made with the proceeds of
such dividends; provided, however, that such payments shall not be included in
the calculation of the amount of Restricted Payments.
(c) Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 1009 were computed, which calculations may
be based upon the Company's latest available financial statements. The Trustee
shall have no duty to recompute or recalculate or verify the accuracy of the
information set forth in such Officers' Certificate.
(d) The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except in compliance with the second to last sentence of
the definition of "Unrestricted Subsidiary."
SECTION 1010. Limitation on Indebtedness.
--------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and
its Restricted Subsidiaries may Incur Indebtedness if on the date thereof the
Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is
at least (i) 2.00 to 1.00, if such Indebtedness is Incurred on or prior to the
second anniversary of the Issue Date and (ii) 2.25 to 1.00, if such Indebtedness
is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to the Senior Credit Agreement; provided, however, that the
aggregate principal amount of all Indebtedness Incurred pursuant to this clause
(i) does not exceed $160 million at any time outstanding, less the aggregate
principal amount of all mandatory prepayments of principal thereof with the
proceeds of Asset Dispositions; (ii) the Subsidiary Guarantees and Guarantees of
Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness of the Company
owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly-Owned Subsidiary ceasing to
be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Wholly-Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (x) the Notes, (y) any Indebtedness (other than
the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on the
Issue Date and (z) any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iv) or clause (v) or Incurred pursuant to
paragraph (a) of this Section; (v) Indebtedness of a Restricted Subsidiary
Incurred and outstanding on the date on which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company (other than Indebtedness
Incurred to provide all or any portion of the funds utilized to consummate the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Subsidiary or was otherwise acquired by the Company);
provided, however, that at the time such Restricted Subsidiary is acquired by
the Company, the Company would have been able to Incur $1.00 of additional
Indebtedness under this Section 1010 after giving effect to the Incurrence of
such Indebtedness pursuant to this clause (v); (vi) Indebtedness under Currency
Agreements and Interest Rate Agreements; provided, however, that in the case of
Currency Agreements and Interest Rate Agreements, such Currency Agreements and
Interest Rate Agreements are entered into for bona fide hedging purposes of the
Company or its Restricted Subsidiaries (as determined in good faith by the Board
of Directors or senior management of the Company) and correspond in terms of
notional amount, duration, currencies and interest
<PAGE>
77
rates, as applicable, to Indebtedness of the Company or its Restricted
Subsidiaries Incurred without violation of the Indenture or to business
transactions of the Company or its Restricted Subsidiaries on customary terms
entered into in the ordinary course of business; (vii) Indebtedness of foreign
Restricted Subsidiaries under working capital facilities; provided that the
aggregate principal amount of such Indebtedness outstanding at any time does not
exceed 5% of Consolidated Tangible Assets; (viii) Indebtedness (including
Capital Lease Obligations) incurred by the Company or any of its Restricted
Subsidiaries to finance the purchase, lease or improvement of property (real or
personal) or equipment (whether through the direct purchase of assets or the
Capital Stock of any Person owning such assets) in an aggregate principal amount
outstanding not to exceed the greater of (A) $5.0 million or (B) 5% of
Consolidated Tangible Assets at the time of any Incurrence thereof (including
any Refinancing Indebtedness with respect thereto); (ix) Indebtedness incurred
by the Company or any of its Restricted Subsidiaries constituting reimbursement
obligations with respect to letters of credit issued in the ordinary course of
business, including, without limitation, letters of credit in respect of
workers' compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers' compensation
claims; (x) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of purchase
price, earn out or other similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a Restricted
Subsidiary of the Company, provided that the maximum liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; (xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary of
the Company in the ordinary course of business; and (xii) Indebtedness (other
than Indebtedness described in clauses (i) through (xi)) in a principal amount
which, when taken together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (xii) and then outstanding, will not exceed the
greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets.
(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
unless such Indebtedness shall be subordinated to the Notes to at least the same
extent as such Subordinated Obligations. No Subsidiary Guarantor shall incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly to refinance any Subordinated Obligations of such
Subsidiary Guarantor unless such Indebtedness shall be subordinated to the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at
least the same extent as such Subordinated Indebtedness.
SECTION 1011. Limitation on Layering.
----------------------
The Company shall not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is contractually
subordinated in right of payment to Senior Subordinated Indebtedness. No
Subsidiary Guarantor shall Incur any Indebtedness if such Indebtedness is
contractually subordinate or junior in ranking in any respect to any Senior
Indebtedness of such Subsidiary Guarantor unless such Indebtedness is Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness of such Subsidiary Guarantor.
<PAGE>
78
SECTION 1012. Limitation on Affiliate Transactions.
------------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless: (i) the terms of such Affiliate Transaction are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate; (ii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $2 million, the
terms of such transaction have been approved by a majority of the members of the
Board of Directors of the Company and by a majority of the members of such Board
having no personal stake in such transaction, if any (and such majority or
majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above); and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $15 million, the Company
has received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is not materially
less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arms-length basis from a Person that
is not an Affiliate.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to Section 1009, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors of the Company, (iii) the
payment of compensation and directors' fees and the performance of
indemnification or contribution obligations in the ordinary course of business,
(iv) loans or advances to employees in the ordinary course of business of the
Company or any of its Restricted Subsidiaries, (v) the execution, delivery and
performance of the Management Agreement, or (vi) any transaction between the
Company and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.
SECTION 1013. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligations owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any of
its property or assets to the Company, except (a) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the date of the
Indenture (including, without limitation, the Senior Credit Agreement); (b) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred to provide all or any portion of the
funds utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company) and outstanding on such date; (c) any encumbrance
or restriction with respect to a Restricted Subsidiary pursuant to an agreement
effecting a refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (a) or (b) of this covenant or this clause (c) or
contained in any amendment to an agreement referred to in clause (a) or (b) of
this covenant or this clause (c); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
agreement or amendment are no less favorable to the Holders of the Notes than
encumbrances and restrictions contained in such agreements; (d) in the case of
clause (iii) above, any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract, or the assignment or
transfer of any such lease, license or other contract, (B) by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien on,
any property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture,
<PAGE>
79
(C) contained in mortgages, pledges or other security agreements securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such mortgages,
pledges or other security agreements or (D) pursuant to customary provisions
restricting dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary; (e) any
restriction with respect to a Restricted Subsidiary (or any of its property or
assets) imposed pursuant to an agreement entered into for the direct or indirect
sale or disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary (or the property or assets that are subject to such
restriction) pending the closing of such sale or disposition; (f) encumbrances
or restrictions arising or existing by reason of applicable law; (g) any
restrictions pursuant to the Indenture and the Holdings Senior Discount Notes;
(h) restrictions imposed by any agreement or instrument governing Capital Stock
of any Person that is acquired; and (i) restrictions on cash or other deposits
or net worth imposed by customers under contracts entered into in the ordinary
course of business.
SECTION 1014. Limitation on Liens.
-------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
(i) in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Notes are equally and ratably secured, except for (A)
Liens existing as of the Issue Date and any extensions, renewals or replacements
thereof, (B) Liens securing Senior Indebtedness, (C) Liens securing the Notes,
(D) Liens of the Company or a Wholly-Owned Restricted Subsidiary of the Company
on assets of any Subsidiary of the Company, (E) Liens securing Indebtedness
which is incurred to refinance Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced, and (F) Permitted
Liens.
SECTION 1015. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, unless the Company
shall have exercised its right to redeem the Notes as described in Section 1101,
each holder will have the right to require the Company to repurchase all or any
part of such holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
(b) Within 30 days following any Change of Control, unless the Company
has mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control as described in Section 1105, the Company
shall mail a notice to each holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such holder has
the right to require the Company to purchase such holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on a record date to receive interest on the relevant interest
payment date);
(ii) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed); and
(iii) the procedures determined by the Company, consistent with
the Indenture, that a holder must follow in order to have its Notes purchased.
<PAGE>
80
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
SECTION 1016. Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value, as determined in good faith
by the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition, (ii)
at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company or any Restricted Subsidiary, as the case may
- -----
be, elects (or is required by the terms of any Senior Indebtedness), to prepay,
repay or purchase Senior Indebtedness or Indebtedness (other than any Preferred
Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company) within 180 days from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
------
application in accordance with clause (A), at the Company's election to the
investment in Additional Assets within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (C) third, to
-----
the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase (an "Offer")
Notes and other pari passu debt obligations subject to a similar covenant
(collectively, the "pari passu Notes") at par plus accrued and unpaid interest,
if any, thereon; and (D) fourth, to the extent of the balance of such Net
------
Available Cash after application in accordance with clauses (A), (B) and (C),
for other general corporate purposes not prohibited by the Indenture; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall retire such Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant exceed $5 million. The Company shall
not be required to make an Offer for the Notes and for the pari passu Notes
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (A) and (B)) are less than $5
million for any particular Asset Disposition (which lesser amounts shall be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(b) If the aggregate principal amount of Notes and pari passu Notes
validly tendered and not withdrawn in connection with an Offer pursuant to
clause (C) above exceeds the funds available therefor ("Offer Proceeds"), the
Offer Proceeds will be apportioned between the Notes and such pari passu Notes,
with the portion of the Offer Proceeds payable in respect of the Notes equal to
the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Notes and the
denominator of which is the sum of the outstanding principal amount of the Notes
and the outstanding principal amount of the relevant pari passu Notes, and (ii)
the aggregate principal amount of Notes validly tendered and not withdrawn.
(c) For the purposes of this covenant, the following will be deemed
to be cash: (x) the assumption by the transferee of Senior Indebtedness of the
Company or Indebtedness of any Restricted
<PAGE>
81
Subsidiary of the Company and the release of the Company or such Restricted
Subsidiary from all liability on such Senior Indebtedness or Indebtedness in
connection with such Asset Disposition (in which case the Company shall, without
further action, be deemed to have applied such assumed Indebtedness in
accordance with clause (A) of the preceding paragraph), (y) securities received
by the Company or any Restricted Subsidiary of the Company from the transferee
that are promptly converted by the Company or such Restricted Subsidiary into
cash and (z) any Designated Noncash Consideration received by the Company or any
of its Restricted Subsidiaries in such Asset Disposition having an aggregate
fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (z) that is at that time
outstanding, not to exceed 10% of Consolidated Tangible Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value).
(d) In the event of an Asset Disposition that requires the purchase
of Notes pursuant to clause (a)(iii)(C), the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their principal amount plus accrued and unpaid
interest, if any, to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of the pari passu Notes tendered
pursuant to the offer is less than the Net Available Cash allotted to the
purchase of the pari passu Notes, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(D) above.
(e) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
SECTION 1017. SEC Reports.
-----------
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted
by the Exchange Act, the Company will file with the SEC and provide, within 15
days after the Company is required to file the same with the SEC, the Trustee
and the holders of the Notes with the annual reports and the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that are specified in Section
13 or 15(d) of the Exchange Act. In the event that the Company is not permitted
to file such reports, documents and information with the SEC pursuant to the
Exchange Act, the Company will nevertheless deliver such Exchange Act
information to the holders of the Notes as if the Company were subject to the
reporting requirements of Sections 13 and 15(d) of the Exchange Act.
SECTION 1018. Future Subsidiary Guarantors.
----------------------------
(a) After the Issue Date, the Company will cause each Restricted
Subsidiary created or acquired by the Company which Guarantees the Bank
Indebtedness to execute and deliver to the Trustee a Subsidiary Guarantee
pursuant to which such Subsidiary Guarantor will unconditionally Guarantee on a
joint and several basis, the full and prompt payment of the principal of,
premium, if any and interest on Notes on a senior subordinated basis for so long
as such Restricted Subsidiary Guarantees the Bank Indebtedness.
(b) The obligations of each Subsidiary Guarantor will be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor (including, without limitation,
any guarantees under the Senior Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under
<PAGE>
82
the Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
(c) Each Subsidiary Guarantor will be permitted to consolidate with or
merge into or sell its assets to the Company or another Subsidiary Guarantor
without limitation. Each Subsidiary Guarantor will be permitted to consolidate
with or merge into or sell all or substantially all its assets to a corporation,
partnership or trust other than the Company or another Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor). Upon the sale or
disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all
or substantially all of its assets) to a Person (whether or not an Affiliate of
the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale
or disposition is otherwise in compliance with the Indenture (including Section
1016) or in the event the Restricted Subsidiary no longer Guarantees the Bank
Indebtedness, such Subsidiary Guarantor shall be deemed released from all its
obligations under the Indenture and its Subsidiary Guarantee and such Subsidiary
Guarantee shall terminate; provided, however, that any such termination shall
occur only to the extent that all obligations of such Subsidiary Guarantor under
the Senior Credit Agreement and all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, any other
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
SECTION 1019. Limitation on Lines of Business.
-------------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, engage in any business other than a Related Business.
SECTION 1020. Statement by Officers as to Default.
-----------------------------------
(a) The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its Restricted Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether it has kept, observed, performed and
fulfilled, and has caused each of its Restricted Subsidiaries to keep, observe,
perform and fulfill its obligations under this Indenture and further stating, as
to each such officer signing such certificate, that, to the best of his or her
knowledge, the Company during such preceding fiscal year has kept, observed,
performed and fulfilled, and has caused each of its Restricted Subsidiaries to
keep, observe, perform and fulfill each and every such covenant contained in
this Indenture and no Default or Event of Default occurred during such year and
at the date of such certificate there is no Default or Event of Default which
has occurred and is continuing or, if such signers do know of such Default or
Event of Default, the certificate shall describe its status, with particularity
and that, to the best of his or her knowledge, no event has occurred and remains
by reason of which payments on the account of the principal of or interest, if
any, on the Notes is prohibited or if such event has occurred, a description of
the event and what action each is taking or proposes to take with respect
thereto. The Officers' Certificate shall also notify the Trustee should the
Company elect to change the manner in which it fixes its fiscal year end. For
purposes of this Section 1020(a), such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Significant Subsidiary gives any notice or
takes any other action with respect to a claimed Default (other than with
respect to Indebtedness in the principal amount of less than $10 million), the
Company shall deliver to the Trustee by registered or certified mail or
facsimile transmission an Officers' Certificate specifying such event, notice or
other action within five Business Days of its occurrence.
<PAGE>
83
1100. ARTICLE ELEVEN. REDEMPTION OF NOTES
SECTION 1101. Optional Redemption.
-------------------
The Notes may or shall, as the case may be, be redeemed, as a whole or
from time to time in part, subject to the conditions and at the Redemption
Prices specified in the form of Note (Section 204), together with accrued and
unpaid interest to the redemption date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 90 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed at any time pursuant to
an optional redemption, the particular Notes to be redeemed shall be selected
not more than 90 days prior to the Redemption Date by the Trustee, from the
outstanding Notes not previously called for redemption, in compliance with the
requirements of the principal securities exchange, if any, on which such Notes
are listed, or, if such Notes are not so listed, on a pro rata basis, by lot or
by such other method as the Trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements) and which may provide for
the selection for redemption of portions of the principal of the Notes;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company 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 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 90 days prior to the Redemption Date,
to each Holder of Notes to be redeemed. The Trustee shall give notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall deliver to the Trustee, at least 45 days prior
to the Redemption Date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the following items.
All notices of redemption shall state:
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84
(i) the Redemption Date,
(ii) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(iii) if less than all outstanding Notes are to be redeemed,
the identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be redeemed
and the aggregate principal amount of Notes to be Outstanding after such
partial redemption,
(iv) in case any Note is to be redeemed in part only, the
notice which relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the holder will receive,
without charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(v) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Note, or the
portion thereof, to be redeemed, and, unless the Company defaults in making
the redemption payment, that interest on Notes called for redemption (or
the portion thereof) will cease to accrue on and after said date,
(vi) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any,
(vii) the name and address of the Paying Agent,
(viii) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price,
(ix) the CUSIP number, and that no representation is made as to
the accuracy or correctness of the CUSIP number, if any, listed in such
notice or printed on the Notes, and
(x) the paragraph of the Notes or Section of the Indenture
pursuant to which the Notes are to be redeemed.
SECTION 1106. Deposit of Redemption Price.
---------------------------
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 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. 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 (together with accrued interest, if any, to
the Redemption Date), 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, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date
<PAGE>
85
shall be payable to the Holders of such Notes, or one or more Predecessor Notes,
registered as such at the close of business on the relevant Regular Record Date
or Special Record Date, as the case may be, according to their terms and the
provisions of Section 311.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing),
and the Company shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Note at the expense of the Company, a new Note or Notes, of
any authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered, provided, that each such new Note will be
in a principal amount of $1,000 or integral multiple thereof.
1200. ARTICLE TWELVE. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance.
- ----------
The Company and the Subsidiary Guarantors, if any, may, at their
option, at any time, with respect to the Notes, elect to have either Section
1202 or Section 1203 be applied to all outstanding Notes upon compliance with
the conditions set forth in this Article Twelve. The Company in its sole
discretion can defease the Notes.
SECTION 1202. Legal Defeasance and Discharge.
------------------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and any Subsidiary Guarantor shall
be deemed to have been discharged from its obligations with respect to all
outstanding Notes on the date the conditions set forth in Section 1204 are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal
Defeasance means that the Company and any such Subsidiary Guarantor shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for
the purposes of Section 1205 and the other Sections of this Indenture referred
to in (i) and (ii) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, 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, solely from the trust fund described in Section
1204 and as more fully set forth in such Section, payments in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (ii) the Company's obligations with respect to such Notes
under Sections 304, 305, 310, 1002 and 1003, (iii) the rights, powers, trusts,
duties and immunities of the Trustee hereunder, and the Company's obligations in
connection therewith and (iv) this Article Twelve.
If the Company exercises its Legal Defeasance Option, payment of the
Notes may not be accelerated because of an Event of Default.
<PAGE>
86
Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company may terminate (i) its obligations
under any covenant contained in Sections 1004 through 1020, (ii) the operation
of Section 501(v), Section 501(vi) (with respect only to Significant
Subsidiaries), Section 501(vii) (with respect only to Significant Subsidiaries),
501(viii) and Section 501(ix) and (iii) the limitations contained in Sections
801(a)(iii) and (iv) with respect to the outstanding Notes on and after the date
the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes shall thereafter be deemed not to be "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 will not be outstanding for accounting
purposes). If the Company exercises its covenant defeasance option, payment of
the Notes may not be accelerated because of an Event of Default specified under
Section 501(iii), (v), (vi) (with respect only to Significant Subsidiaries),
(vii) (with respect only to Significant Subsidiaries), (viii) and (ix) or
because of the failure of the Company to comply with Sections 801(a)(iii) and
(iv). 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
501(iii), but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.
-----------------------------------------------------
The following shall be the conditions to application of either Section
1202 or Section 1203 to the outstanding Notes:
(i) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of this Indenture who shall agree to comply with the
provisions of this Article Twelve applicable to it) as trust funds in trust
money or Government Obligations, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants selected by the Company, to pay the principal of, premium, if
any, and interest due on the outstanding Notes on the Stated Maturity or on
the applicable Redemption Date as the case may be, of such principal,
premium, if any, or interest on the outstanding Notes;
(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 (which opinion may be subject to
customary assumptions and exclusions) 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 Issue 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
(which opinion may be subject to customary assumptions and exclusions)
shall confirm that 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;
<PAGE>
87
(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 or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 123rd day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which the
Company or any Subsidiary Guarantor is a party or by which the Company or
any Subsidiary Guarantor 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 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 under any applicable U.S. federal or state law, 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 defeating, hindering, delaying or defrauding any
creditors of the Company or any Subsidiary Guarantor or others;
(viii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel in the United States (which
Opinion of Counsel may be subject to customary assumptions and exclusions)
each stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with; and
(ix) the Company shall have delivered to the Trustee the
opinion of a nationally recognized firm of independent public accountants
stating the matters set forth in paragraph (i) above.
SECTION 1205. Deposited Money and Government Obligations to Be Held
-----------------------------------------------------
in Trust; Other Miscellaneous Provisions.
- ----------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
outstanding Notes 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. Money and Government Obligations so held in trust
are not subject to Article Thirteen.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof.
<PAGE>
88
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Obligations held by it as provided in Section
1204 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent legal defeasance or covenant defeasance, as
applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money or
Government Obligations in accordance with Section 1205 by reason of any legal
proceeding or by any 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 1202 or 1203, 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
1205; 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 and Government Obligations
held by the Trustee or Paying Agent.
1300. ARTICLE THIRTEEN. SUBORDINATION OF NOTES
SECTION 1301. Notes Subordinate to Senior Indebtedness.
----------------------------------------
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Notes and the payment of the principal of (and premium, if any) and
interest on each and all of the Notes and all other Subordinated Obligations are
hereby expressly made subordinate and subject in right of payment as provided in
this Article to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness, whether outstanding on the Issue Date or thereafter
Incurred, created, assumed or, Guaranteed. The Notes will in all respects rank
pari passu with all Senior Subordinated Indebtedness of the Company.
SECTION 1302. Payment over of Proceeds upon Dissolution, Etc.
----------------------------------------------
Upon any payment or distribution of the assets of the Company upon a
total or partial liquidation, dissolution, reorganization or bankruptcy of or
similar proceeding relating to the Company or its property:
(i) the holders of Senior Indebtedness will be entitled to receive
payment in full in cash or Cash Equivalents of the Senior Indebtedness
(including interest after, or which would accrue but for, the commencement of
any proceeding at the rate specified in the applicable Senior Indebtedness,
whether or not a claim for such interest would be allowed) before the holders of
the Notes are entitled to receive any payment, and
(ii) until the Senior Indebtedness is paid in full in cash or Cash
Equivalents, any payment or distribution to which holders of the Notes would be
entitled but for the subordination provisions of the Indenture will be made to
holders of the Senior Indebtedness as their interests may appear.
SECTION 1303. Suspension of Payment When Senior Indebtedness in
-------------------------------------------------
Default.
- -------
<PAGE>
89
(a) The Company may not pay principal of, premium, if any, or
interest on, the Notes or make any deposit pursuant to the provisions described
in Article Twelve and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if:
(i) any Senior Indebtedness is not paid when due whether at
maturity, upon any redemption, by declaration or otherwise, in cash or Cash
Equivalents; or
(ii) any other default on Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full in cash or Cash Equivalents;
provided however, the Company may pay the Notes without regard to the foregoing
if the Company and the Trustee receive written notice approving such payment
from the Representative of the Senior Indebtedness with respect to which either
of the events set forth in clause (i) or (ii) of the immediately preceding
sentence has occurred and is continuing.
(b) During the continuance of any default (other than a default
described in clause (a) (i) or (a) (ii) above) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice shall be effective in
any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period.
SECTION 1304. Acceleration of Notes.
---------------------
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
SECTION 1305. When Distribution Must Be Paid Over.
-----------------------------------
If a distribution is made to Holders of the Notes that, due to the
provisions of this Article Thirteen, should not have been made to them, such
Holders are required to hold it in trust for the holders of Senior Indebtedness
and pay it over to them as their interests may appear.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article Thirteen, and no implied
<PAGE>
90
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and
shall not be liable charged with knowledge of any facts which would require
payment of any amounts held by it to the holders of Senior Indebtedness unless
it has received written notice thereof within the time set forth in the proviso
at Section 1313.
SECTION 1306. Notice by Company.
-----------------
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes that violate this Article, but failure to give such
notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article Thirteen.
SECTION 1307. Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Notes shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 1302 or under the conditions
described in Section 1303, from making payments at any time of principal of (and
premium, if any, on) or interest on the Notes.
SECTION 1308. Subrogation to Rights of Holders of Senior
------------------------------------------
Indebtedness.
- ------------
Subject to the payment in full of all Senior Indebtedness in cash or
Cash Equivalents, the Holders shall be subrogated (equally and ratably with the
holders of all pari passu Indebtedness of the Company) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
Subordinated Obligations shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holders of the Notes or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Notes or on their behalf or by the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness; it
being understood that the provisions of this Article are intended solely for the
purpose of determining the relative rights of the Holders of the Notes, on the
one hand, and the holders of Senior Indebtedness, on the other hand.
SECTION 1309. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as between the Company and the Holders, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders the
principal of (and premium, if any) and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders and creditors of the
Company other than their rights in relation to holders of Senior Indebtedness;
or (c) prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness. If
the Company fails because of this Article to pay principal (or premium, if any)
or interest on a Note on the due date, the failure is still a Default or Event
of Default.
<PAGE>
91
SECTION 1310. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes. If the
Trustee does not file a proper proof of claim or proof of debt in the form
required in any proceeding referred to in Section 504 hereof at least 30 days
before the expiration of the time to file such claim, the Administrative Agent
under the Senior Credit Agreement (if the such facility is still outstanding) is
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Notes.
SECTION 1311. Subordination May Not Be Impaired by Company.
--------------------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
SECTION 1312. Distribution or Notice to Representative.
----------------------------------------
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article Thirteen, the Trustee and the Holders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other acts pertinent thereto or to this Article
Thirteen.
SECTION 1313. Notice to Trustee.
-----------------
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company,
the Administrative Agent or Representative under the Senior Credit Agreement or
a holder of Senior Indebtedness or from any trustee, fiduciary or agent
therefor; and, prior to the receipt of any such written notice, the Trustee
shall be entitled in all respects to assume that no such facts exist; provided,
however, that, if the Trustee shall not have received the notice provided for in
this Section at least three Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any) or interest on
any Note), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such money and to apply
the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within three
Business Days prior to such date.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to
<PAGE>
92
establish that such notice has been given by a holder of Senior Indebtedness (or
a trustee, fiduciary or agent therefor). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 1314. Reliance on Judicial Order or Certificate of
--------------------------------------------
Liquidating Agent.
- -----------------
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the Holders of the Notes shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of
Notes, for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article; provided that such court, trustee, receiver, custodian,
assignee, agent or other Person has been apprised of, or the order, decree or
certificate makes reference to, the provisions of this Article.
SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness;
-----------------------------------------------------
Preservation of Trustee's Rights.
- --------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
SECTION 1316. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1315 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1317. No Suspension of Remedies.
-------------------------
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of Notes to take any action to accelerate the maturity of the
Notes pursuant to Article Five or to pursue any rights or remedies hereunder or
under applicable law, except as provided in Article Five.
SECTION 1318. Modification of Terms of Senior Indebtedness.
--------------------------------------------
Any renewal or extension of the time of payment of any Senior
Indebtedness or the exercise by the holders of Senior Indebtedness of any of
their rights under any instrument creating or evidencing Senior
<PAGE>
93
Indebtedness, including, without limitation, the waiver of default thereunder,
may be made or done all without notice to or assent from the Holders or the
Trustee.
No compromise, alteration, amendment, modification, extension, renewal
or other change of, or waiver, consent or other action in respect of, any
liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Indebtedness is outstanding or of such Senior Indebtedness, whether or
not such release is in accordance with the provisions of any applicable
document, shall in any way alter or affect any of the provisions of this Article
Thirteen or of the Notes relating to the subordination thereof.
SECTION 1319. [Intentionally Omitted].
-----------------------
SECTION 1320. Trust Moneys Not Subordinated.
-----------------------------
Notwithstanding anything contained herein to the contrary, payments
from the money or the proceeds of Government Obligations held in trust under
Article Twelve hereof by the Trustee (or other qualifying trustee) and which
were deposited in accordance with the terms of Article Twelve hereof and not in
violation of Section 1303 hereof for the payment of principal of (and premium,
if any) and interest on the Notes shall not be subordinated to the prior payment
of any Senior Indebtedness or subject to the restrictions set forth in this
Article Thirteen, and none of the Holders shall be obligated to pay over any
such amount to the Company or any holder of Senior Indebtedness or any other
creditor of the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
DETAILS, INC.
By /s/ Bruce McMaster
-----------------------------
Name: Bruce McMaster
Title: President
Attest:
By /s/ Joseph P. Gisch
------------------------------
Name: Joseph P. Gisch
Title: Chief Financial Officer
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By /s/ Earl W. Dennison, Jr.
-----------------------------
Name: Earl W. Dennison, Jr.
Title: Vice President
<PAGE>
EXECUTION COPY
--------------
DETAILS, INC.
$100,000,000
10% Senior Subordinated Notes due 2005
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
------------------------------------------
November 18, 1997
CHASE SECURITIES INC.
270 Park Avenue, 4th Floor
New York, New York 10017
Ladies and Gentlemen:
Details, Inc., a California corporation (the "Company"), proposes to
-------
issue and sell to Chase Securities Inc. (the "Initial Purchaser"), upon the
-----------------
terms and subject to the conditions set forth in a purchase agreement dated
November 13, 1997 (the "Purchase Agreement"), $100,000,000 aggregate principal
------------------
amount of its 10% Senior Subordinated Notes due 2005 (the "Notes"). Capitalized
-----
terms used but not defined herein shall have the meanings given to such terms in
the Purchase Agreement.
As an inducement to the Initial Purchaser to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchaser thereunder, the Company agrees with the Initial Purchaser, for the
benefit of the holders (including the Initial Purchaser) of the Notes, the
Exchange Notes (as defined herein) and the Private Exchange Notes (as defined
herein) (collectively, the "Holders"), as follows:
-------
Section 1. Registered Exchange Offer. The Company shall (i) prepare
-------------------------
and, not later than 90 days following the date of original issuance of the Notes
(the "Issue Date"), file with the Securities and Exchange Commission (the
----------
"Commission") a registration statement (the "Exchange Offer Registration
---------------------------
Statement") on an appropriate form under the Securities Act with respect to a
- ---------
proposed offer to the Holders of the Notes that are Transfer Restricted Notes
(as defined in Section 3(a) hereof) (the "Registered Exchange Offer") to issue
-------------------------
and deliver to such
<PAGE>
2
Holders, in exchange for the Transfer Restricted Notes, a like aggregate
principal amount of debt securities of the Company (the "Exchange Notes") that
--------------
are identical in all material respects to the Transfer Restricted Notes, except
for the transfer restrictions relating to the Transfer Restricted Notes, (ii)
use its reasonable best efforts to cause the Exchange Offer Registration
Statement to become effective under the Securities Act no later than 180 days
after the Issue Date and the Registered Exchange Offer to be consummated no
later than 210 days after the Issue Date and (iii) keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date on which notice of the Registered
Exchange Offer is mailed to the Holders (such period being called the "Exchange
--------
Offer Registration Period"). The Exchange Notes and the Private Exchange Notes
- -------------------------
(as defined below), if any, will be issued under the Indenture or an indenture
(the "Exchange Notes Indenture") between the Company and the Trustee or such
------------------------
other bank or trust company that is reasonably satisfactory to the Company and
the Initial Purchaser, as trustee (the "Exchange Notes Trustee"), such indenture
----------------------
to be identical in all material respects to the Indenture, except for the
transfer restrictions relating to the Transfer Restricted Notes (as described
above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Transfer Restricted Notes for Exchange Notes (assuming that such Holder
(a) is not an affiliate of the Company or an Exchanging Dealer (as defined
herein) not complying with the requirements of the next sentence, (b) is not the
Initial Purchaser with Transfer Restricted Notes that have the status of an
unsold allotment in an initial distribution, (c) acquires the Exchange Notes in
the ordinary course of such Holder's business and (d) has no arrangements or
understandings with any person to participate in the distribution of the
Exchange Notes) and to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the Securities Act and without
material restrictions under the securities laws of the several states of the
United States. The Company, the Initial Purchaser and each Exchanging Dealer
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, (i) each Holder that is a broker-dealer
electing to exchange Notes, acquired for its own account as a result of market-
making activities or other trading activities, for Exchange Notes (an
"Exchanging Dealer"), is required to deliver a prospectus containing
-----------------
substantially the information set forth in Annex A hereto on the cover, in Annex
B hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange Notes
received by such Exchanging Dealer pursuant to the Registered Exchange Offer and
(ii) if the Initial Purchaser elects to sell Private Exchange Notes acquired in
exchange for Transfer Restricted Notes constituting any portion of an unsold
allotment, it is required to deliver a prospectus containing the information
required by Items 507 or 508 of Regulation S-K under the Securities Act and the
Exchange Act ("Regulation S-K").
--------------
Upon consummation of the Registered Exchange Offer in accordance with
this Section 1, the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Transfer Restricted Notes that are
Private Exchange Notes, Exchange Notes as
<PAGE>
3
to which clause (v) of the first paragraph of Section 2 is applicable and
Exchange Notes held by Exchanging Dealers, and the Company shall have no further
obligations to register Transfer Restricted Notes (other than Private Exchange
Notes and other than in respect of any Exchange Notes as to which clause (v) of
the first paragraph of Section 2 hereof applies) pursuant to Section 2 hereof.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Notes acquired by it that have, or that are reasonably likely
to be determined to have, the status of an unsold allotment in the initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Notes in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the Notes
held by such Holder (the "Private Exchange"), a like aggregate principal amount
----------------
of debt securities of the Company (the "Private Exchange Notes") that are
----------------------
identical in all material respects to the Exchange Notes, except for the
transfer restrictions relating to such Private Exchange Notes. The Private
Exchange Notes will be issued under the same indenture as the Exchange Notes,
and the Company shall use its reasonable best efforts to cause the Private
Exchange Notes to bear the same CUSIP number as the Exchange Notes.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each registered Holder a copy of the prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer, if required by applicable law) after the date on which
notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Transfer Restricted Notes at
any time prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer and any Private Exchange, as the case may be, the Company shall:
<PAGE>
4
(a) accept for exchange all Transfer Restricted Notes tendered and
not validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancellation all Transfer Restricted
Notes so accepted for exchange; and
(c) cause the Trustee or the Exchange Notes Trustee, as the case may
be, promptly to authenticate and deliver to each Holder, Exchange Notes or
Private Exchange Notes, as the case may be, equal in principal amount to
the Transfer Restricted Notes of such Holder so accepted for exchange.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes; provided that (i) in the case where such
--------
prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 90 days and the date on
which all Exchanging Dealers have sold all Exchange Notes held by them and (ii)
the Company shall make such prospectus and any amendment or supplement thereto
available to any broker-dealer for use in connection with any resale of any
Exchange Notes for a period of not less than 90 days after the consummation of
the Registered Exchange Offer.
The Indenture or the Exchange Notes Indenture, as the case may be,
shall provide that the Notes, the Exchange Notes and the Private Exchange Notes
shall vote and consent together on all matters as one class and that none of the
Notes, the Exchange Notes or the Private Exchange Notes will have the right to
vote or consent as a separate class on any matter.
Interest on each Exchange Note and Private Exchange Note issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will be
acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act,
(iii) such Holder is not an affiliate of the Company or, if it is such an
affiliate, such Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, and (iv) if an
Exchanging Dealer, such person shall comply with the prospectus delivery
requirements of the Securities Act.
<PAGE>
5
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an 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 not
misleading and (iii) any prospectus forming part of any Exchange Offer
Registration Statement, and any supplement to such prospectus, does not, as of
the consummation of the Registered Exchange Offer, include 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.
Section 2. Shelf Registration. If (i) because of any change in law
------------------
or applicable interpretations thereof by the Commission's staff, the Company is
not permitted to effect the Registered Exchange Offer as contemplated by Section
1 hereof, (ii) any Notes validly tendered pursuant to the Exchange Offer are not
exchanged for Exchange Notes within 210 days after the Issue Date, (iii) the
Initial Purchaser so requests with respect to Notes not eligible to be exchanged
for Exchange Notes in the Registered Exchange Offer, (iv) any applicable law or
interpretations do not permit any Holder to participate in the Registered
Exchange Offer, (v) any Holder that participates in the Registered Exchange
Offer does not receive freely transferable Exchange Notes in exchange for
tendered Notes, or (vi) the Company so elects, then the following provisions
shall apply:
(a) The Company shall use its reasonable best efforts to file as
promptly as practicable (but in no event more than 30 days after so required or
requested pursuant to this Section 2) with the Commission, and thereafter shall
use its reasonable best efforts to cause to be declared effective, a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Transfer Restricted Notes by such Holders thereof
from time to time in accordance with the methods of distribution set forth in
such registration statement (hereafter, a "Shelf Registration Statement" and,
----------------------------
together with any Exchange Offer Registration Statement, a "Registration
------------
Statement").
- ---------
(b) The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by Holders of Transfer Restricted
Notes for a period ending on the earlier of (i) two years from the Issue Date or
such shorter period that will terminate when all the Transfer Restricted Notes
covered by the Shelf Registration Statement have been sold pursuant thereto and
(ii) the date all of the Notes become eligible for resale without volume
restrictions pursuant to Rule 144 under the Securities Act (in any such case,
such period being called the "Shelf Registration Period"). The Company shall be
-------------------------
deemed not to have used its reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Transfer Restricted Notes
covered thereby not being able to offer and sell such Transfer Restricted Notes
during that period,
<PAGE>
6
unless such action is required by applicable law; provided, however, that no
-------- -------
Holder of Notes or Exchange Notes (other than the Initial Purchaser) shall be
entitled to have Notes or Exchange Notes held by it covered by such Shelf
Registration Statement unless such Holder agrees in writing to be bound by all
the provisions of this Agreement applicable to such Holder.
(c) Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Shelf Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not, when it becomes effective, contain an 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 not
misleading and (iii) any prospectus forming part of any Shelf Registration
Statement, and any supplement to such prospectus (in either case, other than
with respect to Holders' Information), does not include 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.
Section 3. Liquidated Damages. (a) The parties hereto agree that
------------------
the Holders of Transfer Restricted Notes will suffer damages if the Company
fails to fulfill its obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) a Registration Statement is not filed with the Commission on
or prior to 90 days after the Issue Date, (ii) the Exchange Offer Registration
Statement or a Shelf Registration Statement, if applicable, is not declared
effective within 180 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of Commission's staff, if later, within 90 days
after publication of the change in law or interpretation), (iii) the Registered
Exchange Offer is not consummated on or prior to 210 days after the Issue Date,
or (iv) a Shelf Registration Statement is filed and declared effective within
180 days after the Issue Date (or in the case of a Shelf Registration Statement
required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 90 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 60 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will be
--------------------
obligated to pay liquidated damages to each Holder of Transfer Restricted Notes,
during the period of one or more such Registration Defaults, in an amount equal
to $0.192 per week per $1,000 principal amount of Transfer Restricted Notes held
by such Holder until (i) the applicable Registration Statement is filed, (ii)
the Exchange Offer Registration Statement is declared effective and the
Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement
is declared effective or (iv) the Shelf Registration Statement again
<PAGE>
7
becomes effective, as the case may be. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease. As used herein, the term
"Transfer Restricted Notes" means (i) each Note until the date on which such
-------------------------
Note has been exchanged for a freely transferable Exchange Note in the
Registered Exchange Offer, (ii) each Note or Private Exchange Note until the
date on which it has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iii) each
Note or Private Exchange Note until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Company shall not be required to pay liquidated
damages to a Holder of Transfer Restricted Notes if such Holder failed to comply
with its obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Company shall pay the liquidated damages due on the Transfer
Restricted Notes by depositing with the Paying Agent (which may not be the
Company for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Notes, sums sufficient to pay the liquidated
damages then due. The liquidated damages due shall be payable on each interest
payment date specified by the Indenture and the Notes to the record holder of
the Transfer Restricted Notes entitled to receive the interest payment to be
made on such date. Each obligation to pay liquidated damages shall be deemed to
accrue from and including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for
in this Section 3 constitute a reasonable estimate of and will constitute the
sole damages that will be suffered by Holders of Transfer Restricted Notes by
reason of the failure of (i) the Shelf Registration Statement or the Exchange
Offer Registration Statement to be filed, (ii) the Shelf Registration Statement
to remain effective or (iii) the Exchange Offer Registration Statement to be
declared effective and the Registered Exchange Offer to be consummated, in each
case to the extent required by this Agreement.
Section 4. Registration Procedures. In connection with any
-----------------------
Registration Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to the Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchaser may reasonably propose; (ii) if applicable, include the information
set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange Offer" section and in
Annex C
<PAGE>
8
hereto in the "Plan of Distribution" section of the prospectus forming a part of
the Exchange Offer Registration Statement, and include the information set forth
in Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and (iii) if requested by the Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K, as
applicable, in the prospectus forming a part of the Exchange Offer Registration
Statement.
(b) The Company shall advise the Initial Purchaser, Exchanging Dealer
and the Holders (by notice to the Trustee) (if applicable) and, if requested by
any such person, confirm such advice in writing (which advice pursuant to
clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the
use of the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes, the
Exchange Notes or the Private Exchange Notes for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus included
therein in order that the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) The Company will make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish, if requested, to each record Holder of
Transfer Restricted Notes included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such
<PAGE>
9
Holder so requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(e) The Company will, if requested, during the Shelf Registration
Period, promptly deliver to each Holder of Transfer Restricted Notes included
within the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included in
such Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use of such
prospectus or any amendment or supplement thereto by each of the selling Holders
of Transfer Restricted Notes in connection with the offer and sale of the
Transfer Restricted Notes covered by such prospectus or any amendment or
supplement thereto.
(f) The Company will furnish to the Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge, at
least one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if the Initial Purchaser or any Exchanging Dealer or any such Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference).
(g) The Company will, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to the Initial
Purchaser, each Exchanging Dealer and such other persons that are required to
deliver a prospectus following the Registered Exchange Offer, without charge, as
many copies of the final prospectus included in the Exchange Offer Registration
Statement or the Shelf Registration Statement and any amendment or supplement
thereto as the Initial Purchaser, any Exchanging Dealer or other persons may
reasonably request; and the Company consents to the use of the prospectus or any
amendment or supplement thereto by the Initial Purchaser, any Exchanging Dealer
or other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company will use its reasonable best efforts to register or qualify, or
cooperate with the Holders of Notes, Exchange Notes or Private Exchange Notes
included therein and their respective counsel in connection with the
registration or qualification of, such Notes, Exchange Notes or Private Exchange
Notes for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holder reasonably requests in writing and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Notes, Exchange Notes or Private Exchange Notes
covered by such Registration Statement; provided that the Company will not be
--------
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is not then
so subject.
(i) The Company will cooperate with the Holders of Notes, Exchange
Notes or Private Exchange Notes to facilitate the timely preparation and
delivery of certificates representing Notes, Exchange Notes or Private Exchange
Notes to be sold pursuant to any
<PAGE>
10
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Notes, Exchange Notes or Private Exchange Notes pursuant to such
Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company is required to maintain an effective
Registration Statement, the Company will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Notes, Exchange Notes or
Private Exchange Notes from a Holder, the prospectus will not include 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.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Notes, the Exchange
Notes and the Private Exchange Notes, as the case may be, and provide the
applicable trustee with printed certificates for the Notes, the Exchange Notes
or the Private Exchange Notes, as the case may be, in a form eligible for
deposit with The Depository Trust Company.
(l) The Company will comply with all applicable rules and regulations
of the Commission and will make generally available to its security holders as
soon as practicable after the effective date of the applicable Registration
Statement an earning statement satisfying the provisions of Section 11(a) of the
Securities Act; provided that in no event shall such earning statement be
--------
delivered later than 45 days after the end of a 12-month period (or 90 days, if
such period is a fiscal year) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the applicable
Registration Statement, which statement shall cover such 12-month period.
(m) The Company will cause the Indenture or the Exchange Notes
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer Restricted Notes
to be registered pursuant to any Shelf Registration Statement to furnish to the
Company such information concerning the Holder and the distribution of such
Transfer Restricted Notes as the Company may from time to time reasonably
require for inclusion in such Shelf Registration Statement, and the Company may
exclude from such registration the Transfer Restricted Notes of any Holder that
fails to furnish such information within a reasonable time after receiving such
request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Notes to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Notes that, upon receipt of any notice
from the Company pursuant to Section 4(b)(ii) through (v), such Holder will
discontinue disposition of such Transfer Restricted Notes until
<PAGE>
11
such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
------
Company that the use of the applicable prospectus may be resumed. If the Company
shall give any notice under Section 4(b)(ii) through (v) during the period that
the Company is required to maintain an effective Registration Statement (the
"Effectiveness Period"), such Effectiveness Period shall be extended by the
--------------------
number of days during such period from and including the date of the giving of
such notice to and including the date when each seller of Transfer Restricted
Notes covered by such Registration Statement shall have received (x) the copies
of the supplemental or amended prospectus contemplated by Section 4(j) (if an
amended or supplemental prospectus is required) or (y) the Advice (if no amended
or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Notes, Exchange Notes and
Private Exchange Notes being sold or the managing underwriters (if any) shall
reasonably request in order to facilitate any disposition of Notes, Exchange
Notes or Private Exchange Notes pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount of the Notes, Exchange Notes and Private Exchange Notes being
sold and any underwriter participating in any disposition of Notes, Exchange
Notes or Private Exchange Notes pursuant to such Shelf Registration Statement,
all relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such representative,
Special Counsel or any such underwriter (an "Inspector") in connection with such
---------
Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company shall,
if requested by Holders of a majority in aggregate principal amount of the
Notes, Exchange Notes and Private Exchange Notes being sold, their Special
Counsel or the managing underwriters (if any) in connection with such Shelf
Registration Statement, use its reasonable best efforts to cause (i) its counsel
to deliver an opinion relating to the Shelf Registration Statement and the
Notes, Exchange Notes or Private Exchange Notes, as applicable, in customary
form, (ii) its officers to execute and deliver all customary documents and
certificates requested by Holders of a majority in aggregate principal amount of
the Notes, Exchange Notes and Private Exchange Notes being sold, their Special
Counsel or the managing underwriters (if any) and (iii) its independent public
accountants to provide a comfort letter in customary form, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by Statement
of Auditing Standards No. 72.
<PAGE>
12
Section 5. Registration Expenses. The Company will bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders
for the reasonable fees and disbursements of one firm of attorneys (in addition
to any local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Notes, the Exchange Notes and the Private Exchange Notes to be
sold pursuant to each Registration Statement (the "Special Counsel") acting for
---------------
the Initial Purchaser or Holders in connection therewith.
Section 6. Indemnification. (a) In the event of a Shelf
---------------
Registration Statement or in connection with any prospectus delivery pursuant to
an Exchange Offer Registration Statement by the Initial Purchaser or Exchanging
Dealer, as applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, the Initial Purchaser or any such Exchanging
Dealer), its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls such Holder
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 6 and Section 7 as a Holder) from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of Notes, Exchange Notes or
Private Exchange Notes), to which that Holder may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any such Registration Statement or any prospectus forming part
thereof or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein 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, and shall reimburse
each Holder as incurred for any legal or other expenses reasonably incurred by
that Holder in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
--------
however, that neither the Company shall not be liable in any such case to the
- -------
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with any Holders' Information; and provided, further, that with respect to any
-------- -------
such untrue statement in or omission from any related preliminary prospectus,
the indemnity agreement contained in this Section 6(a) shall not inure to the
benefit of any Holder from whom the person asserting any such loss, claim,
damage, liability or action received Notes, Exchange Notes or Private Exchange
Notes to the extent that such loss, claim, damage, liability or action of or
with respect to such Holder results from the fact that both (A) a copy of the
final prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such Notes, Exchange Notes or Private Exchange Notes
to such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of non-
compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
<PAGE>
13
(b) In the event of a Shelf Registration Statement, each Holder,
severally and not jointly, shall indemnify and hold harmless the Company, its
affiliates, their respective officers, directors, employees, representatives and
agents, and each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 6(b) and Section 7 as the Company), from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company may become subject, whether commenced or threatened, under
the Securities Act, the Exchange Act, any other federal or state statutory law
or regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein 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, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holders' Information furnished to
the Company by such Holder, and shall reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
-------- -------
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Notes, Exchange Notes or
Private Exchange Notes pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
--------
however, that the failure to notify the indemnifying party shall not relieve it
- -------
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and provided, further, that the failure to
-------- -------
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 6. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
-------- -------
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the
<PAGE>
14
employment of counsel by the indemnified party has been authorized in writing by
the indemnifying party, (2) the indemnified party has reasonably concluded
(based upon advice of counsel to the indemnified party) that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based upon advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel reasonably satisfactory to the indemnified party to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without the
prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
Section 7. Contribution. If the indemnification provided for in
------------
Section 6 is unavailable or insufficient to hold harmless an indemnified party
under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company from the offering and sale
of the Notes, on the one hand, and a Holder with respect to the sale by such
Holder of Notes, Exchange Notes or Private Exchange Notes, on the other, or (ii)
if the allocation provided by clause (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 (i) above but also the relative fault of the
Company on the one hand and such Holder on the other with respect to the
statements or omissions that resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and a Holder on the other with respect to such offering and such sale shall be
deemed to be in the same proportion as the total net proceeds from the offering
of
<PAGE>
15
the Notes (before deducting expenses) received by or on behalf of the Company as
set forth in the table on the cover of the Offering Memorandum, on the one hand,
bear to the total proceeds received by such Holder with respect to its sale of
Notes, Exchange Notes or Private Exchange Notes, on the other. The relative
fault 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 the Company or information supplied
by the Company on the one hand or to any Holders' Information supplied by such
Holder on the other, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 7 were to be determined by
pro rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 7
shall be deemed to include, for purposes of this Section 7, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 7, an indemnifying party that is
a Holder of Notes, Exchange Notes or Private Exchange Notes shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Notes, Exchange Notes or Private Exchange Notes sold by such
indemnifying party to any purchaser exceeds the amount of any damages which such
indemnifying party has otherwise paid or become liable to pay by reason of any
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 Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Section 8. Rules 144 and 144A. The Company shall use its
------------------
reasonable best efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act in a timely manner and, if at any time the
Company is not required to file such reports, it will, upon the written request
of any Holder of Transfer Restricted Notes, make publicly available other
information so long as necessary to permit sales of such Holder's securities
pursuant to Rules 144 and 144A. Upon the written request of any Holder of
Transfer Restricted Notes, the Company shall deliver to such Holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 8 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
Section 9. Underwritten Registrations. If any of the Transfer
--------------------------
Restricted Notes covered by any Shelf Registration Statement are to be sold in
an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Notes included in such offering, subject to the consent of the Company (which
shall not be unreasonably withheld or delayed), and such Holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.
<PAGE>
16
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
Section 10. Miscellaneous. (a) Amendments and Waivers. The
------------- ----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of Holders of a majority in
aggregate principal amount of the Notes, the Exchange Notes and the Private
Exchange Notes, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Notes, Exchange Notes or
Private Exchange Notes are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect the rights of other Holders may be
given by Holders of a majority in aggregate principal amount of the Notes, the
Exchange Notes and the Private Exchange Notes being sold by such Holders
pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 10(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Chase Securities Inc.;
(2) if to the Initial Purchaser, initially at its address set forth
in the Purchase Agreement; and
(3) if to the Company, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts (which may be delivered in original form or by telecopier) and by
the parties
<PAGE>
17
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement.
(e) Definition of Terms. For purposes of this Agreement, (a) the term
-------------------
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
(h) Remedies. In the event of a breach by the Company or by any
--------
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery of
damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company represents, warrants and
--------------------------
agrees that (i) it has not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) it has not previously entered into any agreement which remains in
effect granting any registration rights with respect to any of its debt
securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Notes, it shall not
grant to any person the right to request the Company to register any debt
securities of the Company under the Securities Act unless the rights so granted
are not in conflict or inconsistent with the provisions of this Agreement.
(j) No Piggyback on Registrations. Neither the Company nor any of its
-----------------------------
security holders (other than the Holders of Transfer Restricted Notes in such
capacity) shall have the right to include any securities of the Company in any
Shelf Registration Statement or Registered Exchange Offer other than Transfer
Restricted Notes.
(k) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of
<PAGE>
18
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchaser.
Very truly yours,
DETAILS, INC.
By /s/ Bruce McMaster
------------------------------
Name: Bruce McMaster
Title: President
Accepted:
CHASE SECURITIES INC.
By /s/ James P. Casey
----------------------------
Authorized Signatory
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until _______________, 199_, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus./1/
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Registered Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Registered Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commission or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- --------------------
/1/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer prospectus.
<PAGE>
ANNEX D
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
-------------------------------
Address:
----------------------------
---------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE>
EXHIBIT 5.1
[ROPES & GRAY LETTERHEAD]
November 26, 1997
Details, Inc.
1231 Simon Circle
Anaheim, CA 92806
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Details, Inc., a California corporation (the
"Company") in connection with a Registration Statement on Form S-4 (the
"Registration statement") to be filed by the Company with the Securities and
Exchange Commission relating to the proposed issuance by the Company of up to
$100,000,000 aggregate principal amount of its new 10% Senior Subordinated
Notes due 2005 (the "Exchange Notes") registered under the Securities Act of
1933, as amended (the "Securities Act"), in exchange for a like principal
amount of the Company's outstanding 10% Senior Subordinated Notes due 2005,
which have not been so registered (the "Original Notes").
The Exchange Notes will be issued under an indenture dated as of November
18, 1997 (the "Indenture") between the Company and State Street Bank and Trust
Company, as indenture trustee.
We have examined and relied upon the information set forth in the
Registration Statement and such other documents and records as we have deemed
necessary. In addition, as to questions of fact material to our opinions, we
have relied upon certificates of officers of the Company and public officials.
In the course of our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by
such parties of such documents and the validity and binding effect thereof on
such parties.
We express no opinion as to the laws of any jurisdiction other than those of
The Commonwealth of Massachusetts and the federal laws of the United States of
America. We have relied as to all matters governed by California law upon the
opinion dated the date hereof and filed as Exhibit 5.2 to the Registration
Statement. We call your attention to the fact that each of the Indenture and
the Exchange Notes provides that it is to be governed by the laws of the State
of New York. For purposes of the opinion provided herein, we have assumed with
your permission that the Indenture and the Exchange Notes would be governed by
and construed in accordance with the domestic substantive laws of The
Commonwealth of Massachusetts without giving effect to any choice of law or
conflict of laws, rule or provision that would cause the application of the
domestic substantive laws of any other jurisdiction.
<PAGE>
Based upon the foregoing,we are of the opinion that:
The Exchange Notes, assuming due authorization, execution and delivery
thereof, when executed and authenticated in the manner provided for the
Indenture and delivered against surrender and cancellation of a like
aggregate principal amount of Original Notes as contemplated in the
Registration Rights agreement dated as of November 18, 1997, between the
company and the Initial Purchaser named therein, will be enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principle (regardless of whether
considered in a proceeding inequity or at law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" contained in the prospectus included therein.
It is understood that this opinion is to be used only in connection with the
Exchange Offer while the Registration Statement is in effect.
Very truly yours.
/s/ Ropes & Gray
----------------
Ropes & Gray
2
<PAGE>
EXHIBIT 5.2
[Stradling, Yocca, Carlson & Rauth Letterhead]
November 26, 1997
Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special California counsel for Details, Inc. (the
"Company") with respect to the Registration Statement on Form S-4, filed by
the Company with the Securities and Exchange Commission on November 26, 1997
(as such may be amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of the exchange of an aggregate of principal amount of up to $100,000,000, of
its new Senior Discount Notes due 2005 (the "Exchange Discount Notes") for a
like principal amount of its outstanding Senior Discount Notes due 2005 (the
"Original Discount Notes").
The Exchange Notes will be issued under an indenture dated as of November
18, 1997 (the "Indenture") between the Company and State Street Bank and Trust
Company, as indenture trustee.
As your special California counsel in connection with this transaction, we
have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the exchange and issuance of
the Exchange Discount Notes.
Based upon the foregoing, it is our opinion that, upon completion of the
proceedings taken in order to permit such transaction to be carried out in
accordance with the securities laws of the various states where required, the
Exchange Discount Notes have been duly authorized by all requisite corporate
action of the Company and when executed and authenticated in the manner
provided for in the Indenture and delivered against surrender and cancellation
of a like aggregate principal amount of Original Discount Notes as
contemplated in the Registration Rights Agreement dated as of November 18,
1997, between the Company and the Initial Purchaser named therein, will be
duly authorized, validly issued, fully paid and nonassessable and will be
valid and legally binding obligations of the Company.
We consent of the use of the opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus which is a part of the Registration Statement, and any amendment
thereto.
We understand and agree that Ropes & Gray will rely upon the foregoing
opinion in connection with its opinion dated the date hereof and filed as
Exhibit 5.1 to the Registration Statement.
Very truly yours.
Stradling, Yocca, Carlson & Rauth
/s/ Stradling, Yocca, Carlson &
Rauth
<PAGE>
================================================================================
DETAILS, INC.
----------------------------------
$144,400,000
CREDIT AGREEMENT
-----------------
dated as of
October 28, 1997
----------------------------------
THE CHASE MANHATTAN BANK,
as Documentation, Syndication and Administrative Agent
----------------------------
CHASE SECURITIES INC.,
as Arranger
[LOGO OF CHASE APPEARS HERE]
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS..................................................... 1
1.1 Defined Terms.................................................... 1
1.2 Other Definitional Provisions.................................... 21
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 22
2.1 Term Loan Commitments............................................ 22
2.2 Procedure for Term Loan Borrowing................................ 22
2.3 Repayment of Term Loans.......................................... 23
2.4 Revolving Credit Commitments..................................... 23
2.5 Procedure for Revolving Credit Borrowing......................... 24
2.6 Swing Line Commitment............................................ 24
2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans 25
2.8 Commitment Fees, etc............................................. 26
2.9 Termination or Reduction of Commitments.......................... 26
2.10 Optional Prepayments............................................. 27
2.11 Mandatory Prepayments and Commitment Reductions.................. 27
2.12 Conversion and Continuation Options.............................. 29
2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches........ 29
2.14 Interest Rates and Payment Dates................................. 29
2.15 Computation of Interest and Fees................................. 30
2.16 Inability to Determine Interest Rate............................. 30
2.17 Pro Rata Treatment and Payments.................................. 31
2.18 Requirements of Law.............................................. 32
2.19 Taxes............................................................ 33
2.20 Indemnity........................................................ 35
2.21 Change of Lending Office......................................... 35
2.22 Replacement of Lenders under Certain Circumstances............... 36
SECTION 3. LETTERS OF CREDIT............................................... 36
3.1 L/C Commitment................................................... 36
3.2 Procedure for Issuance of Letter of Credit....................... 36
3.3 Commissions, Fees and Other Charges.............................. 37
3.4 L/C Participations............................................... 37
3.5 Reimbursement Obligation of the Borrower......................... 38
3.6 Obligations Absolute............................................. 38
3.7 Letter of Credit Payments........................................ 39
3.8 Applications..................................................... 39
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 39
4.1 Financial Condition.............................................. 39
4.2 No Change........................................................ 40
4.3 Corporate Existence; Compliance with Law......................... 40
4.4 Corporate Power; Authorization; Enforceable Obligations.......... 40
4.5 No Legal Bar..................................................... 41
4.6 No Material Litigation........................................... 41
4.7 No Default....................................................... 41
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.8 Ownership of Property; Liens..................................... 41
4.9 Intellectual Property............................................ 41
4.10 Taxes............................................................ 41
4.11 Federal Regulations.............................................. 42
4.12 Labor Matters.................................................... 42
4.13 ERISA............................................................ 42
4.14 Investment Company Act; Other Regulations........................ 42
4.15 Subsidiaries..................................................... 43
4.16 Use of Proceeds.................................................. 43
4.17 Environmental Matters............................................ 43
4.18 Accuracy of Information, etc..................................... 44
4.19 Security Documents............................................... 44
4.20 Solvency......................................................... 45
4.21 Senior Indebtedness.............................................. 45
SECTION 5. CONDITIONS PRECEDENT............................................ 45
5.1 Conditions to Initial Extension of Credit........................ 45
5.2 Conditions to Each Extension of Credit........................... 47
SECTION 6. AFFIRMATIVE COVENANTS........................................... 48
6.1 Financial Statements............................................. 48
6.2 Certificates; Other Information.................................. 49
6.3 Payment of Obligations........................................... 50
6.4 Conduct of Business and Maintenance of Existence, etc............ 50
6.5 Maintenance of Property; Insurance............................... 50
6.6 Inspection of Property; Books and Records; Discussions........... 51
6.7 Notices.......................................................... 51
6.8 Environmental Laws............................................... 51
6.9 Interest Rate Protection......................................... 52
6.10 Additional Collateral, etc....................................... 52
SECTION 7. NEGATIVE COVENANTS.............................................. 53
7.1 Financial Condition Covenants.................................... 53
7.2 Limitation on Indebtedness....................................... 54
7.3 Limitation on Liens.............................................. 56
7.4 Limitation on Fundamental Changes................................ 57
7.5 Limitation on Sale of Assets..................................... 57
7.6 Limitation on Dividends.......................................... 58
7.7 Limitation on Capital Expenditures............................... 58
7.8 Limitation on Investments, Loans and Advances.................... 59
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc............................................ 60
7.10 Limitation on Transactions with Affiliates....................... 60
7.11 Limitation on Sales and Leasebacks............................... 61
7.12 Limitation on Changes in Fiscal Periods.......................... 61
7.13 Limitation on Negative Pledge Clauses............................ 61
7.14 Limitation on Restrictions on Subsidiary Distributions........... 62
7.15 Limitation on Lines of Business.................................. 62
7.16 Limitation on Amendments to Transaction Documents................ 62
7.17 Limitation on Activities of the Company.......................... 62
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8. EVENTS OF DEFAULT............................................... 63
SECTION 9. THE ADMINISTRATIVE AGENT........................................ 66
9.1 Appointment...................................................... 66
9.2 Delegation of Duties............................................. 66
9.3 Exculpatory Provisions........................................... 66
9.4 Reliance by Administrative Agent................................. 67
9.5 Notice of Default................................................ 67
9.6 Non-Reliance on Agents and Other Lenders......................... 67
9.7 Indemnification.................................................. 68
9.8 Administrative Agent in Its Individual Capacity.................. 68
9.9 Successor Administrative Agent................................... 68
9.10 Authorization to Release Liens................................... 69
SECTION 10. MISCELLANEOUS.................................................. 69
10.1 Amendments and Waivers.......................................... 69
10.2 Notices......................................................... 70
10.3 No Waiver; Cumulative Remedies.................................. 71
10.4 Survival of Representations and Warranties...................... 71
10.5 Payment of Expenses and Taxes................................... 71
10.6 Successors and Assigns; Participations and Assignments.......... 72
10.7 Adjustments; Set-off............................................ 74
10.8 Counterparts.................................................... 75
10.9 Severability.................................................... 75
10.10 Integration..................................................... 75
10.11 GOVERNING LAW................................................... 75
10.12 Submission To Jurisdiction; Waivers............................. 75
10.13 Acknowledgements................................................ 76
10.14 WAIVERS OF JURY TRIAL........................................... 76
10.15 Confidentiality................................................. 76
10.16 Assumption by Subsequent Lenders................................ 77
</TABLE>
SCHEDULES
----------------------------------------------
Schedule 1.1 Commitments
Schedule 4.4 Consents, Authorizations, Filings and Notices
Schedule 4.10 Tax Claims
Schedule 4.15 Subsidiaries
Schedule 4.19(a) UCC Filing Jurisdictions
Schedule 7.2(e) Existing Indebtedness
Schedule 7.3(e) Existing Liens
EXHIBITS
----------------------------------------------
Exhibit A Form of Guarantee and Collateral Agreement
Exhibit B Form of Compliance Certificate
Exhibit C Form of Closing Certificate
<PAGE>
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Legal Opinion of Ropes & Gray
Exhibit F-1 Form of Term Note
Exhibit F-2 Form of Revolving Credit Note
Exhibit F-3 Form of Alternative Term Note
Exhibit F-4 Form of Alternative Revolving Credit Note
Exhihit F-5 Form of Swing Line Note
Exhibit G Form of Prepayment Option Notice
Exhibit H-1 Form of Assumption Agreement
Exhibit H-2 Form of Lender Assumption Agreement
<PAGE>
CREDIT AGREEMENT, dated as of October 28, 1997, among DETAILS, INC., a
California corporation (the "Company"), the several banks and other financial
-------
institutions or entities from time to time parties to this Agreement (the
"Lenders"), and THE CHASE MANHATTAN BANK, as documentation, syndication and
-------
administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in this
-------------
Section 1.1 shall have the respective meanings set forth in this Section 1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
---
the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per
----------
annum publicly announced from time to time by the Administrative Agent as its
prime rate in effect at its principal office in New York City (the Prime Rate
not being intended to be the lowest rate of interest charged by the
Administrative Agent in connection with extensions of credit to debtors); and
"Federal Funds Effective Rate" shall mean, for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Administrative Agent
from three federal funds brokers of recognized standing selected by it. Any
change in the ABR due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Loans the rate of interest applicable to which is based upon
---------
the ABR.
"Accepting Lenders": as defined in Section 2.17(d).
-----------------
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Administrative Agent": The Chase Manhattan Bank, together with its
--------------------
affiliates, as the arranger of the Commitments and as the documentation,
syndication and administrative agent for the Lenders under this Agreement and
the other Loan Documents, together with any of its successors.
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise. In addition, for the purpose of this Agreement, an Affiliate of Bain
Capital shall include any Bain Investor or any
<PAGE>
investment fund under common control with the Bain Investors. Notwithstanding
the foregoing, none of the Lenders or any of their respective affiliates shall
be deemed to be Affiliates of the Company or its Subsidiaries.
"Agreement": this Credit Agreement, as amended, supplemented or otherwise
---------
modified from time to time.
"Alternative Note": as defined in Section 10.6(f)(ii).
----------------
"Alternative Noteholder": as defined in Section 10.6(f)(ii).
----------------------
"Applicable Margin": for each Type of Loan, the rate per annum set forth
-----------------
under the relevant column heading below:
<TABLE>
<CAPTION>
Eurodollar
ABR Loans Loans
----------- ------
<S> <C> <C>
Revolving Credit Loans and
Swing Line Loans 1.50% 2.50%
Tranche A Term Loans 1.50% 2.50%
Tranche B Term Loans 1.75% 2.75%
</TABLE>
provided, that on and after the first Adjustment Date occurring after the
- --------
completion of four full fiscal quarters of the Borrower after the Closing Date,
the Applicable Margin with respect to Revolving Credit Loans, the Swing Line
Loans and Tranche A Term Loans will be determined pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
-----------
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Asset Sale": any Disposition of Property or series of related
----------
Dispositions of Property (excluding any such Disposition permitted by clause
(a), (b), (c), (d) or (e) of Section 7.5) which yields gross proceeds to the
Company or any of its Subsidiaries (valued at the initial principal amount
thereof in the case of non-cash proceeds consisting of notes or other debt
securities and valued at fair market value in the case of other non-cash
proceeds) in excess of $500,000.
"Assignee": as defined in Section 10.6(c).
--------
"Assignor": as defined in Section 10.6(c).
--------
"Assumption Agreement": an agreement, executed and delivered by the
--------------------
Successor Subsidiary, which shall be substantially similar to the form attached
as Exhibit H-1 hereto.
"Available Revolving Credit Commitment": as to any Revolving Credit
-------------------------------------
Lender at any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment over (b) such Lender's Revolving Extensions of
----
Credit.
"Bain Affiliates": any Bain Investor or Affiliate of Bain Capital,
---------------
provided that, for purposes of the definition of "Change of Control", the term
- --------
Bain Affiliate shall not include (x)
<PAGE>
any portfolio company of either Bain Capital or any Affiliate of Bain Capital or
(y) any officer or director of the Company or any of its Subsidiaries that is
not also a partner, principal or stockholder of Bain Capital.
"Bain Capital": Bain Capital, Inc., a Delaware corporation.
------------
"Bain Investor": Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P.,
-------------
BCIP Associates, BCIP Trust Associates, L.P and RGIP, LLC.
"Base CapEx Amount": as defined in Section 7.7.
-----------------
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower": (a) prior to the Push-Down Date, the Company and (b)
--------
thereafter, the Successor Subsidiary.
"Borrowing Date": any Business Day specified by the Borrower as a date on
--------------
which the Borrower requests the relevant Lenders to make Loans hereunder.
"Business": as defined in Section 4.17.
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law to
close.
"Capital Expenditures": for any period, with respect to any Person, the
--------------------
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) which should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of such
-------------------------
Person under any lease of (or other arrangement conveying the right to use) real
or personal property, or a combination thereof, which are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of one year or less from the date of acquisition
issued by any Lender or by any commercial bank organized under the laws of the
United States of America or any state thereof having combined capital and
surplus of not less
<PAGE>
than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by
Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc., or
carrying an equivalent rating by a nationally recognized rating agency, if both
of the two named rating agencies cease publishing ratings of commercial paper
issuers generally, and maturing within one year from the date of acquisition;
(c) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, rated at least A-2 by Standard & Poor's
Ratings Services or P-2 by Moody's Investors Service, Inc.; and (d) investments
in money market funds substantially all the assets of which are comprised of
securities of the types described in clauses (a) through (c) above.
"Change of Control": any of the following events:
-----------------
(a) prior to the date of an initial registered public offering by the Company
of its common stock, (i) Bain Capital and Bain Affiliates shall cease to
own (on a fully diluted basis) at least 20% of the economic and voting
interests in the Capital Stock of the Company or (ii) the Permitted Holders
shall cease to "control" (as such term is defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) the Company; or
(b) from and after the date of an initial registered public offering by the
Company of its common stock, (i) any Person or "group" (within the meaning
of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as in
effect on the Closing Date) shall own a greater percentage of the voting
and/or economic interest in the Capital Stock of the Company than that
owned by Bain Capital and/or the Bain Affiliates or (ii) the Board of
Directors of the Company shall cease to consist of a majority of Continuing
Directors.
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, which date shall be no later than
December 31, 1997.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Property of the Loan Parties, now owned or hereafter
----------
acquired, upon which a Lien is purported to be created by any Security Document.
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
----------
Commitment, the Tranche B Term Loan Commitment and the Revolving Credit
Commitment of such Lender.
"Commitment Fee Rate": 1/2 of 1% per annum; provided, that on and
------------------- --------
after the first Adjustment Date occurring after the completion of four full
fiscal quarters of the Borrower after the Closing Date, the Commitment Fee Rate
will be determined pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Company": as defined in the preamble.
-------
<PAGE>
"Company Indenture": the Indenture to be entered into by the Company in
-----------------
connection with the issuance of the Company Zeros, together with all instruments
and other agreements entered into by the Company or any of its Subsidiaries in
connection therewith, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with Section 7.9.
"Company Interim Credit Facility": the collective reference to the
-------------------------------
Company Interim Credit Facility, of even date herewith, among the Company, The
Chase Manhattan Bank, as administrative agent, and the other lenders from time
to time party thereto, together with all documents executed in connection
therewith (including, without limitation, any Exchange Notes issued pursuant
thereto), as the same may be amended, supplemented or otherwise modified from
time to time in accordance with Section 7.9.
"Company Zeros": the senior unsecured discount notes of the Company
-------------
issued pursuant to the Company Indenture.
"Compliance Certificate": a certificate duly executed by a Responsible
----------------------
Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated October 1997 prepared by the Company with respect to the
issuance of the Company Interim Credit Facility.
"Consolidated Current Assets": at a particular date, all amounts
---------------------------
(other than cash and Cash Equivalents) which would, in conformity with GAAP, be
set forth opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of the Borrower and its Subsidiaries at such date.
"Consolidated Current Liabilities": at a particular date, all amounts
--------------------------------
which would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet of
the Borrower and its Subsidiaries at such date, but excluding (a) the current
portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without
duplication of clause (a) above, all Indebtedness consisting of Revolving Credit
Loans to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for
-------------------
such period plus, (a) without duplication and to the extent reflected as a
----
charge in the statement of such Consolidated Net Income for such period, the sum
of (i) total income tax expense, (ii) total interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions, discounts and
other fees and charges associated with Indebtedness (including the Loans), (iii)
depreciation and amortization expense, (iv) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (v) any
extraordinary or non-recurring expenses or losses (including, whether or not
otherwise includable as a separate item in the statement of such Consolidated
Net Income for such period, losses on sales of assets outside of the ordinary
course of business), (vi) charges for the write-off of any step-up in basis in
inventory required in a transaction which is accounted for under the purchase
method of accounting, (vii) any other non-cash charges and (viii) all management
fees paid to Bain Capital and the Bain Affiliates permitted by Section 7.10,
minus, (b) to the extent included in the statement of such Consolidated Net
- -----
Income for such period, the sum of (i) interest income, (ii) any extraordinary
or non-recurring income or gains (including, whether or not otherwise
<PAGE>
includable as a separate item in the statement of such Consolidated Net Income
for such period, gains on the sales of assets outside of the ordinary course of
business) and (iii) any other non-cash income (other than non-cash income
resulting from the Company's accrual method of accounting in accordance with
past practice). Notwithstanding the foregoing, there shall be added to
Consolidated EBITDA on a pro forma basis for purposes of computing the financial
--- -----
covenants for any period set forth in Section 7.1 (i) the amount of compensation
and other payments paid to James I. Swenson (not to exceed $2,400,000) which
were deducted in computing Consolidated Net Income for such period and (ii) the
expenses deducted in computing Consolidated Net Income for such period which
were associated with the vesting and exercise by existing management of the
Company of options on the Capital Stock of the Company on or prior to the
Closing Date and the bonuses paid to such existing management pursuant to
Section 1.11 of the Transaction Agreement.
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio
----------------------------------------
of (a) the total of (i) Consolidated EBITDA for such period less (ii) the
aggregate amount actually paid by the Borrower and its Subsidiaries in cash
during such period on account of Capital Expenditures (excluding the principal
amount of Indebtedness incurred in connection with such expenditures and any
Capital Expenditures financed with Reinvestment Deferred Amounts) less (iii) any
provision for cash income taxes made by the Borrower and its Subsidiaries on a
consolidated basis in respect of such period to (b) Consolidated Fixed Charges
for such period.
"Consolidated Fixed Charges": for any period, the sum (without
--------------------------
duplication) of (a) Consolidated Interest Expense for such period and (b)
scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including the Term
Loans).
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period; provided that, for purposes of determining such ratio at a time
--------
when less than four full fiscal quarters of the Company have begun after and
fully elapsed since the Closing Date, (x) Consolidated EBITDA for the relevant
period shall be deemed to be the sum of (i) the aggregate Consolidated EBITDA of
the Company for those fiscal quarters which have begun after and fully elapsed
since the Closing Date and (ii) the aggregate Consolidated EBITDA (determined on
a pro forma basis, as if the Transaction had occurred on the first day of such
period) of the Company for the requisite number of consecutive fiscal quarters
commencing prior to the Closing Date and (y) Consolidated Interest Expense shall
be determined by annualizing the Consolidated Interest Expense of the Company
for those fiscal quarters which have begun after and fully elapsed since the
Closing Date.
"Consolidated Interest Expense": for any period, all cash interest
-----------------------------
expense (including that attributable to Capital Lease Obligations) of the
Company and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Company and its Subsidiaries (including, without limitation,
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net costs under Interest
Rate Protection Agreements to the extent such net costs are allocable to such
period in accordance with GAAP).
"Consolidated Leverage Ratio": as at the last day of any period, the
---------------------------
ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for
such period; provided that, for purposes of determining such ratio at a time
--------
when less than four full fiscal quarters of
<PAGE>
the Company have begun after and fully elapsed since the Closing Date,
Consolidated EBITDA for the relevant period shall be deemed to be the sum of (x)
the aggregate Consolidated EBITDA of the Company for those fiscal quarters which
have begun after and fully elapsed since the Closing Date and (y) the aggregate
Consolidated EBITDA (determined on a pro forma basis, as if the Transaction had
occurred on the first day of such period) of the Company for the requisite
number of consecutive fiscal quarters commencing prior to the Closing Date.
"Consolidated Net Income": for any period, the consolidated net income (or
-----------------------
loss) of the Borrower and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP; provided that there shall be excluded therefrom (a) the
--------
income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with the Borrower
or any of its Subsidiaries, (b) the income (or deficit) of any Person (other
than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital": the excess of Consolidated Current
----------------------------
Assets over Consolidated Current Liabilities.
"Continuing Directors": the directors of the Company on the Effective
--------------------
Date and each other director if such director's nomination for the election to
the Board of Directors of the Company is recommended by a majority of the then
Continuing Directors.
"Contractual Obligation": as to any Person, any provision of any security
----------------------
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its Property is bound.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Delayed Draw Commitment": $25,000,000, as such amount may be reduced
-----------------------
from time to time pursuant to Section 2.8(b).
"Designated Equity Amounts": at any date, the amount equal to the
-------------------------
aggregate amount of Net Cash Proceeds received by the Company and its
Subsidiaries from the issuance of Capital Stock which (a) have been designated
in writing by the Company to the Administrative Agent as "Permitted Expenditure
Amounts" and (b) are utilized by the Company and its Subsidiaries within 45 days
after such receipt for an Expenditure Use Amount.
"DI Acquisition": DI Acquisition Corp., a California corporation.
--------------
<PAGE>
"Disposition": with respect to any Property, any sale, lease, sale and
-----------
leaseback, assignment, conveyance, transfer or other disposition thereof; and
the terms "Dispose" and "Disposed of" shall have correlative meanings.
------- -----------
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
-------------------
the laws of any jurisdiction within the United States of America.
"ECF Percentage": 75%; provided, that, with respect to each fiscal
-------------- --------
year of the Borrower ending on or after December 31, 1998, the ECF Percentage
shall be reduced to 50% if the Consolidated Interest Coverage Ratio for the
period of four consecutive fiscal quarters ending on the last day of such fiscal
year is at least 2.5 to 1.0 and the Consolidated Leverage Ratio as of the last
day of such fiscal year is not greater than 4.0 to 1.0.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined by the
Administrative Agent to be the offered rate for deposits in Dollars with a term
comparable to such Interest Period that appears on the applicable Telerate Page
at approximately 10:00 A.M., New York City time, two Business Days prior to the
beginning of such Interest Period; provided, however, that if at any time for
-------- -------
any reason such offered rate does not appear on the applicable Telerate Page,
"Eurodollar Base Rate" shall mean, with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at
which the Administrative Agent is offered Dollar deposits at or about 10:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of its Eurodollar Loans to be outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
<PAGE>
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
the then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Event of Default": any of the events specified in Section 8, provided that
---------------- --------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess, if
----------------
any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
deducted in arriving at such Consolidated Net Income, (iii) decreases in
Consolidated Working Capital for such fiscal year, (iv) an amount equal to the
aggregate net non-cash loss on the Disposition of Property by the Borrower and
its Subsidiaries during such fiscal year (other than sales of inventory in the
ordinary course of business), to the extent deducted in arriving at such
Consolidated Net Income, (v) the amount, if any, by which Consolidated Working
Capital was increased by changes in the current deferred income tax account and
(vi) the amount by which Consolidated Working Capital was increased as a result
of the payment in such fiscal year of items referred to in clause (b)(vii) below
over (b) the sum, without duplication, of (i) an amount equal to the amount of
- ----
all non-cash credits included in arriving at such Consolidated Net Income, (ii)
the aggregate amount actually paid by the Borrower and its Subsidiaries in cash
during such fiscal year on account of Capital Expenditures (excluding the
principal amount of Indebtedness incurred in connection with such expenditures
and any such expenditures financed with the proceeds of any portion of the
Reinvestment Deferred Amount that exceeded any gain recognized as a result of
the event that gave rise to such Deferred Investment Amount), (iii) the
aggregate amount of all prepayments of Revolving Credit Loans and Swing Line
Loans during such fiscal year to the extent accompanying permanent optional
reductions of the Revolving Credit Commitments and all optional prepayments of
the Term Loans during such fiscal year, (iv) the aggregate amount of all
principal payments of Funded Debt (including, without limitation, the Term
Loans) of the Borrower and its Subsidiaries made during such fiscal year (other
than in respect of any revolving credit facility to the extent there is not an
equivalent permanent reduction in commitments thereunder), (v) increases in
Consolidated Working Capital for such fiscal year, (vi) an amount equal to the
aggregate net non-cash gain on the Disposition of Property by the Borrower and
its Subsidiaries during such fiscal year (other than sales of inventory in the
ordinary course of business), to the extent included in arriving at such
Consolidated Net Income, (vii) the amount of non cash charges that decreased
Consolidated Working Capital during such fiscal year which resulted from items
that the Borrower reasonably determines in good faith are expected to be paid in
cash in the immediately following fiscal year, (viii) any cash disbursement made
against non-current liabilities to the extent not deducted in determining
Consolidated Net Income, (ix) the amount, if any, by which Consolidated Working
Capital was decreased by changes in the current deferred income tax account, (x)
the amount of distributions permitted by Section 7.6 which were made in such
fiscal year, (xi) the amount of investments, advances, loans or extensions of
credit made pursuant to clauses (d), (e), (i) and (j) of Section 7.8, to the
extent not funded by the incurrence of Indebtedness or contributions to
<PAGE>
capital and (xii) any payments made to the former shareholders of the Company
pursuant to Section 1.11 of the Transaction Agreement.
"Excess Cash Flow Application Date": as defined in Section 2.11(c).
---------------------------------
"Excess Note Proceeds": as defined in Section 7.2(g).
--------------------
"Excluded Agreements": the collective reference to the following: (i) the
-------------------
employment agreements with Bruce McMaster, Joseph Gisch, Lee Muse and Terry
Wright, (ii) equity incentive/option plans for directors, officers and employees
of, and consultants and advisors to, the Company and its Subsidiaries, awards
thereunder and any promissory notes accepted as payment in connection with the
issuance of securities thereunder, (iii) the warrant and escrow agreements
related to the Company Interim Credit Facility, (iv) the Management Agreement,
dated as of October 28, 1997, between the Company and Bain Capital Partners V,
L.P., (v) the Transaction Agreement, (vi) the Stockholders Agreement, dated as
of October 28, 1997, among the Company and its shareholders, (vii) each of the
Subscription Agreements, dated as of October 28, 1997, to which DI Acquisition
is a party and (viii) the escrow agreement described in Section 1.11 of the
Transaction Agreement and the tax savings and refunds related thereto.
"Excluded Foreign Subsidiaries": any Foreign Subsidiary the pledge of
-----------------------------
all of whose Capital Stock as Collateral would, in the good faith judgment of
the Borrower, result in adverse tax consequences to the Borrower.
"Expenditure Use Amounts": at any date, the amount equal to the sum
-----------------------
of (a) all amounts utilized by the Borrower and its Subsidiaries to finance
Capital Expenditures, other than Capital Expenditures which are (i) not in
excess of the Base CapEx Amount for the relevant fiscal year and any permitted
rollovers to such fiscal year of unused amounts from the prior fiscal year or
(ii) financed with Deferred Reinvestment Amounts, (b) all amounts utilized by
the Borrower and its Subsidiaries to finance investments permitted pursuant to
Section 7.8(i), except to the extent that the consideration (determined in
accordance with such Section 7.8(i)) for all such investments made since the
Closing Date does not exceed $30,000,000 in the aggregate and (c) all amounts
utilized by the Borrower and its Subsidiaries to finance investments permitted
pursuant to Section 7.8(j), except to the extent that the aggregate amount of
all such investments (valued at cost, but net of returns of capital from such
investments) made since the Closing Date does not exceed $5,000,000.
"Facility": each of (a) the Tranche A Term Loan Commitments and the
--------
Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"), (b)
----------------------------
the Tranche B Term Loan Commitments and the Tranche B Term Loans made thereunder
(the "Tranche B Term Loan Facility"), and (c) the Revolving Credit Commitments
----------------------------
and the extensions of credit made thereunder (the "Revolving Credit Facility").
-------------------------
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
------------------
Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such Person that
-----------
matures more than one year from the date of its creation or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders
<PAGE>
to extend credit during a period of more than one year from such date,
including, without limitation, all current maturities and current sinking fund
payments in respect of such Indebtedness whether or not required to be paid
within one year from the date of its creation and, in the case of the Borrower,
Indebtedness in respect of the Loans.
"GAAP": generally accepted accounting principles in the United States
----
of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board and the rules and regulations of the
Securities and Exchange Commission, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances of the Borrower as of the
date of determination, except that for purposes of Section 7.1, GAAP shall be
determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 4.1(b). In the event that
any "Accounting Change" (as defined below) shall occur and such change results
in a change in the method of calculation of financial covenants, standards or
terms in this Agreement, then the Borrower and the Administrative Agent agree to
enter into negotiations in order to amend such provisions of this Agreement so
as to equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Borrower, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred. "Accounting
Changes" refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the Securities and Exchange Commission (or successors thereto or
agencies with similar functions).
"Governmental Authority": any nation or government, any state or other
-----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
(including, without limitation, the National Association of Insurance
Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by the Company, the Successor Subsidiary
and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the
same may be amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any Property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor,
<PAGE>
(iii) to purchase Property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the owner of any such primary obligation against loss in
respect thereof; provided, however, that the term Guarantee Obligation shall not
-------- -------
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantors": the collective reference to the Subsidiary Guarantors
----------
and (from and after the Push-Down Date) the Company.
"Incur": as defined in Section 7.2.
-----
"Indebtedness": of any Person at any date, without duplication, (a) all
------------
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of Property or services (other than trade
payables incurred in the ordinary course of such Person's business which are
current liabilities), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such Property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under bankers' acceptance, letter of credit or similar facilities,
(g) all obligations of such Person, contingent or otherwise, to purchase,
redeem, retire or otherwise acquire for value any Capital Stock (other than
common stock) of such Person, (h) all Guarantee Obligations of such Person in
respect of obligations of the kind referred to in clauses (a) through (g) above;
(i) all obligations of the kind referred to in clauses (a) through (h) above
secured by (or for which the holder of such obligation has an existing right,
contingent or otherwise, to be secured by) any Lien on Property (including,
without limitation, accounts and contract rights) owned by such Person, whether
or not such Person has assumed or become liable for the payment of such
obligation; and (j) for the purposes of Section 8(e) only, the net exposure of
such Person in respect of Interest Rate Protection Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all
<PAGE>
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period and
(d) as to any Loan (other than any Revolving Credit Loan that is an ABR Loan and
any Swing Line Loan), the date of any repayment or prepayment made in respect
thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the period
---------------
commencing on the borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing provisions
--------
relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Scheduled Revolving Credit Termination Date or beyond the date final
payment is due on the Tranche A Term Loans or the Tranche B Term Loans, as
the case may be, shall end on the Scheduled Revolving Credit Termination
Date or such due date, as applicable;
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Interest Rate Protection Agreement": any interest rate protection
----------------------------------
agreement, interest rate futures contract, interest rate option, interest rate
cap or other interest rate hedge arrangement, to or under which the Borrower or
any of its Subsidiaries is a party or a beneficiary on the date hereof or
becomes a party or a beneficiary after the date hereof.
"Issuing Lender": The Chase Manhattan Bank or any of its Affiliates,
--------------
in its capacity as issuer of any Letter of Credit.
<PAGE>
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
----------------
Credit Lenders other than the Issuing Lender.
"Letters of Credit": as defined in Section 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loan Documents": this Agreement, the Security Documents and the Notes.
--------------
"Loan Parties": the Company, the Borrower (to the extent different
------------
from the Company) and each Subsidiary of the Borrower which is a party to a Loan
Document.
"Majority Facility Lenders": with respect to any Facility, the holders of
-------------------------
more than 50% of the aggregate unpaid principal amount of the Term Loans or the
Total Revolving Extensions of Credit, as the case may be, outstanding under such
Facility (or, in the case of the Revolving Credit Facility, prior to any
termination of the Revolving Credit Commitments, the holders of more than 50% of
the Total Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
------------------------------------------
Lenders in respect of the Revolving Credit Facility.
"Mandatory Prepayment Date": as defined in Section 2.17(d).
-------------------------
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
Transaction, (b) the business, operations, property or condition (financial or
otherwise) of the Borrower and its Subsidiaries taken as a whole or (c) the
validity or enforceability of this Agreement or any of the other Loan Documents
or the rights or remedies of the Administrative Agent or the Lenders hereunder
or thereunder.
"Material Environmental Amount": an amount payable by the Borrower and/or
-----------------------------
its Subsidiaries in excess of $1,500,000 for remedial costs, compliance costs,
compensatory damages, punitive damages, fines, penalties or any combination
thereof.
<PAGE>
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Material Subsidiary": any Subsidiary of the Company which has assets
-------------------
(valued at their fair market value) or annual revenues which are in excess of
$2,500,000.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery
-----------------
Event, the proceeds thereof in the form of cash and Cash Equivalents (including
any such proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such Asset Sale or Recovery Event,
net of reasonable attorneys' fees, accountants' fees, investment banking fees,
amounts required to be applied to the repayment of Indebtedness secured by a
Lien expressly permitted hereunder on any asset which is the subject of such
Asset Sale or Recovery Event (other than any Lien pursuant to a Security
Document) and other customary and reasonable fees and expenses actually incurred
in connection therewith and net of taxes paid or reasonably estimated to be
payable as a result thereof (after taking into account any available tax credits
or deductions and any tax sharing arrangements) and (b) in connection with any
issuance or sale of equity securities or debt securities or instruments or the
incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of reasonable attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.19(a).
------------------
"Non-U.S. Lender": as defined in Section 2.19(b).
---------------
"Notes": the collective reference to any promissory note evidencing Loans.
-----
"Obligations": the unpaid principal of and interest on (including,
-----------
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Borrower to the Administrative Agent or to
any Lender (or, in the case of Interest Rate Protection Agreements, any
affiliate of any Lender), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan Document,
the Letters of Credit, any Interest Rate Protection Agreement entered into with
any Lender or any affiliate of any Lender or any other document made, delivered
or given in connection herewith or therewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees, charges and disbursements of counsel
to the Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
<PAGE>
"Participant": as defined in Section 10.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Expenditure Amounts": at any date, the amount equal to (a)
-----------------------------
the sum of (i) all Designated Equity Amounts as of such date and (ii) any
portion of the Excess Cash Flow of the Company for fiscal years completed since
the Closing Date which was not required to be applied pursuant to the provisions
of Section 2.11(c) minus (b) the aggregate amount of Expenditure Use Amounts as
of such date.
"Permitted Holders": any of (a) Bain Capital and the Bain Affiliates,
-----------------
(b) each other holder of common stock of the Company on the Effective Date and
(c) senior management employees of the Borrower and (to the extent that it is
not then the Borrower) the Company.
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prepayment Option Notice": as defined in Section 2.17(b).
------------------------
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Pro Forma Balance Sheets": as defined in Section 4.1(a).
------------------------
"Projections": as defined in Section 6.2(c).
-----------
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or intangible,
including, without limitation, Capital Stock.
"Push-Down Date": as defined in Section 7.17.
--------------
"Real Properties": as defined in Section 4.17.
---------------
"Recovery Event": any settlement of or payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Company or any of its Subsidiaries.
"Refunded Swing Line Loans": as defined in Section 2.7.
-------------------------
"Refunding Date": as defined in Section 2.7.
--------------
"Register": as defined in Section 10.6(d).
--------
<PAGE>
"Regulation U": Regulation U of the Board as in effect from time to time.
------------
"Reimbursement Obligation": the obligation of the Borrower to reimburse the
------------------------
Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of
Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment Event, the
----------------------------
aggregate Net Cash Proceeds received by the Company or any of its Subsidiaries
in connection therewith which are not applied to prepay the Term Loans or reduce
the Revolving Credit Commitments pursuant to Section 2.11(b) as a result of the
delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of which
------------------
the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible Officer
-------------------
stating that no Event of Default has occurred and is continuing and that the
Borrower (directly or indirectly through a Subsidiary) intends and expects to
use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended or then committed to be expended prior to the relevant Reinvestment
Prepayment Date to acquire assets useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment Event, the
----------------------------
earlier of (a) the date occurring six months (or, in the case of any
reinvestment to be made by the Borrower or any of its Subsidiaries from the
proceeds of any property or casualty insurance claim, twelve months) after such
Reinvestment Event and (b) the date on which the Borrower shall have determined
not to, or shall have otherwise ceased to, acquire assets useful in the
Borrower's business with all or any portion of the relevant Reinvestment
Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the condition
--------------
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)2615.
"Required Lenders": the holders of more than 50% of (a) until the
----------------
Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate
unpaid principal amount of the Term Loans and (ii) the Total Revolving Credit
Commitments or, if the Revolving Credit Commitments have been terminated, the
Total Revolving Extensions of Credit.
"Required Prepayment Lenders": the Majority Facility Lenders in respect of
---------------------------
each Facility.
"Requirement of Law": as to any Person, the Certificate of Incorporation
------------------
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.
<PAGE>
"Responsible Officer": the chief executive officer, president or chief
-------------------
financial officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"Revolving Credit Commitment": as to any Lender, the obligation of such
---------------------------
Lender, if any, to make Revolving Credit Loans and participate in Swing Line
Loans and Letters of Credit, in an aggregate principal and/or face amount not to
exceed the amount set forth under the heading "Revolving Credit Commitment"
opposite such Lender's name on Schedule 1.1, as the same may be changed from
time to time pursuant to the terms hereof.
"Revolving Credit Commitment Period": the period from and including the
----------------------------------
Closing Date to the Scheduled Revolving Credit Termination Date or such earlier
date on which the Revolving Credit Commitments shall terminate as provided
herein.
"Revolving Credit Lender": each Lender which has a Revolving Credit
-----------------------
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
----------------------
"Revolving Credit Percentage": as to any Revolving Credit Lender at any
---------------------------
time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the Total Revolving Credit Commitments (or, at any time after the
Revolving Credit Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Revolving Credit Loans
then outstanding constitutes of the aggregate principal amount of the Revolving
Credit Loans then outstanding).
"Revolving Extensions of Credit": as to any Revolving Credit Lender at any
------------------------------
time, an amount equal to the sum of (a) the aggregate principal amount of all
Revolving Credit Loans made by such Lender then outstanding, (b) such Lender's
Revolving Credit Percentage of the aggregate principal amount of Swing Line
Loans then outstanding and (c) such Lender's Revolving Credit Percentage of the
L/C Obligations then outstanding.
"Scheduled Revolving Credit Termination Date": October 27, 2003.
-------------------------------------------
"Securities Act": the Securities Act of 1933, as amended from time to time,
--------------
and the rules and regulations.
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement and all other security documents hereafter delivered to the
Administrative Agent granting a Lien on any Property of any Person to secure the
obligations and liabilities of any Loan Party under any Loan Document.
"Senior Subordinated Credit Facility": the collective reference to the
-----------------------------------
Senior Subordinated Credit Agreement of even date herewith, among the Borrower,
The Chase Manhattan Bank, as administrative agent, and the other lenders from
time to time party thereto, together with all documents executed in connection
therewith (including, without limitation, any Exchange Notes issued pursuant
thereto), as the same may be amended, supplemented or otherwise modified from
time to time in accordance with Section 7.9.
<PAGE>
"Senior Subordinated Note Indenture": the Indenture to be entered into by
----------------------------------
the Borrower and certain of its Subsidiaries in connection with the issuance of
the Senior Subordinated Notes, together with all instruments and other
agreements entered into by the Borrower or such Subsidiaries in connection
therewith, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with Section 7.9.
"Senior Subordinated Notes": the subordinated notes of the Borrower to be
-------------------------
issued pursuant to the Senior Subordinated Note Indenture.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA, but
--------------------
which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any date
-------
of determination, (a) the amount of the "present fair saleable value" of the
assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
"Specified Change of Control": a "Change of Control" as defined in either
---------------------------
the Senior Subordinated Note Indenture or the Company Indenture.
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower other than any
--------------------
Excluded Foreign Subsidiary.
"Successor Subsidiary": as defined in Section 7.17.
--------------------
"Swing Line Commitment": the obligation of the Swing Line Lender to make
---------------------
Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount at any
one time outstanding not to exceed $5,000,000.
<PAGE>
20
"Swing Line Lender": The Chase Manhattan Bank, in its capacity as the
-----------------
lender of Swing Line Loans.
"Swing Line Loans": as defined in Section 2.6.
----------------
"Swing Line Participation Amount": as defined in Section 2.7.
-------------------------------
"Tax Benefit": as defined in Section 2.19(c).
-----------
"Telerate Page" means the display designated as Page 3750 on the
-------------
Telerate System Incorporated Service (or such other page as may replace such
page on such service for the purpose of displaying the rates at which Dollar
deposits are offered by leading banks in the London interbank deposit market).
"Term Loan Lenders": the collective reference to the Tranche A Term
-----------------
Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Tranche A Term Loans
----------
and the Tranche B Term Loans.
"Total Revolving Credit Commitments": at any time, the aggregate
----------------------------------
amount of the Revolving Credit Commitments at such time.
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Revolving Credit Lenders at
such time.
"Tranche A Term Loan": as defined in Section 2.1.
-------------------
"Tranche A Term Loan Commitment": as to any Lender, the obligation of
------------------------------
such Lender, if any, to make a Tranche A Term Loan to the Borrower hereunder in
a principal amount not to exceed the amount set forth under the heading "Tranche
A Term Loan Commitment" opposite such Lender's name on Schedule 1.1.
"Tranche A Term Loan Lender": each Lender which has a Tranche A Term
--------------------------
Loan Commitment or which has made a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to Tranche A Term Loan Lender at
------------------------------
any time, the percentage which such Lender's Tranche A Term Loan Commitment then
constitutes of the aggregate Tranche A Term Loan Commitments (or, at any time
after the Closing Date, the percentage which the aggregate principal amount of
such Lender's Tranche A Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche A Term Loans then outstanding).
"Tranche B Repayment Amount": as defined in Section 2.17(d).
--------------------------
"Tranche B Term Loan": as defined in Section 2.1.
-------------------
"Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender,
------------------------------
the obligation of such Lender, if any, to make a Tranche B Term Loan to the
borrower hereunder in
<PAGE>
21
a principal amount not to exceed the amount set forth under the heading "Tranche
B Term Loan Commitment" opposite such Lender's name on Schedule 1.1.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
--------------------------
Loan Commitment or which has made a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at any time, the
------------------------------
percentage which such Lender's Tranche B Term Loan Commitment then constitutes
of the aggregate Tranche B Term Loan Commitments (or, at any time after the
Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche B Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche B Term Loans then outstanding).
"Transaction": as defined in Section 5.1(b).
-----------
"Transaction Agreement": the Amended and Restated Recapitalization
---------------------
Agreement, dated as of October 4, 1997, by and among DI Acquisition, the Company
and certain shareholders of the Company, as amended, supplemented or otherwise
modified in accordance with the terms hereof and thereof.
"Transaction Documents": the collective reference to the Transaction
---------------------
Agreement and all other agreements, documents and instruments executed or filed
by or on behalf of DI Acquisition, the Company or any of its Subsidiaries or any
of their Affiliates with any Governmental Authority in connection with the
Transaction.
"Transferee": as defined in Section 10.15.
----------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"U.S. Taxes": as defined in Section 10.6(f)(ii).
----------
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is
---------------------------------
a Wholly Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Company and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
<PAGE>
22
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
---------------------
hereof, (a) each Tranche A Term Loan Lender severally agrees to make a term loan
to the Borrower on the Closing Date and to make up to three additional term
loans to the Borrower during the period prior to October 27, 1998 (the "Tranche
-------
A Term Loans") in an aggregate amount not to exceed the amount of the Tranche A
- ------------
Term Loan Commitment of such Lender and (b) each Tranche B Term Loan Lender
severally agrees to make a term loan (a "Tranche B Term Loan") to the Borrower
-------------------
on the Closing Date in an amount not to exceed the amount of the Tranche B Term
Loan Commitment of such Lender. Notwithstanding anything to the contrary
contained herein, the aggregate amount of Tranche A Term Loans to be borrowed on
the Closing Date shall not exceed $41,400,000 and the aggregate amount of those
made by all Lenders after the Closing Date shall not exceed $25,000,000. The
Term Loans may from time to time be Eurodollar Loans or ABR Loans, as determined
by the Borrower and notified to the Administrative Agent in accordance with
Sections 2.2 and 2.12.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the
---------------------------------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 2:00 P.M., New York City time, one Business Day
prior to the requested Borrowing Date) requesting that the Term Loan Lenders
make the Term Loans on the requested Borrowing Date (which must be a Business
Day) and specifying the amount to be borrowed; provided that the aggregate
--------
amount of Tranche A Term Loans made by the Tranche A Term Loan Lenders after the
Closing Date (after giving effect to the making of such requested Tranche A Term
Loans) shall not exceed the Delayed Draw Commitment on the requested Borrowing
Date. All Term Loans initially shall be made as ABR Loans and shall be in an
amount equal to $1,000,000 or a whole multiple of $500,000 in excess thereof
(or, if the then unused Tranche A Term Loan Commitments of all Tranche A Term
Loan Lenders aggregate less than $1,000,000, such lesser amount). Any Term
Loans which are made on the Closing Date may not be converted into or continued
as a Eurodollar Loan having an Interest Period in excess of one month prior to
the earlier of (a) the date which is 60 days after the Closing Date and (b) the
date upon which the Administrative Agent determines (in good faith) that the
syndication of the Commitments is complete. Upon receipt of such notice the
Administrative Agent shall promptly notify each Term Loan Lender thereof. Not
later than 12:00 Noon, New York City time, on the requested Borrowing Date each
Term Loan Lender shall make available to the Administrative Agent at its office
specified in Section 10.2 an amount in immediately available funds equal to the
Term Loan or Term Loans to be made by such Lender. The Administrative Agent
shall credit the account of the Borrower on the books of such office of the
Administrative Agent with the aggregate of the amounts made available to the
Administrative Agent by the Term Loan Lenders in immediately available funds.
2.3 Repayment of Term Loans. (a) The Tranche A Term Loans of each
-----------------------
Tranche A Term Loan Lender shall mature in quarterly installments (other than
with respect to the last
<PAGE>
23
installment, which shall be due on October 27, 2003), commencing on September
30, 1998, in an amount equal to such Lender's Tranche A Term Loan Percentage of
the amount equal to (i) the sum of the initial aggregate principal amount of
each Tranche A Term Loan of such Lender times (ii) the percentage set forth
below opposite the period during which such installment is due:
<TABLE>
<CAPTION>
Installment Percentage
----------- ----------
<S> <C>
September 30, 1998 through June 30, 2000 2.50%
July 1, 2000 through December 31, 2001 5.00%
January 1, 2002 through October 27, 2003 6.25%
</TABLE>
; provided that any Tranche A Term Loan which is made by a Lender after April
--------
30, 1998 shall begin to amortize on December 31, 1998 and shall be payable from
and after such date in quarterly installments in the amount equal to the
percentage set forth above opposite the date upon which such installment is due
times the initial aggregate principal amount of such Tranche A Term Loan. Any
Tranche A Term Loans outstanding on October 27, 2003 shall be due and payable on
such date.
(b) The Tranche B Term Loan of each Tranche B Lender shall mature in
quarterly installments (other than with respect to the last installment, which
shall be due on October 27, 2004), commencing on September 30, 1998, each of
which shall be in an amount equal to such Lender's Tranche B Term Loan
Percentage of the amount equal to (i) the aggregate principal amount of the
Tranche B Term Loan of such Lender made on the Closing Date times (ii) the
percentage set forth below opposite the period during which such installment is
due:
<TABLE>
<CAPTION>
Installment Percentage
----------- ----------
<S> <C>
September 30, 1998 through December 31, 2003 0.2%
January 1, 2004 through October 27, 2004 23.9%
</TABLE>
2.4 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
----------------------
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the sum of (i) the aggregate principal amount of the Swing
Line Loans then outstanding and (ii) the aggregate amount of the L/C Obligations
then outstanding, does not exceed the amount of such Lender's Revolving Credit
Commitment. During the Revolving Credit Commitment Period the Borrower may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Revolving Credit Loans may from time to time be
Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.5 and 2.12, provided that no
--------
Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is
one month prior to the Scheduled Revolving Credit Termination Date.
(b) The Borrower shall repay all outstanding Revolving Credit Loans
on the Scheduled Revolving Credit Termination Date (or such earlier date as all
amounts owing hereunder shall become due and payable).
<PAGE>
24
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
----------------------------------------
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
--------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to (a) 3:00 P.M., New York City time, three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) 11:00 A.M., New York City time, on the requested Borrowing Date, in the case
of ABR Loans), specifying (i) the amount and Type of Revolving Credit Loans to
be borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Period therefor. Each borrowing
under the Revolving Credit Commitments shall be in an amount equal to (x) in the
case of ABR Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof
(or, if the then aggregate Available Revolving Credit Commitments are less than
$1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided that
--------
the Swing Line Lender may, on behalf of the Borrower, request borrowings of ABR
Loans under the Revolving Credit Commitments in amounts other than those
specified above to the extent necessary to repay Refunded Swing Line Loans.
Upon receipt of any such notice from the Borrower, the Administrative Agent
shall promptly notify each Revolving Credit Lender thereof. Each Revolving
Credit Lender will make the amount of its pro rata share of each borrowing
--- ----
available to the Administrative Agent for the account of the Borrower at the
office of the Administrative Agent specified in Section 10.2 prior to 12:00
Noon, New York City time, on the Borrowing Date requested by the Borrower in
funds immediately available to the Administrative Agent. Such borrowing will
then be made available to the Borrower by the Administrative Agent crediting the
account of the Borrower on the books of such office with the aggregate of the
amounts made available to the Administrative Agent by the Revolving Credit
Lenders and in like funds as received by the Administrative Agent.
2.6 Swing Line Commitment. (a) Subject to the terms and conditions
---------------------
hereof, the Swing Line Lender agrees to make a portion of the credit otherwise
available to the Borrower under the Revolving Credit Commitments from time to
time during the Revolving Credit Commitment Period by making swing line loans
("Swing Line Loans") to the Borrower; provided that (i) the aggregate principal
- ------------------ --------
amount of Swing Line Loans outstanding at any time shall not exceed the Swing
Line Commitment then in effect (notwithstanding that the Swing Line Loans
outstanding at any time, when aggregated with the Swing Line Lender's other
outstanding Revolving Credit Loans hereunder, may exceed the Swing Line
Commitment then in effect) and (ii) the Borrower shall not request, and the
Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to
the making of such Swing Line Loan, the aggregate amount of the Available
Revolving Credit Commitments would be less than zero. During the Revolving
Credit Commitment Period, the Borrower may use the Swing Line Commitment by
borrowing, repaying and reborrowing, all in accordance with the terms and
conditions hereof. Swing Line Loans shall be made as ABR Loans only and shall
not be entitled to be converted into Eurodollar Loans.
(b) The Borrower shall repay all outstanding Swing Line Loans on the
Scheduled Revolving Credit Termination Date or such earlier date on which the
Revolving Credit Commitments shall terminate as provided herein.
2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line
-----------------------------------------------------------
Loans. (a) Whenever the Borrower desires that the Swing Line Lender make Swing
Line Loans it shall give the Swing Line Lender irrevocable telephonic notice
confirmed promptly in writing (which
<PAGE>
25
telephonic notice must be received by the Swing Line Lender not later than 2:00
P.M., New York City time, on the proposed Borrowing Date), specifying (i) the
amount to be borrowed and (ii) the requested Borrowing Date (which shall be a
Business Day during the Revolving Credit Commitment Period). Each borrowing
under the Swing Line Commitment shall be in an amount equal to $500,000 or a
whole multiple of $100,000 in excess thereof. Not later than 4:00 P.M., New York
City time, on the Borrowing Date specified in a notice in respect of Swing Line
Loans, the Swing Line Lender shall make available to the Administrative Agent at
its office specified in Section 10.2 an amount in immediately available funds
equal to the amount of the Swing Line Loan to be made by the Swing Line Lender.
The Administrative Agent shall make the proceeds of such Swing Line Loan
available to the Borrower on such Borrowing Date by depositing such proceeds in
the account of the Borrower with the Administrative Agent on such Borrowing Date
in immediately available funds.
(b) The Swing Line Lender, at any time and from time to time in its
sole and absolute discretion may, on behalf of the Borrower (which hereby
irrevocably directs the Swing Line Lender to act on its behalf), on notice given
by the Swing Line Lender no later than 2:00 P.M., New York City time, on the
requested Borrowing Date, request each Revolving Credit Lender to make, and each
Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan, in an
amount equal to such Revolving Credit Lender's Revolving Credit Percentage of
the aggregate amount of the Swing Line Loans (the "Refunded Swing Line Loans")
-------------------------
outstanding on the date of such notice, to repay the Swing Line Lender. Each
Revolving Credit Lender shall make the amount of such Revolving Credit Loan
available to the Administrative Agent at its office set forth in Section 10.2 in
immediately available funds, not later than 4:00 P.M., New York City time, on
the date of such notice. The proceeds of such Revolving Credit Loans shall be
immediately applied by the Swing Line Lender to repay the Refunded Swing Line
Loans. The Borrower irrevocably authorizes the Swing Line Lender to charge the
Borrower's accounts with the Administrative Agent (up to the amount available in
each such account) in order to immediately pay the amount of such Refunded Swing
Line Loans to the extent amounts received from the Revolving Credit Lenders are
not sufficient to repay in full such Refunded Swing Line Loans.
(c) If prior to the time a Revolving Credit Loan would have otherwise
been made pursuant to Section 2.7(b), one of the events described in Section
8(f) shall have occurred and be continuing with respect to the Borrower or if
for any other reason, as determined by the Swing Line Lender in its sole
discretion, Revolving Credit Loans may not be made as contemplated by Section
2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit
Loan was to have been made pursuant to the notice referred to in Section 2.7(b)
(the "Refunding Date"), purchase for cash an undivided participating interest in
--------------
an amount equal to (i) its Revolving Credit Percentage times (ii) the aggregate
principal amount of Swing Line Loans then outstanding which were to have been
repaid with such Revolving Credit Loans (the "Swing Line Participation Amount").
-------------------------------
(d) Whenever, at any time after the Swing Line Lender has received
from any Revolving Credit Lender such Lender's Swing Line Participation Amount,
the Swing Line Lender receives any payment on account of the Swing Line Loans,
the Swing Line Lender will distribute to such Lender its Swing Line
Participation Amount (appropriately adjusted, in the case of interest payments,
to reflect the period of time during which such Lender's participating interest
was outstanding and funded and, in the case of principal and interest payments,
to reflect such Lender's pro rata portion of such payment if such payment is not
sufficient to pay the principal of and interest on all Swing Line Loans then
due); provided, however, that in the event
<PAGE>
26
that such payment received by the Swing Line Lender is required to be returned,
such Revolving Credit Lender will return to the Swing Line Lender any portion
thereof previously distributed to it by the Swing Line Lender.
(e) Each Revolving Credit Lender's obligation to make the Loans
referred to in Section 2.7(b) and to purchase participating interests pursuant
to Section 2.7(c) shall be absolute and unconditional and shall not be affected
by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which such Revolving Credit
Lender or the Borrower may have against the Swing Line Lender, the Borrower or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default or an Event of Default or the failure to satisfy any of the other
conditions specified in Section 5; (iii) any adverse change in the condition
(financial or otherwise) of the Borrower; (iv) any breach of this Agreement or
any other Loan Document by the Borrower, any other Loan Party or any other
Revolving Credit Lender; or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
2.8 Commitment Fees, etc. (a) The Borrower agrees to pay to the
---------------------
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment
(without giving effect to any Swing Line Loans which are then outstanding) of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Scheduled Revolving Credit Termination Date or such earlier date on which the
Revolving Credit Commitments shall terminate as provided herein, commencing on
the first of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent, for the
ratable accounts of the Tranche A Term Loan Lenders, a commitment fee for the
period from and including the Closing Date to October 27, 1998, computed at the
Commitment Fee Rate on the amount by which the average daily Delayed Draw
Commitment during the period for which payment is due exceeds the average daily
principal amount (without giving effect to any prepayments or repayments
thereof) during such period of all Tranche A Term Loans made after the Closing
Date. Such commitment fee shall be payable quarterly in arrears on the last day
of each March, June, September and December and on October 27, 1998, commencing
on the first of such dates to occur after the date hereof.
(c) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates previously agreed to in writing by the Borrower
and the Administrative Agent.
2.9 Termination or Reduction of Commitments. (a) The Borrower shall
---------------------------------------
have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments;
--------
provided that no such termination or reduction of Revolving Credit Commitments
shall be permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans and Swing Line Loans made on the effective date thereof,
the Total Revolving Extensions of Credit would exceed the Total Revolving Credit
Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof, and shall reduce permanently the Revolving Credit
Commitments then in effect.
<PAGE>
27
(b) The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent, to terminate the Delayed Draw
Commitment or, from time to time, to reduce the amount of the Delayed Draw
Commitment. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof, and shall reduce permanently the Revolving Credit
Commitments then in effect.
2.10 Optional Prepayments. The Borrower may at any time and from
--------------------
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of ABR Loans, which notice shall specify
the date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
--------
earlier than the last day of the Interest Period applicable thereto, the
Borrower shall also pay any amounts owing pursuant to Section 2.20. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with (except in the case of Revolving Credit Loans which are ABR Loans and any
Swing Line Loans) accrued interest to such date on the amount prepaid. Partial
prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate
principal amount of $1,000,000 or a whole multiple thereof. Partial Prepayments
of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a
whole multiple thereof. Amounts to be applied in connection with optional
prepayments of the Term Loans shall be applied pro rata among the Tranche A Term
--- ----
Loans and the Tranche B Term Loans based upon the outstanding principal amount
thereof.
2.11 Mandatory Prepayments and Commitment Reductions. (a) Unless
-----------------------------------------------
the Required Prepayment Lenders shall otherwise agree, if any Capital Stock or
Indebtedness shall be issued or Incurred by the Company or any of its
Subsidiaries, an amount equal to 100% of the Net Cash Proceeds thereof shall be
applied on the date of such issuance or Incurrence toward the prepayment of the
Term Loans and the reduction of the Revolving Credit Commitments as set forth in
Section 2.11(d); provided that no such prepayment and reduction shall be
--------
required pursuant to this Section 2.11(a) with respect to (i) Designated Equity
Amounts, (ii) any such Net Cash Proceeds from the issuance of Capital Stock
which is applied within five Business Days after the receipt thereof by the
Company and its Subsidiaries to repay Indebtedness Incurred in reliance upon the
provisions of Section 7.2(i) or (j) hereof, (iii) other than to the extent set
forth therein, Indebtedness Incurred in accordance with Section 7.2 and (iv) up
to $10,000,000 in aggregate Net Cash Proceeds from the issuance of Capital Stock
by the Borrower after the Closing Date.
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date the Company or any of its Subsidiaries shall receive Net Cash
Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment
Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be
applied on such date toward the prepayment of the Term Loans and the reduction
of the Revolving Credit Commitments as set forth in Section 2.11(d); provided,
--------
that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of
Asset Sales that may be excluded from the foregoing requirement pursuant to a
Reinvestment Notice shall not exceed $2,000,000 in any fiscal year of the
Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event
shall be applied toward the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments as set forth in Section 2.11(d).
<PAGE>
28
(c) Unless the Required Prepayment Lenders shall otherwise agree, if,
for any fiscal year of the Borrower commencing with the fiscal year ending
December 31, 1998, there shall be Excess Cash Flow, the Borrower shall, on the
relevant Excess Cash Flow Application Date, apply the ECF Percentage of such
Excess Cash Flow toward the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments as set forth in Section 2.11(d). Each such
prepayment and commitment reduction shall be made on a date (an "Excess Cash
-----------
Flow Application Date") no later than five days after the earlier of (i) the
- ---------------------
date on which the financial statements of the Borrower referred to in Section
6.1(a), for the fiscal year with respect to which such prepayment is made, are
required to be delivered to the Lenders and (ii) the date such financial
statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.11 shall be applied, first, to
-----
the prepayment of the Term Loans (pro rata among the Tranche A Term Loans and
--- ----
the Tranche B Term Loans based upon the outstanding principal amount thereof)
and, second, to reduce permanently the Revolving Credit Commitments. Any such
------
reduction of the Revolving Credit Commitments shall be accompanied by prepayment
of the Revolving Credit Loans and/or Swing Line Loans to the extent, if any,
that the Total Revolving Extensions of Credit exceed the amount of the Total
Revolving Credit Commitments as so reduced, provided that if the aggregate
--------
principal amount of Revolving Credit Loans and Swing Line Loans then outstanding
is less than the amount of such excess (because L/C Obligations constitute a
portion thereof), the Borrower shall, to the extent of the balance of such
excess, replace outstanding Letters of Credit and/or deposit an amount in cash
in a cash collateral account established with the Administrative Agent for the
benefit of the Lenders on terms and conditions satisfactory to the
Administrative Agent. Subject to the immediately preceding sentence, the
application of any prepayment pursuant to Section 2.11 shall be made first to
ABR Loans and second to Eurodollar Loans. Each prepayment of the Loans under
Section 2.11 (except in the case of Revolving Credit Loans that are ABR Loans
and Swing Line Loans) shall be accompanied by accrued interest to the date of
such prepayment on the amount prepaid.
(e) Notwithstanding the provisions of Section 2.11(d), 50% of any
Excess Note Proceeds shall be applied to prepay the Tranche A Term Loans and 50%
of any Excess Note Proceeds shall be applied to prepay the Tranche B Term Loans,
with such prepayment of the Tranche B Term Loans being applied ratably to the
remaining installments thereof and with such prepayment of the Tranche A Term
Loans being applied to prepay each installment thereof which is due on a date
occurring during a period set forth below by the percentage of such Excess Note
Proceeds set forth opposite such period:
<TABLE>
<CAPTION>
Period Percentage
------- ----------
<S> <C>
September 30, 1998 through September 29, 1999 7.50%
September 30, 1999 through September 29, 2000 6.25%
September 30, 2000 through September 29, 2002 3.75%
September 30, 2002 and thereafter 2.50%
</TABLE>
(f) All unpaid amounts owing hereunder shall be due and payable on
October 27, 2004.
2.12 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at
<PAGE>
29
least one Business Days' prior irrevocable notice of such election, provided
--------
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to
time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent
at least three Business Days' prior irrevocable notice of such election (which
notice shall specify the length of the initial Interest Period therefor),
provided that no ABR Loan under a particular Facility may be converted into a
- --------
Eurodollar Loan (i) when any Event of Default has occurred and is continuing and
the Administrative Agent or the Majority Facility Lenders in respect of such
Facility have determined in its or their sole discretion not to permit such
conversions or (ii) after the date that is one month prior to the final
scheduled termination or maturity date of such Facility. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
--------
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and provided, further, that if the Borrower
-------- -------
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso such
Loans shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period. Upon receipt of any such notice the Administrative
Agent shall promptly notify each relevant Lender thereof.
2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches.
---------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.14 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 2.14
plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to
- ----
ABR Loans under the Revolving Credit Facility plus 2%, and (ii) if all or a
----
portion of any interest payable on
<PAGE>
30
any Loan or Reimbursement Obligation or any commitment fee or other amount
payable hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum equal to the rate applicable to ABR Loans under the relevant Facility
plus 2% (or, in the case of any such other amounts that do not relate to a
- ----
particular Facility, the ABR plus 3.75%), in each case, with respect to clauses
----
(i) and (ii) above, from the date of such non-payment until such amount is paid
in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
2.14 shall be payable from time to time on demand.
2.15 Computation of Interest and Fees. (a) Interest, fees and
--------------------------------
commissions payable pursuant hereto shall be calculated on the basis of a 360-
day year for the actual days elapsed, except that, with respect to ABR Loans the
rate of interest on which is calculated on the basis of the Prime Rate, the
interest thereon shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Borrower and the relevant Lenders of
each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change becomes effective. The Administrative Agent shall as soon as practicable
notify the Borrower and the relevant Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.14(a).
2.16 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans under the relevant Facility that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility
that were to have
<PAGE>
31
been continued as such on such first day shall be converted on such day to ABR
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further Eurodollar Loans under the relevant Facility shall be made or continued
as such, nor shall the Borrower have the right to convert Loans under the
relevant Facility to Eurodollar Loans.
2.17 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Tranche A Term Loan Percentages,
--- ----
Tranche B Term Loan Percentages or Revolving Credit Percentages, as the case may
be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Term Loans shall be made pro rata
--- ----
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Loan Lenders (except as otherwise provided in paragraph (d)
below). The amount of each principal payment of the Term Loans shall be applied
to reduce the then remaining installments of the Tranche A Term Loans and
Tranche B Term Loans, as the case may be, pro rata based upon the then remaining
--- ----
principal amount thereof. Amounts prepaid on account of the Term Loans may not
be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
- --- ----
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) Notwithstanding anything to the contrary in Section 2.11(d) or
2.17, with respect to the amount of any optional or mandatory prepayment
described in Section 2.10 or 2.11 that is allocated to Tranche B Term Loans
(such amounts, the "Tranche B Prepayment Amount"), at any time when Tranche A
---------------------------
Term Loans remain outstanding, the Borrower will, in lieu of applying such
amount to the prepayment of Tranche B Term Loans as provided in Section 2.10 or
2.11, on the date specified in Section 2.10 or 2.11 for such prepayment, give
the Administrative Agent telephonic notice (promptly confirmed in writing)
requesting that the Administrative Agent prepare and provide to each Tranche B
Term Loan Lender a notice (each, a "Prepayment Option Notice") as described
------------------------
below. As promptly as practicable after receiving such notice from the
Borrower, the Administrative Agent will send to each Tranche B Term Loan Lender
a Prepayment Option Notice, which shall be in the form of Exhibit G, and shall
include an offer by the Borrower to prepay on the date (each a "Mandatory
---------
Prepayment Date") that is 10 Business Days after the date of the Prepayment
- ---------------
Option Notice, the relevant Tranche B Term Loans of such Lender by an amount
equal to the portion of the Tranche B Prepayment Amount indicated in such
Lender's Prepayment Option Notice as being applicable to such Lender's Tranche B
Term Loans. On the Mandatory Prepayment Date, (i) the Borrower shall pay to the
Administrative Agent the aggregate amount necessary to prepay that portion of
the outstanding relevant Term Loans in respect of which Tranche B Term Loan
Lenders have accepted prepayment as described above (such Lenders, the
"Accepting Lenders"), and such amount shall be applied to reduce the Tranche B
-----------------
Repayment Amounts with respect to each Accepting Lender and (ii) the Borrower
shall pay to the Administrative Agent an amount equal to the remaining portion
of the Tranche B Prepayment Amount not accepted by the Accepting Lenders, and
such amount shall be applied to the prepayment of the Tranche A Term Loans.
<PAGE>
32
(e) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Administrative Agent's office specified in
Section 10.2, in Dollars and in immediately available funds. The Administrative
Agent shall distribute such payments to the Lenders promptly upon receipt in
like funds as received. If any payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day. If any
payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(f) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this Section 2.17(f) shall
be conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to ABR Loans under the relevant Facility, on demand, from
the Borrower.
2.18 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Taxes covered by Section 2.19
and changes in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
<PAGE>
33
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable; provided that the Borrower
--------
shall not be required to compensate a Lender pursuant to this paragraph for any
amounts incurred more than six months prior to the date that such Lender
notifies the Borrower of such Lender's intention to claim compensation therefor.
If any Lender becomes entitled to claim any additional amounts pursuant to this
Section 2.18, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
- --------
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor.
(c) A certificate as to any additional amounts payable pursuant to
this Section 2.18 submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section 2.18 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.19 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such non-
excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
------------------
payable to the Administrative Agent or any
<PAGE>
34
Lender hereunder, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
-------- -------
(x) increase any such amounts payable to any Lender that is not organized under
the laws of the United States of America or a state thereof to the extent such
Lender fails to comply with Section 2.19(b) or (y) compensate a Lender pursuant
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor. Whenever any Non-Excluded Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure. The
agreements in this Section 2.19 shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions thereof
or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, an
annual certificate representing that such Non-U.S. Lender is not a "bank" for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S.
federal withholding tax on all payments by the Borrower under this Agreement and
the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender
on or before the date it becomes a party to this Agreement (or, in the case of
any Participant, on or before the date such Participant purchases the related
participation). In addition, each Non-U.S. Lender shall deliver such forms
promptly upon the obsolescence or invalidity of any form previously delivered by
such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at
any time it determines that it is no longer in a position to provide any
previously delivered certificate to the Borrower (or any other form of
certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this Section 2.19(b), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.19(b) that
such Non-U.S. Lender is not legally able to deliver.
(c) In the event the Borrower makes any additional payment to any Lender or
Administrative the Agent pursuant to Section 2.19(a) and such Lender or the
Administrative Agent, by reason of payment by the Borrower of any Taxes, obtains
a credit against, or return or
<PAGE>
35
reduction of, any tax payable by it in, or any other currently realized tax
benefit from, a taxing jurisdiction which it would not have enjoyed but for such
payment ("Tax Benefit"), such Lender or the Administrative Agent shall, to the
-----------
extent that it can do so without prejudice to the retention of such Tax Benefit,
thereupon pay to the Borrower the amount which, after the deduction of any
additional tax savings realized as a result of such payment, shall equal the
amount of such Tax Benefit; provided, however, that the Borrower shall not be
-------- -------
entitled to require such Lender or the Administrative Agent to supply it with
details of its tax position or to inspect any records, including tax returns, of
any Lender or the Administrative Agent. The Borrower agrees to reimburse the
Administrative Agent and each Lender upon demand for out-of-pocket costs and
expenses (other than expenses incurred in connection with the preparation of any
tax returns) incurred in connection with any determination required pursuant to
this Section 2.19(c).
2.20 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense (other than any loss of
Applicable Margin) which such Lender reasonably may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (c) the
making of a prepayment of Eurodollar Loans on a day which is not the last day of
an Interest Period with respect thereto. Such indemnification shall be based
upon the amount equal to the excess, if any, of (i) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure to
borrow, convert or continue to the last day of such Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) the amount of interest (as
----
reasonably determined by such Lender) which would have accrued to such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. A certificate as to any
amounts payable pursuant to this Section 2.20 submitted to the Borrower by any
Lender shall be presumptively correct in the absence of manifest error. This
covenant shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
2.21 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.18 or 2.19(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.21 shall
-------- -------
affect or postpone any of the obligations of any Borrower or the rights of any
Lender pursuant to Section 2.18 or 2.19(a).
2.22 Replacement of Lenders under Certain Circumstances. The
--------------------------------------------------
Borrower shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to Section 2.18 or 2.19 or (b) defaults
in its obligation to make Loans hereunder, with a replacement financial
institution; provided that (i) such replacement does not conflict with any
--------
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time
<PAGE>
36
of such replacement, (iii) prior to any such replacement, such Lender shall not
have eliminated the continued need for payment of amounts owing pursuant to
Section 2.18 or 2.19, (iv) the replacement financial institution shall purchase,
at par, all Loans and other amounts owing to such replaced Lender on or prior to
the date of replacement, (v) the Borrower shall be liable to such replaced
Lender under Section 2.20 if any Eurodollar Loan owing to such replaced Lender
shall be purchased other than on the last day of the Interest Period relating
thereto, (vi) the replacement financial institution, if not already a Lender,
shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced
Lender shall be obligated to make such replacement in accordance with the
provisions of Section 10.6 (provided that the Borrower shall be obligated to pay
the registration and processing fee referred to therein), (viii) until such time
as such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.18 or 2.19, as the case may be,
and (ix) any such replacement shall not be deemed to be a waiver of any rights
which the Borrower, the Administrative Agent or any other Lender shall have
against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
-------
of Credit") for the account of the Borrower on any Business Day during the
- ---------
Revolving Credit Commitment Period in such form as may be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no
--------
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii)
expire no later than the earlier of (x) the first anniversary of its date of
issuance and (y) the date which is five Business Days prior to the Scheduled
Revolving Credit Termination Date, provided that any Letter of Credit with a
--------
one-year term may provide for the renewal thereof for additional one-year
periods (which shall in no event extend beyond the date referred to in clause
(y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing
<PAGE>
37
Lender shall furnish a copy of such Letter of Credit to the Borrower promptly
following the issuance thereof. The Issuing Lender shall promptly furnish to the
Administrative Agent, which shall in turn promptly furnish to the Lenders,
notice of the issuance of each Letter of Credit (including the amount thereof).
3.3 Commissions, Fees and Other Charges. (a) The Borrower will pay
-----------------------------------
a commission on all outstanding Letters of Credit at a per annum rate equal to
the Applicable Margin then in effect with respect to Eurodollar Loans under the
Revolving Credit Facility, shared ratably among the Revolving Credit Lenders and
payable quarterly in arrears on each L/C Fee Payment Date after the issuance
date. In addition, the Borrower shall pay to the Issuing Lender for its own
account a fronting fee of 1/4 of 1% per annum, payable quarterly in arrears on
each L/C Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Lender for such normal and customary costs
and expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans under the Revolving Credit Facility. A certificate of
the Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
<PAGE>
38
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
---
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
- ----
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
--- ----
provided, however, that in the event that any such payment received by the
- -------- -------
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts become payable (whether
at stated maturity, by acceleration or otherwise) until payment in full at the
rate set forth in Section 2.14(c). Each drawing under any Letter of Credit
shall (unless an event of the type described in clause (i) or (ii) of Section
8(f) shall have occurred and be continuing with respect to the Borrower, in
which case the procedures specified in Section 3.4 for funding by L/C
Participants shall apply) constitute a request by the Borrower to the
Administrative Agent for a borrowing pursuant to Section 2.5 of ABR Loans (or,
at the option of each of the Administrative Agent and the Swing Line Lender in
its respective sole discretion, a borrowing pursuant to Section 2.7 of Swing
Line Loans) in the amount of such drawing. The Borrowing Date with respect to
such borrowing shall be the date of such drawing.
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions resulting from the gross negligence or willful misconduct of the
Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards or care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
<PAGE>
39
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Company and (from and after the Push-Down Date) the Borrower hereby
jointly and severally represent and warrant to the Administrative Agent and each
Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
------------------- --- -----
balance sheets (including a detailed statement of shareholder's equity) of (i)
the Borrower and its consolidated Subsidiaries as at September 30, 1997
(including the notes thereto) (the "Borrower Pro Forma Balance Sheet") and (ii)
--------------------------------
the Company and its consolidated Subsidiaries as at September 30, 1997
(including the notes thereto) (the "Company Pro Forma Balance Sheet"; and
-------------------------------
collectively with the Borrower Pro Forma Balance Sheet, the "Pro Forma Balance
-----------------
Sheets"), copies of which have heretofore been furnished to each Lender, have
- ------
been prepared giving effect (as if such events had occurred on September 30,
1997) to (i) the consummation of the Transaction and the contribution of assets
to the Successor Subsidiary which is to occur on the Push-Down Date, (ii) (x)
the Loans to be made and (y) the Senior Subordinated Notes to be issued or the
loans to be made under the Senior Subordinated Credit Facility, in any case, on
the Closing Date and the use of proceeds thereof (iii) the Company Zeros to be
issued or the loans to be made under the Company Interim Credit Facility, in
each case, on the Closing Date and the use of proceeds thereof and (iv) the
payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheets have been prepared giving consideration, among other factors, to
the requirements of Regulation S-X of the Securities Act based on the best
information available to the Company and the Borrower as of the date of delivery
thereof, are consistent in all material respects with the forecasts previously
delivered to the Lenders and present fairly in all material respects on a pro
---
forma basis the estimated financial position of the Company and its consolidated
- -----
Subsidiaries and the Borrower and its consolidated Subsidiaries, as the case may
be, as at September 30, 1997, assuming that the events specified in the
preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of the Company as at
December 31, 1996, December 31, 1995 and December 31, 1994, and the related
consolidated statements of income and of cash flows for the fiscal years ended
on such dates, reported on by and accompanied by an unqualified report from
McGladrey & Pullen, present fairly in all material respects the consolidated
financial condition of the Company as at such date, and the consolidated results
of its operations and its consolidated cash flows for the respective fiscal
years then ended. The unaudited consolidated balance sheet of the Company as at
June 30, 1997, and the related unaudited consolidated statements of income and
cash flows for the six-
<PAGE>
40
month period ended on such date, present fairly in all material respects the
consolidated financial condition of the Company as at such date, and the
consolidated results of its operations and its consolidated cash flows for the
six-month period then ended (subject to normal year-end audit adjustments). All
such financial statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by the aforementioned firm of accountants
and disclosed therein). The Company and its Subsidiaries do not have any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other obligation in respect of derivatives, which are
not reflected in the most recent audited financial statements referred to in
this paragraph (b). During the period from December 31, 1996 to and including
the date hereof there has been no Disposition by the Company or any of its
Subsidiaries of any material part of its business or Property.
4.2 No Change. Since June 30, 1997 there has been no development or
---------
event which has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Company
----------------------------------------
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Transaction and the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, (ii) those consents, authorizations, filings
and notices (to the extent material) which have been obtained or made and are in
full force and effect and (iii) the filings referred to in Section 4.19. Each
Loan Document has been duly executed and delivered on behalf of each Loan Party
party thereto. This Agreement constitutes, and each other Loan Document upon
execution will constitute, a legal, valid and binding obligation of each Loan
Party party thereto, enforceable against each such Loan Party in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and
<PAGE>
41
the use of the proceeds thereof will not violate any Requirement of Law or any
Contractual Obligation of the Company or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any Lien on any of their
respective properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No Requirement of Law or Contractual Obligation applicable to the Borrower or
any of its Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
4.6 No Material Litigation. No litigation, investigation or
----------------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Company or the Borrower, threatened by or against the
Company or any of its Subsidiaries or against any of their respective properties
or revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
4.7 No Default. Neither the Company nor any of its Subsidiaries is
----------
in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Company and each of
----------------------------
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other Property, and none of such Property is subject to any Lien except as
permitted by Section 7.3.
4.9 Intellectual Property. The Company and each of its Subsidiaries
---------------------
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. No material claim has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Company or Borrower know of any valid basis for any such claim. The use by
the Company and its Subsidiaries of Intellectual Property which is material to
the operations of the Company and its Subsidiaries does not infringe on the
rights of any Person in any material respect.
4.10 Taxes. Each of the Company and each of its Subsidiaries has
-----
filed or caused to be filed all Federal, state and other material tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
Property and all other taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Company or its Subsidiaries, as the case may be); no tax Lien
has been filed, and (except as disclosed on Schedule 4.10), to the knowledge of
the Company and the Borrower, no claim is being asserted, with respect to any
such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect or for any purpose which
violates the provisions of the Regulations of the Board. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to the
<PAGE>
42
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
4.12 Labor Matters. There are no strikes or other labor disputes
-------------
against the Company or any of its Subsidiaries pending or, to the knowledge of
the Company or the Borrower, threatened that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect. Hours worked
by, and payment made to, employees of the Company and its Subsidiaries have not
been in violation of the Fair Labor Standards Act or any other applicable
Requirement of Law dealing with such matters that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect. All
payments due from the Company or any of its Subsidiaries on account of employee
health and welfare insurance that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect if not paid have been
paid or accrued as a liability on the books of the Company or such Subsidiary or
otherwise disclosed in writing to the Lenders.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15
------------
constitute all the Subsidiaries of the Company at the date hereof.
4.16 Use of Proceeds. The proceeds of the Term Loans shall be used
---------------
to finance a portion of the Transaction and to pay related fees and expenses.
The proceeds of the Revolving Credit Loans, the Swing Line Loans and the Letters
of Credit shall be used for working capital needs and general corporate purposes
of the Borrower and its Subsidiaries in the ordinary course of business.
<PAGE>
43
4.17 Environmental Matters.
---------------------
(a) The facilities and properties owned, leased or operated by the
Company or any of its Subsidiaries (the "Real Properties") do not contain,
---------------
and have not previously contained, any Materials of Environmental Concern
in amounts or concentrations or under circumstances which (i) constitute or
constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law, except in either case insofar as such violation or
liability, or any aggregation thereof, could not reasonably be expected to
result in the payment of a Material Environmental Amount.
(b) The Real Properties and all operations at the Real Properties are
in material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Real Properties or violation of any
Environmental Law with respect to the Real Properties or the business
operated by the Company or any of its Subsidiaries (the "Business") which
--------
could materially interfere with the continued operation of the Real
Properties or materially impair the fair saleable value thereof. Neither
the Company nor any of its Subsidiaries has assumed any liability of any
other Person under Environmental Laws.
(c) Neither the Company nor any of its Subsidiaries has received or
is aware of any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the Real
Properties or the Business, nor does the Company or the Borrower have
knowledge or reason to believe that any such notice will be received or is
being threatened, except insofar as such notice or threatened notice, or
any aggregation thereof, does not involve a matter or matters that could
reasonably be expected to result in the payment of a Material Environmental
Amount.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Real Properties in violation of, or in a manner or to
a location which could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Real Properties in
violation of, or in a manner that could give rise to liability under, any
applicable Environmental Law, except insofar as any such violation or
liability referred to in this paragraph, or any aggregation thereof, could
not reasonably be expected to result in the payment of a Material
Environmental Amount.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Company and the Borrower,
threatened, under any Environmental Law to which the Company or any of its
Subsidiary is or will be named as a party with respect to the Real
Properties or the Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental
Law with respect to the Real Properties or the Business, except insofar as
such proceeding, action, decree, order or other requirement, or any
aggregation thereof, could not reasonably be expected to result in the
payment of a Material Environmental Amount.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Real Properties, or arising from or
related to the operations of the
<PAGE>
44
Company or any of its Subsidiaries in connection with the Real Properties
or otherwise in connection with the Business, in violation of or in amounts
or in a manner that could give rise to liability under Environmental Laws,
except insofar as any such violation or liability referred to in this
paragraph, or any aggregation thereof, could not reasonably be expected to
result in the payment of a Material Environmental Amount.
4.18 Accuracy of Information, etc. No statement or information
----------------------------
(other than the projections and the pro forma financial information described in
--- -----
the immediately following sentence) contained in this Agreement, any other Loan
Document, the Confidential Information Memorandum or any other document,
certificate or statement furnished to the Administrative Agent or the Lenders or
any of them, by or on behalf of any Loan Party for use in connection with the
transactions contemplated by this Agreement or the other Loan Documents taken as
a whole, contained as of the date such statement, information, document or
certificate was so furnished (or, in the case of the Confidential Information
Memorandum, as of the Closing Date), any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
contained herein or therein not misleading. The projections and pro forma
--- -----
financial information contained in the materials referenced above are based upon
good faith estimates and assumptions believed by management of the Borrower to
be reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount. As of the date hereof, the representations and warranties
contained in the Transaction Agreement are true and correct in all material
respects. There is no fact known to any Loan Party that could reasonably be
expected to have a Material Adverse Effect that has not been expressly disclosed
herein, in the other Loan Documents, in the Confidential Information Memorandum
or in any other documents, certificates and statements furnished to the
Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
4.19 Security Documents. The Guarantee and Collateral Agreement is
------------------
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. When financing statements in
appropriate form are filed in the offices specified on Schedule 4.19(a), the
Guarantee and Collateral Agreement shall constitute a fully perfected Lien on,
and security interest in, all right, title and interest of the Loan Parties in
the Collateral and the proceeds thereof, as security for the Obligations (as
defined in the Guarantee and Collateral Agreement), in each case prior and
superior in right to any other Person (other than Liens permitted by Section
7.3).
4.20 Solvency. Each Loan Party is, and after giving effect to the
--------
Transaction and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 Senior Indebtedness. The Obligations constitute "Senior
-------------------
Indebtedness" of the Borrower under and as defined in the Senior Subordinated
Note Indenture and the Senior Subordinated Credit Facility (and, prior to the
Push-Down Date, under and as defined in Company Indenture and the Company
Interim Credit Facility. The obligations of each Subsidiary Guarantor under the
Guarantee and Collateral Agreement constitute "Guarantor Senior Indebtedness" of
such Subsidiary Guarantor under and as defined in the Senior Subordinated Note
Indenture and the Senior Subordinated Credit Facility.
<PAGE>
45
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of the
Company and (ii) the Guarantee and Collateral Agreement, executed and
delivered by a duly authorized officer of the Company and each Subsidiary
Guarantor.
(b) Transaction, etc. The following transactions shall have been
----------------
consummated, in each case on terms and conditions reasonably satisfactory
to the Lenders:
(i) DI Acquisition shall be merged into the Company and, as
a result of such merger (A) the Bain Investors shall own not less than
52% of the issued and outstanding capital stock of the Company, and
(B) the Company shall have redeemed approximately 90% of its issued
and outstanding capital stock (collectively with all other
transactions in connection therewith including the financing thereof,
the "Transaction"), all pursuant to the Transaction Documents and in
-----------
form and substance consistent with the terms previously disclosed to
the Administrative Agent in writing and on other terms reasonably
satisfactory to the Administrative Agent; and
(ii) The Company shall have (A) at least $86,500,000 of
equity (valued at the Transaction Value), of which at least
$48,500,000 shall be in the form of cash equity from DI Acquisition,
(B) received $55,000,000 in gross cash proceeds from the issuance of
the Company Zeros or the making of the loans under the Company Interim
Credit Facility and (C) received $85,000,000 in gross cash proceeds
from the issuance of the Senior Subordinated Notes or the making of
the loans under the Senior Subordinated Credit Facility.
(c) Pro Forma Balance Sheets; Financial Statements. The Lenders
----------------------------------------------
shall have received (i) the Pro Forma Balance Sheets, (ii) audited
consolidated financial statements of the Company for the 1996, 1995 and
1994 fiscal years and (iii) unaudited interim consolidated and
consolidating financial statements of the Company for each fiscal month and
quarterly period ended subsequent to the date of the latest applicable
financial statements delivered pursuant to clause (ii) of this paragraph as
to which such financial statements are available, and such financial
statements shall not, in the reasonable judgment of the Lenders, reflect
any material adverse change in the consolidated financial condition of the
Company, as reflected in the financial statements or projections previously
distributed by the Company to the Administrative Agent or the Lenders in
writing or which are contained in the Confidential Information Memorandum.
(d) Capitalization. The capitalization and structure of each Loan
--------------
Party after giving effect to the Transaction shall be consistent with the
capitalization and structure previously disclosed to the Lenders in
writing.
<PAGE>
46
(e) Payment of Outstanding Indebtedness. All outstanding
-----------------------------------
Indebtedness of the Company or any of its Subsidiaries for borrowed money
or Guarantee Obligations in respect thereof (other than the Indebtedness
described in Section 7.2(e) and the capital lease with respect to the
Borrower's principal manufacturing facility, all of which shall be
permitted to remain outstanding after the Closing Date) shall be paid off
in full on terms reasonably satisfactory to the Administrative Agent on or
prior to the Closing Date.
(f) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Company or its Subsidiaries except for liens
permitted by Section 7.3 and liens to be discharged on or prior to the
Closing Date pursuant to documentation reasonably satisfactory to the
Administrative Agent.
(g) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(h) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions:
(i) the legal opinion of Ropes & Gray, counsel to the
Company and its Subsidiaries, substantially in the form of Exhibit E;
(ii) to the extent consented to by the relevant counsel,
each legal opinion, if any, delivered in connection with the
Transaction Agreement, accompanied by a reliance letter in favor of
the Lenders; and
(iii) the legal opinion of local counsel in California and
of such other special and local counsel as may be required by the
Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(i) Filings, Registrations and Recordings. Each document (including,
-------------------------------------
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation.
(j) Solvency Opinion. The Administrative Agent shall have received a
----------------
satisfactory solvency opinion from Murray, Devine & Co. which shall
document the solvency of the Company and its Subsidiaries on a consolidated
basis after giving effect to the Transaction, the financing thereof and the
other transactions contemplated hereby.
(k) Insurance. The Administrative Agent shall have received
---------
insurance certificates satisfying the requirements of Section 5.3 of the
Guarantee and Collateral Agreement.
<PAGE>
47
(l) Transaction Documents. The Company and its Subsidiaries and
---------------------
Affiliates (i) shall not be in breach or violation of any of their
obligations under the Transaction Documents and (ii) shall not be subject
to any Requirements of Law or Contractual Obligations that would be
violated by the Transaction and none of the provisions of any of the
Transaction Documents shall have been amended, modified or waived in any
material respect without the written consent of the Administrative Agent.
(m) Funded Debt to Consolidated EBITDA. The Administrative Agent
----------------------------------
shall be satisfied that the ratio of (i) the total amount of Funded Debt of
the Borrower and its Subsidiaries (other than the Company Interim Credit
Facility and the Company Zeros) outstanding on the Closing Date to (ii) the
amount of pro forma Consolidated EBITDA of the Borrower and its
--- -----
Subsidiaries for the latest twelve month period ended prior to the Closing
Date for which relevant financial information is available shall not be
greater than 5.80 to 1.0, and the Borrower shall provide support for such
calculation which is reasonably satisfactory to the Administrative Agent
(giving consideration, among other factors, to the requirements of
Regulation S-X of the Securities Act).
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c) Subsequent Term Loans. With respect to any Tranche A Term Loans
---------------------
requested to be made on a date other than the Closing Date, (i) the
proceeds of such Tranche A Term Loans shall be utilized by the Borrower to
pay the consideration for an acquisition of all or substantially all of the
Capital Stock or assets of any Person or business unit of a Person
permitted pursuant to Section 7.8(i) or (j) and any fees and expenses
relating to such acquisition, (ii) such acquisition shall be consummated on
the Borrowing Date with respect to such Tranche A Term Loans and (iii)
after giving effect to the making of such Tranche A Term Loans and the
consummation of the related acquisition, the Consolidated Leverage Ratio of
the Borrower and its Subsidiaries shall be not greater than 5.5 to 1.0 and
the Consolidated Interest Coverage Ratio of the Company and its
Subsidiaries shall be not less than 1.75 to 1.0 (with each such ratio being
calculated on a pro forma basis, as if such borrowing and acquisition had
occurred on the first day of the relevant fiscal period and as if the
interest rate applicable to such Tranche A Term Loans throughout such
period was the rate in effect on the requested Borrowing Date for Tranche A
Term Loans which are Eurodollar Loans; provided that, in the event that the
--------
borrowing date for such Tranche A Term Loans occurs prior to the date upon
which the financial statements for the fiscal year ending December 31, 1997
have been delivered pursuant to subsection 6.1(a), each of Consolidated
EBITDA and Consolidated Interest Expense shall be determined for purposes
of this clause (c) only based upon the Borrower's good faith estimate
thereof for such fiscal year).
<PAGE>
48
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Company and (from and after the Push-Down Date) the Borrower
hereby jointly and severally agree that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or the Administrative Agent hereunder, each of the Company
and (from and after the Push-Down Date) the Borrower shall and shall cause each
of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent:
--------------------
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Company and the Borrower, a copy of the
audited consolidated balance sheet of the Company and its consolidated
Subsidiaries and the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Price Waterhouse LLP or other independent
certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Company and the Borrower, the unaudited consolidated balance
sheet of the Company and its consolidated Subsidiaries and the Borrower and
its consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and of cash flows for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end and audit adjustments); and
(c) as soon as available, but in any event not later than 30 days
after the end of each month occurring during each fiscal year of the
Company and the Borrower (other than the third, sixth, ninth and twelfth
such month), the unaudited consolidated balance sheets of the Company and
its consolidated Subsidiaries and the Borrower and its consolidated
Subsidiaries as at the end of such month and the related unaudited
consolidated statements of income and of cash flows for such month and the
portion of the fiscal year through the end of such month, setting forth in
each case in comparative form the figures for the previous year, certified
by a Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except (x) as approved by such accountants or officer, as the case may
be, and disclosed therein and (y) in the case of the financial statements
delivered pursuant to clauses (b) and (c) above, for the absence of footnotes).
<PAGE>
49
6.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent or, in the case of clause (g), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default under the financial covenants set forth in
Section 7.1, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of each such Responsible Officer's knowledge, each Loan
Party during such period has in all material respects observed or performed
all of its covenants and other agreements, and satisfied every condition,
contained in this Agreement and the other Loan Documents to which it is a
party to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) in the case of
quarterly or annual financial statements, (x) a Compliance Certificate
containing all information necessary for determining compliance by the
Company and its Subsidiaries with the provisions of this Agreement referred
to therein as of the last day of the fiscal quarter or fiscal year of the
Borrower, as the case may be, and (y) to the extent not previously
disclosed to the Administrative Agent, a listing of any county or state
within the United States where any Loan Party keeps inventory or equipment
and of any Intellectual Property acquired by any Loan Party since the date
of the most recent list delivered pursuant to this clause (y) (or, in the
case of the first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the then-current fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such
then-current fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and projected
income), and, as soon as available, significant revisions, if any, of such
budget and projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
-----------
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the portion
of the Projections covering such periods and to the comparable periods of
the previous year;
(e) no later than 3 Business Days prior to the effectiveness thereof
(or, to the extent that the consent of all or any portion of the Lenders is
required hereunder in connection with such amendment, supplement, waiver or
modification, no later than 10 Business Days prior to the effectiveness
thereof), copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification with respect to the
<PAGE>
50
Company Indenture, the Senior Subordinated Note Indenture or the
Transaction Agreement;
(f) within five days after the same are sent, copies of all financial
statements and reports which the Company or the Borrower sends to the
holders of any class of its debt securities or public equity securities and
within five days after the same are filed, copies of all financial
statements and reports which the Company or the Borrower may make to, or
file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority; and
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Company or its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
------------------------------------------------------
Continue to engage in business of the same general type as now conducted by it,
(ii) preserve, renew and keep in full force and effect its corporate existence
and (iii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (iii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property
----------------------------------
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its Property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
6.6 Inspection of Property; Books and Records; Discussions. (a)
------------------------------------------------------
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit, upon two Business Days' prior notice to the chief financial officer or
other Responsible Officer of the Company or the Borrower (except when a Default
or Event of Default has occurred and is continuing, in which case, no notice
shall be required), representatives of any Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be desired and to discuss
the business, operations, properties and financial and other condition of the
Company and its Subsidiaries with officers and employees of the Company and its
Subsidiaries and with its independent certified public accountants; provided
--------
that all such visits and inspections shall be coordinated through the
Administrative Agent.
<PAGE>
51
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any litigation, investigation or proceeding which may exist at
any time affecting the Company or any of its Subsidiaries which, if
adversely determined, could reasonably be expected to have a Material
Adverse Effect;
(c) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(d) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company or the relevant Subsidiary of the
Company proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with,
------------------
and ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection. In the case of the Borrower, within 60
------------------------
days after the Closing Date, enter into Interest Rate Protection Agreements to
the extent necessary to provide that at least 50% of the aggregate principal
amount of the Senior Subordinated Notes and the Term Loans is subject to either
a fixed interest rate or interest rate protection for a period of not less than
three years, which Interest Rate Protection Agreements shall have terms and
conditions reasonably satisfactory to the Administrative Agent.
6.10 Additional Collateral, etc. (a) With respect to any Property
--------------------------
acquired after the Closing Date by the Company or any of its Subsidiaries (other
than (x) any Property described in paragraph (b), (c) or (d) below and (y) any
Property subject to a Lien expressly permitted by Section 7.3(g)) as to which
the Administrative Agent, for the benefit of the Lenders, does not have a
perfected Lien, promptly (i) execute and deliver to the Administrative Agent
such amendments to the Guarantee and Collateral Agreement or such other
documents as the
<PAGE>
52
Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a security interest in
such Property and (ii) take all actions necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in such Property, including without limitation, the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be
required by the Guarantee and Collateral Agreement or by law or as may be
requested by the Administrative Agent.
(b) With respect to any fee interest in any real estate having a
value (together with improvements thereof) of at least $1,000,000 acquired after
the Closing Date by the Company or any of its Subsidiaries (other than any such
real estate subject to a Lien expressly permitted by Section 7.3(g)), promptly
upon request of the Administrative Agent or the Required Lenders (i) execute and
deliver a first priority mortgage or deed of trust, as the case may be, in favor
of the Administrative Agent, for the benefit of the Lenders, covering such real
estate, in form and substance reasonably satisfactory to the Administrative
Agent, (ii) if requested by the Administrative Agent, provide the Lenders with
(x) title and extended coverage insurance covering such real estate in an amount
at least equal to the purchase price of such real estate (or such other amount
as shall be reasonably specified by the Administrative Agent) as well as a
current ALTA survey thereof, together with a surveyor's certificate and (y) any
consents or estoppels reasonably deemed necessary or advisable by the
Administrative Agent in connection with such mortgage or deed of trust, each of
the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by the Company
(which, for the purposes of this paragraph (c), shall include any existing
Subsidiary that ceases to be an Excluded Foreign Subsidiary) or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by the Company or any of its
Subsidiaries, (ii) cause such new Subsidiary (A) to become a party to the
Guarantee and Collateral Agreement and (B) to take such actions necessary or
advisable to grant to the Administrative Agent for the benefit of the Lenders a
perfected first priority security interest in the Collateral described in the
Guarantee and Collateral Agreement with respect to such new Subsidiary,
including, without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Administrative
Agent, and (iii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or acquired
after the Closing Date by the Company or any of its Subsidiaries, promptly (i)
execute and deliver to the Administrative Agent such amendments to the Guarantee
and Collateral Agreement as the Administrative Agent deems necessary or
advisable in order to grant to the Administrative Agent, for the benefit of the
Lenders, a perfected first priority security interest in the Capital
<PAGE>
53
Stock of such new Subsidiary which is owned by the Company or any of its
Subsidiaries (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), and (ii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
SECTION 7. NEGATIVE COVENANTS
The Company and (from and after the Push-Down Date) the Borrower
hereby jointly and severally agree that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or the Administrative Agent hereunder, each of the Company
and (from and after the Push-Down Date) the Borrower shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
---------------------------
Ratio as at the last day of any period of four consecutive fiscal quarters of
the Borrower ending during any period set forth below to exceed the ratio set
forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
Closing Date through December 30, 1998 6.25 to 1.0
December 31, 1998 through December 30, 1999 5.75 to 1.0
December 31, 1999 through December 30, 2000 5.00 to 1.0
December 31, 2000 through December 30, 2001 4.25 to 1.0
December 31, 2001 through December 30, 2002 3.50 to 1.0
December 31, 2002 through December 30, 2003 3.00 to 1.0
December 31, 2003 through thereafter 2.75 to 1.0
</TABLE>
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower ending during any period set forth below to be less than the ratio
set forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated Interest
Period Coverage Ratio
------ ---------------------
<S> <C>
Closing Date through December 30, 1998 1.60 to 1.0
December 31, 1998 through December 30, 1998 1.70 to 1.0
December 31, 1999 through December 30, 1999 1.85 to 1.0
December 31, 2000 through December 30, 2000 2.25 to 1.0
December 31, 2001 through December 30, 2001 2.50 to 1.0
December 31, 2002 through December 30, 2002 2.75 to 1.0
December 31, 2003 through thereafter 2.00 to 1.0
</TABLE>
<PAGE>
54
(c) Consolidated Fixed Charge Coverage Ratio. Permit the
----------------------------------------
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters (commencing with the period of four consecutive fiscal quarters
ending on December 31, 1998) of the Borrower to be less than 1.05 to 1.0.
(d) Minimum EBITDA. Permit Consolidated EBITDA for any fiscal year
--------------
set forth below to be less than the amount set forth opposite such fiscal year:
<TABLE>
<CAPTION>
Consolidated
Fiscal Year EBITDA
----------- ------------
<S> <C>
1997 $30,000,000
1998 32,000,000
1999 35,000,000
2000 38,500,000
2001 42,500,000
2002 45,000,000
2003 45,000,000
2004 45,000,000
</TABLE>
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist (in each case, to "Incur") any Indebtedness, except:
-----
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Indebtedness secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $2,000,000 at any one time
outstanding;
(d) Capital Lease Obligations with respect to the Borrower's
principal manufacturing facility and the equipment located therein in an
aggregate principal amount not to exceed $6,600,000 at any one time
outstanding and other Capital Lease Obligations in an aggregate principal
amount not to exceed $5,000,000 at any one time outstanding;
(e) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(e) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(f) guarantees made in the ordinary course of business by the
Borrower or any of its Subsidiaries of obligations of any Wholly Owned
Subsidiary Guarantor;
(g) (i) Indebtedness of the Borrower in respect of the Senior
Subordinated Credit Facility in an aggregate principal amount not to exceed
$85,000,000 and Indebtedness of the Borrower in respect of the Senior
Subordinated Notes in an aggregate principal amount not to exceed
$110,000,000 (any excess of the Net Cash Proceeds from the issuance of the
Senior Subordinated Notes over the aggregate principal amount refinanced
thereby under the Senior Subordinated Credit Facility, the "Excess Note
-----------
<PAGE>
55
Proceeds"), to the extent the proceeds thereof (net of any dividends paid
--------
by the Borrower to the Company as described in Section 7.6(e)(iv)) are used
to prepay the Senior Subordinated Credit Facility and, to the extent of any
excess proceeds after prepayment in full of the Senior Subordinated Credit
Facility, to prepay the Loans in accordance with Section 2.11(e) and (ii)
Indebtedness of the Company in respect of the Company Interim Credit
Facility and Indebtedness of the Company in respect of the Company Zeros to
the extent the Net Cash Proceeds thereof are used to prepay the loans under
the Company Interim Credit Facility (including accrued interest thereon),
in each case, in an aggregate, unaccreted principal amount not to exceed
$60,100,000;
(h) Indebtedness of (i) the Company evidenced by the increase in the
principal amount of the Company Zeros or the Company Interim Credit
Facility and (ii) the Borrower evidenced by the increase in the principal
amount of the Senior Subordinated Notes or the Senior Subordinated Credit
Facility, (in each such case) in connection with the payment in kind of
interest thereon prior to the fifth anniversary of the Closing Date;
(i) Indebtedness of a Person which becomes a Subsidiary after the
date hereof; provided, that (i) such Indebtedness existed at the time such
--------
Person became a Subsidiary and was not created in anticipation of the
acquisition and (ii) such Indebtedness was not created in contemplation of
such Person becoming a Subsidiary;
(j) Indebtedness of the Borrower and its Subsidiaries on account of
the deferred purchase price for acquisitions of Capital Stock and assets
permitted pursuant to Section 7.8;
(k) guarantees made by Subsidiaries of the Borrower on account of the
Senior Subordinated Notes and the Senior Subordinated Credit Facility;
provided, that such guarantees are subordinated to the obligations of such
--------
Subsidiaries under the Guarantee and Collateral Agreement and the other
Security Documents upon terms satisfactory to the Administrative Agent; and
(l) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount (for the Borrower and all
Subsidiaries) not to exceed $10,000,000 at any one time outstanding.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
<PAGE>
56
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) Liens in existence on the date hereof listed on Schedule 7.3(e),
securing Indebtedness permitted by Section 7.2(e), provided that no such
--------
Lien is spread to cover any additional Property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition
of fixed or capital assets, provided that (i) such Liens shall be created
--------
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any Property other than
the Property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into by
the Borrower or any Subsidiary in the ordinary course of its business and
covering only the assets so leased (including, without limitation, with
respect to the capital leases of the Borrower's principal manufacturing
facility and related equipment and covering only such facility and related
equipment); and
(j) Liens not otherwise permitted by this Section 7.3 so long as
neither (i) the aggregate principal amount of the obligations secured
thereby nor (ii) the aggregate fair market value (determined as of the date
such Lien is incurred) of the assets subject thereto exceeds (as to the
Borrower and all Subsidiaries) $2,000,000 at any one time outstanding.
7.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of, all or substantially all
of its Property or business, or make any material change in its present method
of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
--------
surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
--------
continuing or surviving corporation);
(b) the Borrower or any of its Subsidiaries may Dispose of any or all
of its assets (upon voluntary liquidation or otherwise) to the Borrower or
any Wholly Owned Subsidiary Guarantor (including, in any event, the
transfers to the Successor Subsidiary described in Section 7.17 which are
contemplated to occur on the Push-Down Date); and
<PAGE>
57
(c) any Person may be merged or consolidated with or into the
Borrower or any of its Subsidiaries pursuant to an investment permitted
subsection 7.8(i) or (j) (provided that the Borrower or the applicable
--------
Subsidiary shall be the continuing or surviving corporation).
7.5 Limitation on Sale of Assets. Dispose of any of its Property or
----------------------------
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of property or assets that are no longer used or
useful in the ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;
(e) the Borrower and its Subsidiaries may, in the ordinary course of
business, license Intellectual Property to third Persons and to one
another, so long as each such license does not otherwise prohibit the
granting of a Lien by the Borrower or any of its Subsidiaries pursuant to
the Security Documents in the Intellectual Property which is the subject of
such license; and
(f) the sale of other assets having a fair market value not to exceed
$5,000,000 in the aggregate for any fiscal year of the Borrower.
7.6 Limitation on Dividends. Declare or pay any dividend (other than
-----------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or any
of its Subsidiaries or any warrants or options to purchase any such Capital
Stock, whether now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property or
in obligations of the Borrower or any of its Subsidiaries (collectively,
"Restricted Payments"), except that:
-------------------
(a) any Subsidiary may make Restricted Payments to the Borrower or
any Wholly Owned Subsidiary Guarantor;
(b) any payments made to the former shareholders of the Company
pursuant to Section 1.11 of the Transaction Agreement;
(c) payments made on or before the Closing Date in respect of the
redemption of Capital Stock of the Company held by existing shareholders in
connection with the merger of DI Acquisition into the Company;
(d) so long as no Default or Event of Default shall have occurred and
be continuing, the Borrower may pay dividends to the Company to permit the
Company to
<PAGE>
58
(i) purchase the Company's common stock or common stock options from
present or former officers or employees of the Company or any of its
Subsidiaries upon the death, disability or termination of employment of
such officer or employee, provided, that the aggregate amount of payments
--------
under this clause (i) shall not exceed $2,000,000 during any fiscal year of
the Borrower and $5,000,000 during the term of this Agreement, net, in any
case, of any proceeds received by the Company and contributed to the
Borrower in connection with resales of any common stock or common stock
options so purchased during the relevant period and (ii) pay management
fees to Bain Capital and Bain Affiliates expressly permitted by Section
7.10(iii); and
(e) the Borrower may pay dividends to the Company to permit the
Company to (i) pay corporate overhead expenses incurred in the ordinary
course of business not to exceed $250,000 in any fiscal year, (ii) pay any
taxes which are due and payable by the Company and the Borrower as part of
a consolidated group, (iii) pay fees and expenses (other than to
Affiliates) relating to the Company Interim Credit Facility and any
refinancing thereof which is not prohibited by Section 7.9, (iv) repay the
amount by which the net proceeds to the Company from the issuance of the
Company Zeros are insufficient to repay in full the Company Interim Credit
Facility and (v) beginning in fiscal year 2002, pay interest in cash on the
Company Zeros.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
----------------------------------
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure, except Capital Expenditures of the Borrower and its Subsidiaries in
the ordinary course of business not exceeding in any fiscal year of the Borrower
the amount set forth below opposite such fiscal year (the "Base CapEx Amount")
-----------------
plus the then unused Permitted Expenditure Amount:
- ----
<TABLE>
<CAPTION>
Fiscal Year Base CapEx Amount
----------- -----------------
<S> <C>
Closing Date through December 31, 1997 $3,000,000
1998 $7,500,000
1999 $7,500,000
2000 $7,500,000
2001 $8,500,000
2002 $8,500,000
2003 $9,500,000
2004 $9,500,000
</TABLE>
provided, that (i) up to 50% of the Base CapEx Amount not expended in the
- --------
fiscal year for which it is permitted may be carried over for expenditure in the
next succeeding fiscal year, and (ii) Capital Expenditures made during any
fiscal year shall be deemed made, first, in respect of the Base CapEx Amount
-----
permitted for such fiscal year as provided above and, second, in respect of any
------
portion of such Base CapEx Amount carried over from the prior fiscal year
pursuant to subclause (i) above; provided, further, that notwithstanding the
-------- -------
foregoing, the Borrower and its Subsidiaries may make Capital Expenditures
(which Capital Expenditures shall not be included in the amount of Capital
Expenditures permitted to be made pursuant to this Section 7.7 without giving
effect to this second proviso) with Reinvestment Deferred Amounts.
7.8 Limitation on Investments, Loans and Advances. Make any advance,
---------------------------------------------
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any
<PAGE>
59
stock, bonds, notes, debentures or other securities of or any assets
constituting all or a material part of a business unit of, or make any other
investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of the Company and its
Subsidiaries in the ordinary course of business (including, without
limitation, for travel, entertainment and relocation expenses) in an
aggregate amount for the Company and its Subsidiaries not to exceed
$500,000 at any one time outstanding;
(e) (i) the Company may acquire and hold obligations of one or more
officers or other employees of the Company or its Subsidiaries in
connection with such officers' or employees' acquisition of shares of
common stock of the Company so long as no cash is paid by the Company or
any of its Subsidiaries in connection with the acquisition of any such
obligations, (ii) the Borrower may lend up to $500,000 in an aggregate
principal amount at any one time outstanding to officers and employees of
the Company and its Subsidiaries on or after the date on which any such
officers and employees exercise their options to purchase common stock of
the Company issued to them in connection with the Transaction so long as
the proceeds of such loans are promptly used by such officers and employees
to pay taxes payable by them as a result of such exercise and (iii)
investments consisting of loans by the Borrower or its Subsidiaries to
employees of the Company or its Subsidiaries, not exceeding (x) $650,000
for loans made in connection with the Transaction and (y) $1,000,000 for
loans made after the Closing Date, in each case, in aggregate principal
amount at any time outstanding and made solely for the purpose of funding
purchases by such employees of common stock of the Company;
(f) the Transaction;
(g) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases;
(h) investments by the Company or any of its Subsidiaries in the
Borrower or any Person that, prior to such investment, is a Wholly Owned
Subsidiary Guarantor;
(i) the Borrower and its Subsidiaries may acquire all or
substantially all of the Capital Stock or assets of any Person or business
unit of a Person; provided that (i) no Default or Event of Default has
--------
occurred and is continuing or would result therefrom, (ii) the Company
would have been in compliance, on a pro forma basis, with each of the
financial covenants contained in Section 7.1 if such acquisition had been
made on the first day of the most recently completed period of calculation
thereof, (iii) the aggregate consideration (including the aggregate
principal amount of Indebtedness which is assumed or guaranteed, the
aggregate amount of any deferred consideration and the fair market value of
any non-cash consideration) paid on account of all such acquisitions which
are consummated after the Closing Date does not exceed the sum of
$30,000,000 and the then unused Permitted Expenditure Amount; and
<PAGE>
60
(j) in addition to investments otherwise expressly permitted by this
Section 7.8, investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost, but net of returns of capital from such
investments) not to exceed during the term of this Agreement the sum of
$5,000,000 and the then unused Permitted Expenditure Amount on the date
upon which such investment is made.
7.9 Limitation on Optional Payments and Modifications of Debt
---------------------------------------------------------
Instruments, etc. (a) Make or offer to make any payment, prepayment,
- -----------------
repurchase or redemption of or otherwise defease or segregate funds with respect
to the Senior Subordinated Credit Facility (other than with the proceeds of the
Senior Subordinated Notes), the Company Interim Credit Facility (other than with
the proceeds of the Company Zeros), the Senior Subordinated Notes or the Company
Zeros (other than scheduled interest payments required to be made in cash), (b)
amend, modify, waive or otherwise change, or consent or agree to any amendment,
modification, waiver or other change to, any of the terms of the Senior
Subordinated Credit Facility, the Company Interim Credit Facility, the Senior
Subordinated Notes or the Company Zeros (other than any such amendment,
modification, waiver or other change which (i) would extend the maturity or
reduce the amount of any payment of principal thereof or which would reduce the
rate or extend the date for payment of interest thereon or (ii) is not adverse
in any respect to the interests of the Lenders in the reasonable opinion of the
Administrative Agent in its sole discretion) or (c) designate any Indebtedness
as "Designated Senior Indebtedness" for the purposes of the Senior Subordinated
Credit Facility or the Senior Subordinated Note Indenture.
7.10 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Company, the Borrower or any Wholly Owned Subsidiary Guarantor) unless such
transaction is (a) not otherwise prohibited under this Agreement and (b) upon
fair and reasonable terms no less favorable to the Company, the Borrower or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate; provided, that the
--------
following transactions shall not be prohibited:
(i) the Transaction;
(ii) the payment to Bain Capital and/or Bain Affiliates of (A) one
time fees on or about the Closing Date in an aggregate amount (for all such
Persons taken together) not to exceed $3,100,000 (plus reasonable out-of-
pocket expenses incurred by such Persons in providing services to the
Company or the Borrower) and (B) in connection with any acquisition
consummated pursuant to Section 7.8(i) or (j), an additional fee in an
amount not to exceed 2% of the aggregate consideration paid by the Company
and its Subsidiaries on account of such acquisition;
(iii) so long as no Default or Event of Default shall have occurred
and is continuing, the payment, on a quarterly basis, of management fees to
Bain Capital and/or the Bain Affiliates in an aggregate amount (for all
such Persons taken together) not to exceed $250,000 in any fiscal quarter
of the Borrower; provided that the portion of such fee which accrued but
--------
was not payable during the existence and continuance of such Default or
Event of Default shall be permitted to be paid at such time as all Defaults
and Events of Default have been cured or waived; and
<PAGE>
61
(iv) the reimbursement of Bain Capital and/or the Bain Affiliates for
their reasonable out-of-pocket expenses incurred by them in connection with
performing management services to the Borrower and its Subsidiaries.
Notwithstanding anything to the contrary contained in this Section 7.10, at no
time will the Company or any of its Subsidiaries make any payments to Bain
Capital and/or any of its Affiliates in an amount which would exceed that amount
permitted to be paid pursuant to the Senior Subordinated Note Indenture or the
Company Indenture at such time.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement
----------------------------------
with any Person providing for the leasing by the Company or any of its
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Company or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Company or such
Subsidiary.
7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year
---------------------------------------
of the Company or the Borrower to end on a day other than December 31 or change
the Company's or the Borrower's method of determining fiscal quarters.
7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to
-------------------------------------
exist or become effective any agreement which prohibits or limits the ability of
the Company or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, other than (a) this Agreement and the other Loan Documents
and (b) any agreements governing any purchase money Liens or Capital Lease
Obligations otherwise permitted hereby (in which case, any prohibition or
limitation shall only be effective against the assets financed thereby).
7.14 Limitation on Restrictions on Subsidiary Distributions. Enter
------------------------------------------------------
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrower to (a) pay
dividends or make any other distributions in respect of any Capital Stock of
such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any
other Subsidiary of the Borrower, (b) make loans or advances to the Borrower or
any other Subsidiary of the Borrower or (c) transfer any of its assets to the
Borrower or any other Subsidiary of the Borrower, except for such encumbrances
or restrictions existing under or by reason of (i) any restrictions existing
under the Loan Documents and (ii) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement which has been entered into in connection with
the Disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary.
7.15 Limitation on Lines of Business. Enter into any business,
-------------------------------
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto.
7.16 Limitation on Amendments to Transaction Documents. (a) Amend,
-------------------------------------------------
supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and
conditions of the indemnities and licenses furnished to the Borrower or any of
its Subsidiaries pursuant to any of the Transaction Documents such that after
giving effect thereto such indemnities or licenses shall be materially less
favorable to the interests of the Loan Parties or the Lenders with respect
thereto or (b) otherwise amend, supplement or otherwise modify the terms and
<PAGE>
62
conditions of the Transaction Documents except to the extent that any such
amendment, supplement or modification could not reasonably be expected to have a
Material Adverse Effect.
7.17 Limitation on Activities of the Company. In the case of the
---------------------------------------
Company:
(a) fail to contribute to a wholly-owned domestic Subsidiary (the
"Successor Subsidiary") (i) all of its material assets (other than the
---------------------
Capital Stock of the Successor Subsidiary and the deferred financing fees
relating to the Company Zeros or the Company Interim Credit Facility) and
(ii) all of its material liabilities (other than the Company Zeros or the
loans under the Company Interim Credit Facility) on or prior to the date
which is two Business Days following the Closing Date; provided, that the
--------
Company shall not be required to contribute to the Successor Subsidiary any
of its rights or interests under the Excluded Agreements;
(b) fail to cause the Successor Subsidiary to execute and deliver to
the Administrative Agent an Assumption Agreement on the date upon which the
contribution contemplated by Section 7.17(a) is consummated (such date, the
"Push-Down Date"); or
--------------
(c) from and after the Push-Down Date and notwithstanding anything to
the contrary in this Agreement or any other Loan Document, (i) conduct,
transact or otherwise engage in, or commit to conduct, transact or
otherwise engage in, any business or operations other than those incidental
to its ownership of the Capital Stock of the Borrower, (ii) incur, create,
assume or suffer to exist any Indebtedness or other liabilities or
financial obligations, other than (A) nonconsensual obligations imposed by
operation of law, (B) pursuant to the Loan Documents to which it is a
party, (C) the Company Interim Credit Facility and the Company Zeros and
the Company Indenture and (D) obligations with respect to its Capital
Stock, or (iii) own, lease, manage or otherwise operate any properties or
assets (including cash and Cash Equivalents), other than Capital Stock of
the Borrower and cash received in connection with dividends made by the
Borrower in accordance with Section 7.6 pending application in the manner
contemplated by said Section.
Notwithstanding anything to the contrary contained herein, from and after the
Push-Down Date, the Company shall for all purposes cease to be the "Borrower"
hereunder and the Successor Subsidiary shall be deemed to be the "Borrower" for
all purposes hereunder.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within three days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document
<PAGE>
63
or financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan Document shall prove
to have been inaccurate in any material respect on or as of the date made
or deemed made; or
(c) Any Loan Party shall default in the observance or performance of
any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to the Company and the Borrower only) or in Section 7; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
(to the extent that such default is susceptible of remedy) such default
shall continue unremedied for a period of 30 days after the earlier of (x)
the date upon which the Borrower knows or should reasonably be expected to
know of the existence of such default or (y) the date upon which the
Borrower receives notice of such event from the Administrative Agent or any
Lender; or
(e) The Company or any of its Subsidiaries shall (i) default in
making any payment of any principal of any Indebtedness (including, without
limitation, any Guarantee Obligation, but excluding the Loans) on the
scheduled or original due date with respect thereto; or (ii) default in
making any payment of any interest on any such Indebtedness beyond the
period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created; or (iii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause,
or to permit the holder or beneficiary of such Indebtedness (or a trustee
or agent on behalf of such holder or beneficiary) to cause, with the giving
of notice if required, such Indebtedness to become due prior to its stated
maturity or (in the case of any such Indebtedness constituting a Guarantee
Obligation) to become payable; provided, that a default, event or
--------
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default under this Agreement
unless, at such time, one or more defaults, events or conditions of the
type described in clauses (i), (ii) and (iii) of this paragraph (e) shall
have occurred and be continuing with respect to Indebtedness the
outstanding principal amount of which exceeds in the aggregate $1,000,000;
or
(f) (i) The Company or any of its Material Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Company or
any of its Material Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the
Company or any of its Material Subsidiaries any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or
<PAGE>
64
a period of 60 days; or (iii) there shall be commenced against the Company
or any of its Material Subsidiaries any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Company or any of its Material
Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) the Company or any of its Material
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could, in the sole judgment of the Required Lenders, reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $1,000,000 or more, and all
such judgments or decrees shall not have been vacated, discharged, stayed
or bonded pending appeal within 30 days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported
to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) A Change of Control or a Specified Change of Control shall occur;
or
(l) After the Push-Down Date, the Company shall cease to own directly
100% on a fully diluted basis of the economic and voting interest in the
Borrower's capital stock, free of Liens except Liens created by the
Guarantee and Collateral Agreement;
<PAGE>
65
(m) The Senior Subordinated Notes or the Senior Subordinated Credit
Facility shall cease, for any reason, to be validly subordinated to the
Obligations as provided in the Senior Subordinated Note Indenture or the
Senior Subordinated Credit Facility, as the case may be, or any Loan Party,
any Affiliate of any Loan Party, the trustee in respect of the Senior
Subordinated Notes or the holders of at least 25% in aggregate principal
amount of the Senior Subordinated Notes shall so assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Credit Facility Lenders,
the Administrative Agent may, or upon the request of the Majority Revolving
Credit Facility Lenders, the Administrative Agent shall, by notice to the
Borrower declare the Revolving Credit Commitments to be terminated forthwith,
whereupon the Revolving Credit Commitments shall immediately terminate; and (ii)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. With respect to all Letters
of Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by the Borrower.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
<PAGE>
66
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any
----------------------
of their respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing result from
its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Loan Party or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Administrative Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Company or the Borrower), independent accountants and other experts selected by
the Administrative Agent. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders (or, if so specified by this Agreement, all
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
9.5 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the
<PAGE>
67
Administrative Agent has received notice from a Lender, the Company or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent shall have
--------
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that neither the Administrative Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Administrative Agent
hereinafter taken, including any review of the affairs of a Loan Party or any
affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates and made
its own decision to make its Loans hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance
upon the Administrative Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party which may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
9.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Company or the Borrower and without limiting the obligation of the Company
or the Borrower to do so), ratably according to their respective Revolving
Credit Percentages, Tranche A Term Loan Percentages and Tranche B Term Loan
Percentages in effect on the date on which indemnification is sought under this
Section 9.7 (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with such percentages immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
<PAGE>
68
Administrative Agent under or in connection with any of the foregoing; provided
--------
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements which result from the Administrative Agent's
gross negligence or willful misconduct. The Administrative Agent shall have the
right to deduct any amount owed to it by any Lender under this Section from any
payment made by it to such Lender hereunder. The agreements in this Section 9.7
shall survive the payment of the Loans and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though the
Administrative Agent was not the Administrative Agent. With respect to its
Loans made or renewed by it and with respect to any Letter of Credit issued or
participated in by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be continuing) be
approved by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 30 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the other Loan Documents.
9.10 Authorization to Release Liens. The Administrative Agent is
------------------------------
hereby irrevocably authorized by each of the Lenders to release any Lien
covering any Property of the Company or any of its Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 10.1.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required
<PAGE>
69
Lenders, the Administrative Agent and each Loan Party party to the relevant Loan
Document may, from time to time, (a) enter into written amendments, supplements
or modifications hereto and to the other Loan Documents for the purpose of
adding any provisions to this Agreement or the other Loan Documents or changing
in any manner the rights of the Lenders or of the Loan Parties hereunder or
thereunder or (b) waive, on such terms and conditions as the Required Lenders or
the Administrative Agent, as the case may be, may specify in such instrument,
any of the requirements of this Agreement or the other Loan Documents or any
Default or Event of Default and its consequences; provided, however, that no
-------- -------
such waiver and no such amendment, supplement or modification shall (i) forgive
or reduce the principal amount or extend the final scheduled date of maturity of
any Loan, extend the scheduled date of any amortization payment in respect of
any Term Loan, reduce the stated rate of any interest, fee or letter of credit
commission payable hereunder or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Lender's
Revolving Credit Commitment, in each case without the consent of each Lender
directly affected thereby; (ii) amend, modify or waive any provision of this
Section 10.1 or reduce any percentage specified in the definition of Required
Lenders or Required Prepayment Lenders, consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement and the
other Loan Documents, release all or substantially all of the Collateral or
release all or substantially all of the Guarantors from their obligations under
the Guarantee and Collateral Agreement, in each case without the written consent
of all Lenders; (iii) reduce the percentage specified in the definition of
Majority Facility Lenders without the written consent of all Lenders under each
affected Facility; (iv) amend, modify or waive any provision of Section 9
without the written consent of the Administrative Agent; (v) amend, modify or
waive any provision of Section 2.6 or 2.7 without the written consent of the
Swing Line Lender or (vi) amend, modify or waive any provision of Section 3
without the written consent of the Issuing Lender. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Loan Parties, the Lenders, the Administrative
Agent and all future holders of the Loans. In the case of any waiver, the Loan
Parties, the Lenders and the Administrative Agent shall be restored to their
former position and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Company and the Administrative
Agent, and as set forth in an administrative questionnaire delivered to the
Administrative Agent in the case of the Lenders, or to such other address as may
be hereafter notified by the respective parties hereto:
<PAGE>
70
The Company: Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention: Chief Financial Officer
Telecopy: (714) 630-9438
with copies to: Bain Capital, Inc.
Two Copley Plaza
6th Floor
Boston, Massachusetts 02116
Attention: David Dominik/Prescott
Ashe/Steve Zide
Telecopy: (617) 572-3274
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Philip J. Smith
Telecopy: (617) 951-7050
The Administrative Agent: The Chase Manhattan Bank
c/o The Loan and Agency Services Group
1 Chase Manhattan Plaza
8th Floor
New York, New York, 10081
Attention: Janet Belden
Telecopy: (212) 552-5658
with a copy to: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: John Huber
Telecopy: (212) 270-4584
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
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71
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
-----------------------------
or reimburse the Administrative Agent for all its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel) to each Lender
and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each
Lender and the Administrative Agent harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the
Administrative Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "indemnitee") harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including, without limitation, any of the foregoing
relating to the use of proceeds of the Loans or the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
the Company or any of its Subsidiaries or any of the Properties (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
provided, that the Borrower shall have no obligation hereunder to any indemnitee
- --------
with respect to indemnified liabilities to the extent such indemnified
liabilities result from the gross negligence or willful misconduct of such
indemnitee. The agreements in this Section 10.5 shall survive repayment of the
Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Company,
the Borrower, the Lenders, the Administrative Agent, all future holders of the
Loans and their respective successors and assigns, except that the Borrower may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender (it being understood that the
transfer of the rights and obligations of the Company hereunder to the Successor
Subsidiary on the Push-Down Date shall not require the consent of the
Administrative Agent or any Lender).
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
-----------
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes
<PAGE>
72
under this Agreement and the other Loan Documents, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents. In no event shall any Participant under any such
participation have any right to approve any amendment or waiver of any provision
of any Loan Document, or any consent to any departure by any Loan Party
therefrom, except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if amounts
outstanding under this Agreement and the Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
--------
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.16, 2.17 and 2.18 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of Section 2.19, such Participant
--------
shall have complied with the requirements of said Section and provided, further,
-------- -------
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
--------
law, at any time and from time to time assign to any Lender or any affiliate
thereof or, with the consent of the Borrower and the Administrative Agent
(which, in each case, shall not be unreasonably withheld or delayed), to an
additional bank, financial institution or other entity (an "Assignee") all or
--------
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit D, executed by
such Assignee and such Assignor (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent) and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that no such assignment to an Assignee
--------
(other than any Lender or any affiliate thereof) shall be in an aggregate
principal amount of less than $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement), unless
otherwise agreed by the Borrower and the Administrative Agent. Any such
assignment need not be ratable as among the Facilities. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment and/or
Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of an Assignor's rights and obligations under this Agreement, such assigning
Lender shall cease to be a party hereto). Notwithstanding any provision of this
Section 10.6, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the Assignor, new Notes shall not be required
to be executed and delivered by the Borrower, for any assignment which occurs at
any time when any of the events described in Section 8 shall have occurred and
be continuing.
<PAGE>
73
(d) The Administrative Agent shall maintain at its address referred
to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and
a register (the "Register") for the recordation of the names and addresses of
--------
the Lenders and the Commitments of, and the principal amount of the Loans owing
to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, each other Loan
Party, the Administrative Agent and the Lenders shall treat each Person whose
name is recorded in the Register as the owner of the Loan recorded therein for
all purposes of this Agreement.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in the case of an Assignee that is not then a
Lender or an affiliate thereof, by the Borrower and the Administrative Agent)
together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) record the information contained therein
in the Register on the effective date determined pursuant thereto.
(f) (i) To the extent requested by any Lender, the Loans made by
such Lender shall be evidenced by a Note issued by the Borrower, substantially
in the form of Exhibit F-1, F-2, F-3 or F-4, as the case may be, payable to the
order of such Lender (or, in the case of any Alternative Note, payable to such
Lender or its registered assigns); provided that no such Notes need be issued or
--------
delivered until after the Push-Down Date. Each Lender is hereby authorized to
record, on the schedule annexed to and constituting a part of the relevant Note,
information regarding the relevant Loans made by such Lender, and any such
recordation shall constitute prima facie evidence of the accuracy of the
----- -----
information so recorded, provided that the failure to make any such recordation
--------
or any error in such recordation shall not affect the Borrower's obligations
hereunder or under any Note. On or prior to the effective date of an Assignment
and Acceptance, the Borrower, at its own expense, shall, to the extent requested
by the Assignee, execute and deliver to the Administrative Agent, in exchange
for the relevant Notes, new Notes to the order of the Assignee and, if
applicable, the Assignor. Such new Notes shall be dated the Closing Date.
(ii) Any Non-U.S. Lender that could become completely exempt from
withholding of any tax, assessment or other charge or levy imposed by or on
behalf of the United States or any taxing authority thereof ("U.S. Taxes") in
----------
respect of payment of any Obligations due to such Non-U.S. Lender under this
Agreement if the Obligations were in registered form for U.S. federal income tax
purposes may request the Borrower (through the Administrative Agent), and the
Borrower agrees thereupon, to exchange any promissory note(s) evidencing such
Obligations for promissory note(s) substantially in the form of Exhibit F-3 or
F-4, as the case may be (each, an "Alternative Note"). Alternative Notes may
----------------
not be exchanged for promissory notes that are not Alternative Notes. Each Non-
U.S. Lender that holds Alternative Note(s) (an "Alternative Noteholder") (or, if
----------------------
such Alternative Noteholder is not the beneficial owner thereof, such beneficial
owner) shall deliver to the Borrower prior to or at the time such Non-U.S.
Lender becomes an Alternative Noteholder each of the forms and certifications
required by Section 2.19(b). An Alternative Note and the Obligation(s)
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Alternative Note and
the Obligation(s) evidenced thereby on the Register (and each Alternative Note
shall expressly so provide). Any assignment or transfer of all or part of such
Obligation(s) and the Alternative Note(s) evidencing the same shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Alternative Note(s) evidencing such Obligation(s), duly endorsed
by (or accompanied by a written
<PAGE>
74
instrument of assignment or transfer duly executed by) the Alternative
Noteholder thereof, and thereupon one or more new Alternative Note(s) in the
same aggregate principal amount shall be issued to the designated Assignee(s).
No assignment of an Alternative Note and the Obligations evidenced thereby shall
be effective unless it has been recorded in the Register.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 10.6 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without limitation,
any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, if any Lender (a "Benefitted Lender") shall at any time
-----------------
receive any payment of all or part of its Loans or the Reimbursement Obligations
owing to it, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans or the Reimbursement
Obligations owing to such other Lender, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan and/or of the Reimbursement
Obligations owing to each such other Lender, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
- -------- -------
is thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Company or
the Borrower, any such notice being expressly waived by the Company and the
Borrower to the extent permitted by applicable law, upon any amount becoming due
and payable by the Company or the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise) to set off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of the Company
or the Borrower. Each Lender agrees promptly to notify the Company, the
Borrower and the Administrative Agent after any such setoff and application made
by such Lender, provided that the failure to give such notice shall not affect
--------
the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
<PAGE>
75
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Company, the Borrower, the Administrative Agent
and the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of the Company and
-----------------------------------
the Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Company or the Borrower, as the case may be at its address set forth in
Section 10.2 or at such other address of which the Administrative Agent
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 10.12 any special, exemplary, punitive or consequential
damages.
10.13 Acknowledgements. Each of the Company and the Borrower hereby
----------------
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
<PAGE>
76
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Company or the Borrower arising out of or
in connection with this Agreement or any of the other Loan Documents, and
the relationship between Administrative Agent and Lenders, on one hand, and
the Company and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Company, the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE COMPANY, THE BORROWER, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to use reasonable efforts to keep confidential all non-public
information provided to it by any Loan Party pursuant to this Agreement that is
designated by such Loan Party as confidential; provided that nothing herein
--------
shall prevent the Administrative Agent or any Lender from disclosing any such
information (a) to the Administrative Agent, any other Lender or any affiliate
of any Lender, (b) to any Participant or Assignee (each, a "Transferee") or
----------
prospective Transferee which agrees to comply with the provisions of this
Section 10.15, (c) to the employees, directors, agents, attorneys, accountants
and other professional advisors of such Lender or its affiliates, (d) upon the
request or demand of any Governmental Authority having jurisdiction over the
Administrative Agent or such Lender, (e) in response to any order of any court
or other Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) which has been publicly disclosed other
than in breach of this Section 10.15, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender, or (i)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
10.16 Assumption by Subsequent Lenders. Notwithstanding anything to
--------------------------------
the contrary contained herein (including, without limitation, the provisions of
Section 10.6), each of the Company, the Borrower, the Administrative Agent and
each Lender hereby:
(a) acknowledges that the only Lender on the Closing Date will be The
Chase Manhattan Bank and that it is the intention of each party hereto that
the Commitments held by The Chase Manhattan Bank will be syndicated after
the Closing Date;
(b) agrees that each financial institution which acquires a
Commitment hereunder from The Chase Manhattan Bank in such primary
syndication may become a "Lender" party hereto by executing and delivering
to the Administrative Agent a Lender Assumption Agreement, substantially in
the form of Exhibit H-2 hereto.
From and after the receipt by the Administrative Agent of such a Lender
Assumption Agreement, The Chase Manhattan Bank shall be absolutely and
irrevocably released from its
<PAGE>
77
obligations hereunder to the extent set forth therein and such new Lender shall
be deemed to have assumed all rights and obligations of The Chase Manhattan Bank
with respect to the portion of the Commitments described in such Lender
Assumption Agreement to which it is a party.
<PAGE>
78
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
DETAILS, INC.
By: /s/ Joseph P. Gisch
---------------------------------
Name: Joseph P. Gisch
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Lawrence Palumbo, Jr.
---------------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
Annex A
-------
PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS
TRANCHE A TERM LOANS AND COMMITMENT FEES
<TABLE>
<CAPTION>
=================================================================================================================
Applicable Margin Applicable
Consolidated for Eurodollar Margin for ABR
Interest Consolidated Loans and Letters Loans and Swing Commitment
Coverage Ratio Leverage Ratio of Credit Line Loans Fee Rate
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
less than or equal to greater than or equal to 2.50% 1.50% .50%
2.00 to 1.0 5.00 to 1.0
- -----------------------------------------------------------------------------------------------------------------
greater than 2.00 to 1.0 and less than 5.00 to 1.0 and 2.25% 1.25% .50%
less than or equal to 2.50 greater than or equal to
to 1.0 4.00 to 1.0
- -----------------------------------------------------------------------------------------------------------------
greater than 2.50 to 1.0 and less than 4.00 to 1.0 and 2.00% 1.00% .50%
less than or equal to greater than or equal to
3.00 to 1.0 3.00 to 1.0
- -----------------------------------------------------------------------------------------------------------------
greater than 3.00 to 1.0 and less than 3.00 to 1.0 and 1.75% .75% .375%
less than or equal to greater than or equal to
3.50 to 1.0 2.50 to 1.0
- -----------------------------------------------------------------------------------------------------------------
greater than 3.50 to 1.0 less than 2.50 to 1.0 1.50% .50% .375%
=================================================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Tranche A Term Loans or
Revolving Credit Loans or in the Commitment Fee Rate resulting from changes in
the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio
shall become effective on the date (the "Adjustment Date") on which financial
---------------
statements are delivered to the Lenders pursuant to Section 6.1 (but in any
event not later than the 45th day after the end of each of the first three
quarterly periods of each fiscal year or the 90th day after the end of each
fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, if the Administrative
Agent or the Required Lenders so determine, the Consolidated Interest Coverage
Ratio and the Consolidated Leverage Ratio as at the end of the fiscal period
that would have been covered thereby shall for the purposes of this definition
be deemed to be less than 2.00 to 1 and greater than 5.00 to 1, respectively.
In addition, at all times while an Event of Default shall have occurred and be
continuing and the Administrative Agent or the Required Lenders so determine,
the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio
shall for the purposes of this definition be deemed to be less than 2.00 to 1
and greater than 5.00 to 1, respectively. If on any Adjustment Date the
Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio would
result in different Applicable Margins or Commitment Fee Rates, the higher
Applicable Margin or Commitment Fee Rate shall govern. Each determination of
the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio
pursuant to this definition shall be made with respect to the period of four
consecutive fiscal quarters of the Borrower ending at the end of the period
covered by the relevant financial statements.
<PAGE>
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") is made as of October 28,
---------
1997 by and among:
(i) Details, Inc., a California corporation (the "Company");
-------
(ii) each of Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P., RGIP, LLC (collectively,
the "Investors");
---------
(iii) DI Investors, L.L.C., Chase Manhattan Capital, L.P., PMI Mezzanine
Fund, LP, Celerity Details, L.L.C., Celerity Liquids, L.L.C. (the
"Other Investors");
---------------
(iv) The holders, from time to time, of the Lender Warrants (together with
such others who acquire Lender Shares, the "Lenders");
-------
(v) Bruce McMaster, Lee Muse, Terry Wright, Joseph P. Gisch and Kathleen
M. Gisch (together with such others who shall become party to this
Agreement as a Manager, the "Managers");
--------
(vi) Bob Barante, Jorge Hernandez, Steve Garcia, Mihaela Ioana Dotiu,
Jerry Neidhart, Anil Verma, Paul Balius, Ricki Blain, Joe Gardeski,
Paul Walker, Ken Phillips, Armando Tongko, Michael Mosian, and Tom
Ingham (together with such others who shall become party to this
Agreement as an Employee, the "Employees" and together with the
---------
Investors, the Other Investors, the Lenders and the Managers, the
"Stockholders").
------------
Recitals
--------
1. Pursuant to the Amended and Restated Recapitalization Agreement,
dated as of the date hereof (the "Recapitalization Agreement"), the Company is
--------------------------
being recapitalized through a merger of DI Acquisition Corp., a California
corporation with and into the Company.
2. As a result of the transactions contemplated by the Recapitalization
Agreement and certain related transactions, and immediately after giving effect
to the recapitalization and such transactions, the Company's Class A-1 Common
Stock, no par value per share, Class A-2 Common Stock, no par value per share,
Class A-3 Common Stock, no par value per share, Class A-4 Common Stock, no par
value per share, Class A-5 Common Stock, no par value per share and Class A-6
Common Stock, no par value per share (collectively, the
<PAGE>
"Class A Stock"), the Company's Class L Common Stock, no par value per share
-------------
(the "Class L Stock" and together with the Class A Stock, the "Common Stock"),
------------- ------------
and certain Options will be held as set forth on Schedule 1 hereto.
3. The parties believe that it is in the best interests of the Company
and the Stockholders to: (i) provide that the Shares shall be transferable only
upon compliance with the terms hereof; (ii) provide the Company with certain
rights and obligations with respect to the purchase of the Shares under certain
circumstances; (iii) provide for certain rights and obligations with respect to
the election of directors of the Company; and (iv) set forth their agreements on
certain other matters.
Agreement
---------
Therefore, the parties hereto hereby agree as follows:
1. EFFECTIVENESS; DEFINITIONS.
1.1 Closing. This Agreement shall become effective upon consummation of
-------
the closing (the "Closing") under the Recapitalization Agreement.
-------
1.2 Definitions. Certain terms are used in this Agreement as specifically
-----------
defined herein. These definitions are set forth or referred to in Section 13
hereof.
2. VOTING AGREEMENT.
2.1 Election of Directors. Each holder of Shares hereby agrees to cast
---------------------
all votes to which such holder is entitled in respect of the Shares, whether at
any annual or special meeting, by written consent or otherwise, to fix the
number of members of the board of directors of the Company (the "Board") at five
-----
or such higher number as may be specified from time to time by the Majority
Investors. The Company's directors shall be elected in accordance with Section
3.5 of the Charter.
2.2 Significant Transactions. Subject to the provisions of Section 14.2,
------------------------
if applicable, each holder of Shares agrees to cast all votes to which such
holder is entitled in respect of the Shares, whether at any annual or special
meeting, by written consent or otherwise, in the same proportion as Investor
Shares are voted by the Majority Investors to approve any recapitalization,
merger, consolidation, reorganization, sale of all or substantially all of the
assets of the Company or similar transaction involving the Company. The
provisions of this Section 2.2 shall apply only to (a) transactions to which
Section 3.2 applies and (b) transactions in connection with which (i) the
Board's good faith determination of fair market value of the per Share
consideration received by holders of Investor Shares is no greater than the
Board's good faith determination of the fair market value of the per Share
consideration received by other Stockholders and (ii) the holders of Other
Shares and
-2-
<PAGE>
Management Shares shall have had the rights which would have been available to
them under Section 3.2.2 had such transaction been subject to Section 3.2.
2.3 Consent to Amendment. Each holder of Shares covenants and agrees to
--------------------
cast all votes to which such holder is entitled in respect of the Shares,
whether at any annual or special meeting, by written consent or otherwise, in
the same proportion as Investor Shares are voted by the Majority Investors (a)
to convert the shares of one Class of Common Stock into shares of any other
Class of Common Stock pursuant to Sections 3.8 and 3.9 of the Charter and (b) to
increase the number of authorized shares of Class A Stock to the extent
necessary to permit the conversion of Common Stock as set forth in the Charter.
2.4 Grant of Proxy. Each holder of Shares other than the Investors hereby
--------------
grants to the Company an irrevocable proxy to vote his Shares in accordance with
his agreements contained in this Section 2.
2.5 The Company. The Company agrees not to give effect to any action by
-----------
any holder of Shares or any other Person which is in contravention of this
Section 2.
2.6 Period. The foregoing provisions of this Section 2 shall expire on
------
the earliest of (i) a Change of Control and (ii) the last date permitted by law.
3. INVESTOR TRANSFER RIGHTS; "TAG ALONG" AND "DRAG ALONG" RIGHTS.
3.1 Tag Along. No holder of Investor Shares (each such holder, a
---------
"Prospective Selling Investor") shall Transfer for value (a "Sale") any such
- ----------------------------- ----
Shares to any Prospective Buyer except in the manner and on the terms set forth
in this Section 3.1. Any attempted Transfer of Investor Shares not permitted by
this Section 3 shall be null and void, and the Company shall not in any way give
effect to any such impermissible Transfer.
3.1.1 Notice. A written notice (the "Tag Along Notice") shall be
------ ----------------
furnished by the Prospective Selling Investors to each other holder of
Shares (the "Tag Along Offerors") at least ten business days prior to such
------------------
Transfer. The Tag Along Notice shall include:
(a) The principal terms of the proposed Sale insofar it
relates to the Common Stock, including the number of Shares to be
purchased from the Prospective Selling Investors, the percentage of
the total number of Investor Shares held by all holders of Investor
Shares which such number of Shares constitutes (the "Tag Along Sale
--------------
Percentage"), the maximum and minimum per share purchase price and the
----------
name and address of the Prospective Buyer; and
-3-
<PAGE>
(b) An invitation to each Tag Along Offeror to make an offer
to include in the proposed Sale to the Prospective Buyer an additional
number of Shares (not in any event to exceed the Tag Along Sale
Percentage of the total number of Shares held by such Tag Along
Offeror) owned by such Tag Along Offeror, on the same terms and
conditions subject to Section 3.3.3 in the case of Options, with
respect to each Share Sold, as the Prospective Selling Investors shall
Sell each of their Shares.
3.1.2. Exercise. Within ten business days after the effectiveness of
--------
the Tag Along Notice, each Tag Along Offeror desiring to make an offer to
include Shares in the proposed Sale (each a "Participating Seller" and, together
--------------------
with the Prospective Selling Investors, collectively, the "Tag Along Sellers")
-----------------
shall send a written offer (the "Tag Along Offer") to the Prospective Selling
---------------
Investors specifying the number of Shares (not in any event to exceed the Tag
Along Sale Percentage of the total number of Shares held by such Participating
Seller) which such Participating Seller desires to have included in the proposed
Sale. Each Tag Along Offeror who does not accept the Prospective Selling
Investors' invitation to make an offer to include Shares in the proposed Sale
shall be deemed to have waived all of his rights with respect to such Sale, and
the Tag Along Sellers shall thereafter be free to Sell to the Prospective Buyer,
at a per share price no greater than the maximum per share price set forth in
the Tag Along Notice and on other principal terms which are not materially more
favorable to the Tag Along Sellers than those set forth in the Tag Along Notice,
without any further obligation to such non-accepting Tag Along Offerors.
3.1.3. Reduction of Shares Sold. The Prospective Selling Investors
------------------------
shall attempt to obtain the inclusion in the proposed Sale of the entire number
of Shares which the Tag Along Sellers desire to have included in the Sale (as
evidenced in the case of the Prospective Selling Investors by the Tag Along
Notice and in the case of each Participating Seller by such Participating
Seller's Tag Along Offer). In the event the Prospective Selling Investors shall
be unable to obtain the inclusion of such entire number of Shares in the
proposed Sale, the number of Shares to be sold in the proposed Sale by the each
Tag Along Seller shall be reduced on a pro rata basis according to the
proportion which the number of Shares which each such Tag Along Seller desires
to have included in the Sale bears to the total number of Shares which all of
the Tag Along Sellers desire to have included in the Sale.
3.1.4. Irrevocable Offer. The offer of each Participating Seller
-----------------
contained in his Tag Along Offer shall be irrevocable, and, to the extent such
offer is accepted, such Participating Seller shall be bound and obligated to
Sell in the proposed Sale on the same terms and conditions, with respect to each
Share Sold (subject to Section 3.3.3 in the case of Options), as the Prospective
Selling Investors, up to such number of Shares as such Participating Seller
shall have specified in his Tag Along Offer; provided, however, that (a) if the
-------- -------
principal terms of the proposed Sale change with the result that
-4-
<PAGE>
the per share price shall be less than the minimum per share price set forth in
the Tag Along Notice or the other principal terms shall be materially less
favorable to the Tag Along Sellers than those set forth in the Tag Along Notice,
each Participating Seller shall be permitted to withdraw the offer contained in
his Tag Along Offer and shall be released from his obligations thereunder and
(b) if, at the end of the 180th day following the date of the effectiveness of
the Tag Along Notice, the Prospective Selling Investors have not completed the
proposed Sale, each Participating Seller shall be released from his obligations
under his Tag Along Offer, the Tag Along Notice shall be null and void, and it
shall be necessary for a separate Tag Along Notice to be furnished, and the
terms and provisions of this Section 3.1 separately complied with, in order to
consummate such proposed Sale pursuant to this Section 3.1, unless the failure
to complete such Sale resulted from any failure by any Participating Seller to
comply with the terms of this Section 3.1.
3.1.5. Additional Compliance. If, prior to consummation, the terms of
---------------------
the proposed Sale shall change with the result that the per share price to be
paid in such proposed Sale shall be greater than the maximum per share price set
forth in the Tag Along Notice or the other principal terms of such proposed Sale
shall be materially more favorable to the Tag Along Sellers than those set forth
in the Tag Along Notice, the Tag Along Notice shall be null and void, and it
shall be necessary for a separate Tag Along Notice to be furnished, and the
terms and provisions of this Section 3.1 separately complied with, in order to
consummate such proposed Sale pursuant to this Section 3.1; provided, however,
-------- -------
that in the case of such a separate Tag Along Notice, the applicable period to
which reference is made in Sections 3.1.1 and 3.1.2 shall be five business days.
3.1.6. Excluded Transactions. Notwithstanding the foregoing, no other
---------------------
holder of Shares shall have any right of participation pursuant to the
provisions of this Section 3.1 or otherwise with respect to any Transfer of
Investor Shares:
(a) to an Investor or an Affiliated Fund;
(b) by a holder of Investor Shares or an Affiliated Fund to
its partners or to Affiliates of such partners;
(c) to any director, officer or employee of, or any bona fide
consultant or adviser to, the Company or its subsidiaries;
(d) in a Public Offering or, after the closing of the Initial
Public Offering, to the public under Rule 144; or
(e) with respect to which the Majority Investors exercise
their "drag along" rights under Section 3.2 of this
Agreement.
-5-
<PAGE>
3.2 Drag Along. Each holder of Shares hereby agrees, if requested by the
----------
Majority Investors, to Sell a specified percentage (the "Drag Along Sale
---------------
Percentage") of such Shares, directly or indirectly, to a Prospective Buyer in
- ----------
the manner and on the terms set forth in this Section 3.2 in connection with the
Sale by one or more holders of Investor Shares (each such holder, a "Prospective
-----------
Selling Investor") of the Drag Along Sale Percentage of the total number of
- ----------------
Investor Shares held by all holders of Investor Shares to the Prospective Buyer.
3.2.1. Exercise. If the Majority Investors elect to exercise their
--------
rights under this Section 3.2, a written notice (the "Drag Along Notice") shall
-----------------
be furnished by the Prospective Selling Investors to each other holder of
Shares. The Drag Along Notice shall set forth the principal terms of the
proposed Sale including the number of Shares to be acquired from the Prospective
Selling Investors, the manner in which such Shares are to be Sold, the Drag
Along Sale Percentage, the per share consideration to be received in the
proposed Sale and the name and address of the Prospective Buyer. If the
Prospective Selling Investors consummate the proposed Sale to which reference is
made in the Drag Along Notice, each other holder of Shares (each a
"Participating Seller", and, together with the Prospective Selling Investors,
- ---------------------
collectively, the "Drag Along Sellers") shall be bound and obligated to Sell the
------------------
Drag Along Sale Percentage of his Shares in the proposed Sale on the same terms
and conditions, with respect to each Share Sold (subject to Section 3.3.3 in the
case of Options), as the Prospective Selling Investors shall Sell each Investor
Share in the Sale (subject to Section 3.3.3 in the case of Options).
Notwithstanding the foregoing, with respect to the consideration to be paid in
connection with any proposed Sale to which reference is made in a Drag Along
Notice, the provisions of the preceding sentence shall be deemed to be satisfied
if the Fair Market Value of the per Share consideration received by each
Stockholder other than the Investors is not less than the Fair Market Value of
the per Share consideration received by the Investors. If at the end of the
180th day following the date of the effectiveness of the Drag Along Notice the
Prospective Selling Investors have not completed the proposed Sale, each
Participating Seller shall be released from his obligation under the Drag Along
Notice, the Drag Along Notice shall be null and void, and it shall be necessary
for a separate Drag Along Notice to be furnished and the terms and provisions of
this Section 3.2 separately complied with, in order to consummate such proposed
Sale pursuant to this Section 3.2.
3.2.2. Drag Along Fairness Opinion.
---------------------------
3.2.2.1. Objection Notice. In the case of a proposed Sale of
----------------
Other Shares or Management Shares pursuant to Section 3.2 to a
Prospective Buyer which is an Affiliate of any of the Majority
Investors, if, within ten business days after the effectiveness of the
Drag Along Notice in respect of such proposed Sale, the Majority Other
Holders or the Majority Managers shall furnish a written notice to the
Company and the Majority Investors to the effect that they dispute the
fairness of the per share price to be paid in the proposed
-6-
<PAGE>
Sale as set forth in such Drag Along Notice (an "Objection Notice"),
then such proposed Sale shall not be effected pursuant to the
provisions of Section 3.2 until the Company or the Prospective Selling
Investors shall have complied with the terms of Section 3.2.2.2.
3.2.2.2. Consultation and Fairness Opinion. (a) After
---------------------------------
receipt of an Objection Notice, the Majority Investors shall meet with
the holders of Shares who shall have delivered such Objection Notice
to discuss the per share price to be paid in such proposed Sale as set
forth in the Drag Along Notice.
The Prospective Selling Investors may effect a proposed Sale
pursuant to Section 3.2 which shall have been the subject of a meeting
described in the foregoing clause (a) unless on or prior to the third
business day following such meeting the Majority Other Holders or the
Majority Managers, as the case may be, furnish the Company and the
Majority Investors with a written notice requesting a fairness
opinion. Following such a request, such proposed Sale shall not be
effected pursuant to Section 3.2 until the Company or the Prospective
Selling Investors shall have furnished such requesting holders of
Shares a notice which includes a written opinion of an Independent
Investment Banking Firm to the effect that the Sale is fair to such
holders of Shares from a financial point of view (a "Drag Along
----------
Fairness Opinion"). In rendering such Drag Along Fairness Opinion,
----------------
such Independent Investment Banking Firm shall consider (a) the form
and amount and fair market value of consideration to be received
pursuant to such Sale in respect of shares of Common Stock by holders
of shares of Common Stock and (b) other factors it may deem relevant.
In the event the Company or the Prospective Selling Investors shall
furnish a Drag Along Fairness Opinion to the holders of Other Shares
and Management Shares prior to the consummation of a Sale pursuant to
the provisions of Section 3.2, there shall be no requirement that the
Prospective Selling Investors comply with the foregoing provisions of
this Section 3.2.2.2. All fees and costs of such Independent
Investment Banking Firm shall be paid by the Company.
3.3 Miscellaneous. The following provisions shall be applied to any Sale
-------------
to which Section 3.1 or 3.2 applies:
3.3.1. Certain Legal Requirements. In the event the consideration to
--------------------------
be paid in exchange for Shares in a proposed Sale pursuant to Section 3.1
or Section 3.2 includes any securities, and the receipt thereof by a
Participating Seller would require under applicable law (i) the
registration or qualification of such securities or of any person as a
broker or dealer or agent with respect to such securities or (ii) the
provision to any Tag Along Seller or Drag Along Seller of any information
other than such information as would be required under Regulation D in an
offering made pursuant to Regulation D solely to "accredited investors" as
defined in Regulation D, the Prospective Selling
-7-
<PAGE>
Investors shall be obligated only to use their reasonable efforts to cause
the requirements under Regulation D to be complied with to the extent
necessary to permit such Participating Seller to receive such securities,
it being understood and agreed that the Prospective Selling Investors shall
not be under any obligation to effect a registration of such securities
under the Securities Act or similar statutes. Notwithstanding any
provisions of this Section 3, if use of reasonable efforts does not result
in the requirements under Regulation D being complied with to the extent
necessary to permit such Participating Seller to receive such securities,
the Prospective Selling Investors shall cause to be paid to such
Participating Seller in lieu thereof, against surrender of the Shares (in
accordance with Section 3.3.5 hereof) which would have otherwise been Sold
by such Participating Seller to the Prospective Buyer in the Sale, an
amount in cash equal to the Fair Market Value of such Shares as of the date
of the issuance of securities in exchange for Shares. The obligation of the
Prospective Selling Investors to use reasonable efforts to cause such
requirements to have been complied with to the extent necessary to permit a
Participating Seller to receive such securities shall be conditioned on
such Participating Seller executing such documents and instruments, and
taking such other actions (including, without limitation, if required by
the Prospective Selling Investors, agreeing to be represented during the
course of such transaction by a "purchaser representative" (as defined in
Regulation D) in connection with evaluating the merits and risks of the
prospective investment and acknowledging that he was so represented), as
the Prospective Selling Investors shall reasonably request in order to
permit such requirements to be complied with. Unless the Participating
Seller in question shall have taken all actions reasonably requested by the
Prospective Selling Investors in order to comply with the requirements
under Regulation D, such Participating Seller shall have the right to
require the payment of cash in lieu of securities under this Section 3.3.1.
3.3.2. Further Assurances. Each Participating Seller, whether in his
------------------
capacity as a Participating Seller, Stockholder, officer or director of the
Company, or otherwise, shall take or cause to be taken all such actions as
may be necessary or reasonably desirable in order expeditiously to
consummate each Sale pursuant to Section 3.1 or Section 3.2 and any related
transactions, including, without limitation, executing, acknowledging and
delivering consents, assignments, waivers and other documents or
instruments; furnishing information and copies of documents; filing
applications, reports, returns, filings and other documents or instruments
with governmental authorities; and otherwise cooperating with the
Prospective Selling Investors and the Prospective Buyer; provided, however,
-------- -------
that Participating Sellers shall be obligated to become liable in respect
of any representations, warranties, covenants, indemnities or otherwise to
the Prospective Buyer solely to the extent provided in the immediately
following sentence. Without limiting the generality of the foregoing, each
Participating Seller agrees to execute and deliver such agreements as may
be reasonably specified by the Prospective Selling Investors to which such
Prospective Selling Investors will also be party, including, without
limitation, agreements to (a) make individual
-8-
<PAGE>
representations, warranties, covenants and other agreements as to the
unencumbered title to its Shares and the power, authority and legal right
to Transfer such Shares and (b) be liable (whether by purchase price
adjustment, indemnity payments, escrow provisions or otherwise) in respect
of representations, warranties, covenants and agreements in respect of the
Company and its subsidiaries to the extent the Prospective Selling
Investors are also liable; provided, however, that, except with respect to
-------- -------
individual representations, warranties, covenants, indemnities and other
agreements of Participating Sellers of the type described in clause (a)
above, the aggregate amount of such liability shall not exceed either (i)
such Participating Seller's pro rata portion of any such liability, to be
determined in accordance with such Participating Seller's portion of the
total number of Shares included in such Sale or (ii) the proceeds to such
Participating Seller in connection with such Sale.
3.3.3 Treatment of Options. If any Participating Seller shall Sell
--------------------
Options in any Sale pursuant to Section 3.1 or 3.2, such Participating
Seller shall receive in exchange for such Options consideration equal to
the amount (if greater than zero) determined by multiplying (a) the
purchase price per share of Common Stock received by the holders of the
Prospective Selling Investors in such Sale less the exercise price per
share of such Option by (b) the number of shares of Common Stock issuable
upon exercise of such Option (to the extent exercisable at the time of such
Sale).
3.3.4. Expenses. All reasonable costs and expenses incurred by any
--------
Tag Along Seller, Drag Along Seller or the Company in connection with any
proposed Sale pursuant to this Section 3 (whether or not consummated),
including, without limitation, all attorneys fees and charges, all
accounting fees and charges and all finders, brokerage or investment
banking fees, charges or commissions, shall be paid by the Company.
Notwithstanding the foregoing, the Company shall not be required to pay in
connection with any such proposed Sale in excess of an aggregate of $25,000
in respect of the fees and expenses of separate legal counsel or other
advisors retained by or on behalf of any and all of the Participating
Sellers in connection with any such proposed Sale. Any such fees and
expenses in excess of such limits shall be borne by such Participating
Sellers.
3.3.5. Closing. The closing of a Sale pursuant to Section 3.1 shall
-------
take place at such time and place as the Prospective Selling Investors
shall specify, and the closing of a Sale pursuant to Section 3.2 shall take
place at such time and place as the Majority Investors shall specify, in
each case, by notice to each Participating Seller. At the closing of any
Sale under this Section 3, each Participating Seller shall deliver the
certificates evidencing the Shares to be Sold by such Participating Seller,
duly endorsed, or with stock (or equivalent) powers duly endorsed, for
transfer with signature guaranteed, free and clear of any liens or
encumbrances, with any stock (or equivalent) transfer tax stamps affixed,
against delivery of the applicable consideration. It is understood and
agreed that no holder of Investor Shares shall have any liability to
-9-
<PAGE>
any other holder of Shares arising from, relating to or in connection with
any proposed Sale which has been the subject of a Tag Along Notice or a
Drag Along Notice whether or not such proposed Sale is consummated
3.4 Period. The foregoing provisions of this Section 3 shall expire on the
------
earlier of (i) a Change of Control or (ii) on the second anniversary of the
closing of a Qualified Public Offering.
4. LENDER TRANSFER RIGHTS.
4.1 Transfer Restrictions. No holder of Lender Shares shall Transfer
---------------------
any such Shares to any Person except in the manner and on the terms set forth in
this Section 4. Any attempted Transfer of Lender Shares not permitted by this
Section 4 shall be null and void, and the Company shall not in any way give
effect to any such impermissible Transfer.
4.1 Right of First Refusal. Any holder of Lender Shares who
----------------------
receives or otherwise negotiates with a Qualified Buyer a written bona
fide, fully financed offer to purchase all or any portion of his Lender
Shares (each such holder, a "Prospective Lender Seller") and who intends to
-------------------------
accept such offer, shall provide each holder of Investor Shares written
notice of such offer (a "First Refusal Notice"). The First Refusal Notice
--------------------
shall include:
(a) The principal terms of the proposed Sale, including the
number of Shares to be Sold by the Prospective Selling Lender (the
"Subject Lender Shares"), the per share (or equivalent) purchase
----------------------
price, the form of consideration (which may only be a form readily
obtainable and deliverable by the Investors and the Company) and the
name and address of the Qualified Buyer; and
(b) An offer by the Prospective Selling Lender to Sell to
each holder of Investor Shares, at the per share (or equivalent)
purchase price and on other terms contained in the First Refusal
Notice, an allocated portion (such portion to be allocated by
agreement of the holders of Investor Shares or, failing such
agreement, by proration among the holders who accept the offer
contained in the First Refusal Notice on the basis of the number of
Shares each such accepting holder wishes to purchase) of the Subject
Lender Shares.
4.1.2. Exercise. Within 15 days after the effectiveness of the First
--------
Refusal Notice, each holder of Investor Shares desiring to accept the offer
contained in the First Refusal Notice (the "Accepting Purchasers") shall
--------------------
send a written acceptance of the offer contained in the First Refusal
Notice specifying the number of Subject Lender Shares such Accepting
Investor wishes to purchase. Each holder of Investor Shares who does not so
respond to the First Refusal Notice shall be deemed to have waived all of
his rights to purchase such Lender Shares prior to such proposed Transfer
and the
-10-
<PAGE>
Prospective Selling Lender shall thereafter be free to Transfer to the
Accepting Purchasers or, if permitted hereunder, the Qualified Buyer, at a
per share (or equivalent) purchase price no less than 90% of the price set
forth in the First Refusal Notice and on other principal terms not
substantially more favorable to the buyer than those set forth in the First
Refusal Notice, without any further obligation to such non-Accepting
Purchasers pursuant to this Section 4.1. If, prior to consummation, the
terms of such proposed Transfer shall change with the result that the per
share (or equivalent) purchase price shall be less than 90% of the price
set forth in the First Refusal Notice or the other principal terms shall be
substantially more favorable to the buyer than those set forth in the First
Refusal Notice, it shall be necessary for a separate First Refusal Notice
to be furnished, and the terms and provisions of this Section 4.1
separately complied with, in order to consummate such proposed Transfer
pursuant to this Section 4.1.
If at the end of the 180th day following the date of the effectiveness
of the First Refusal Notice the Prospective Selling Lender has not
completed the Transfer, each Accepting Investor shall be released from his
obligations under his written acceptance, the First Refusal Notice shall be
null and void, and it shall be necessary for a separate First Refusal
Notice to be furnished, and the terms and provisions of this Section 4.1
separately complied with, in order to consummate such Transfer pursuant to
this Section 4.1.
4.1.3. Closing. The closing of any purchase of Lender Shares pursuant
-------
to this Section 4.1 shall take place as soon as reasonably practicable and
in no event later than 30 days after termination of the applicable exercise
period at the principal office of the Company, or at such other time and
location as the parties to such purchase may mutually determine. At the
closing of any purchase and sale of Lender Shares pursuant this Section
4.1, the holder of Lender Shares to be sold shall deliver to the buyers a
certificate or certificates representing the Lender Shares to be purchased
duly endorsed, or with stock powers duly endorsed, for transfer with
signature guaranteed, free and clear of any lien or encumbrance, with any
necessary stock transfer tax stamps affixed, and the buyers shall pay to
such holder by certified or bank check or wire transfer of immediately
available federal funds or other applicable delivery the purchase price of
the applicable Lender Shares. The delivery of a certificate or certificates
for Shares by any Person selling Lender Shares pursuant to this Section 4.1
shall be deemed a representation and warranty by such Person that: (i) such
Person has full right, title and interest in and to such Shares; (ii) such
Person has all necessary power and authority and has taken all necessary
action to sell such Shares as contemplated; and (iii) such Shares are free
and clear of any and all liens or encumbrances.
4.1.4. Assignment. The Majority Investors may assign to the Company
----------
the rights granted to the Investors under this Section 4.1 in connection
with any First Refusal Notice.
-11-
<PAGE>
4.2 Other Permitted Transfers. Notwithstanding the foregoing, any holder
-------------------------
of Lender Shares may Transfer any or all Lender Shares held by him as set forth
below:
4.2.1. Investors and Company. Any holder of Lender Shares may
---------------------
Transfer any or all of such Lender Shares to (i) any Investor or (ii) with
the Board's approval, the Company or any subsidiary of the Company.
4.2.2. Transfers Permitted under Warrant Agreement. Subject to the
-------------------------------------------
provisions of Section 9.1, any holder of Lender Warrants may Transfer any
or all of such Lender Warrants in accordance with the provisions of the
Warrant Agreements.
4.2.3. Tag Alongs, Drag Alongs, etc. Any holder of Lender Shares may
----------------------------
Transfer any or all of such Lender Shares in accordance with the
provisions, terms and conditions of Section 3 hereof.
4.2.4. Sales to Public. Subject to the restrictions set forth in
---------------
Section 8.4.4, any holder of Lender Shares may Transfer any or all of such
Lender Shares in a Public Offering registered under the Securities Act or,
after the closing of the Initial Public Offering, pursuant to Rule 144.
4.3 Period. The foregoing provisions of this Section 4 shall expire on
------
the earlier of (i) the closing of a Qualified Public Offering or (ii) a Change
of Control.
5. OTHER INVESTORS TRANSFER RIGHTS. No holder of Other Shares shall Transfer
any of such Shares to any other Person except as permitted by this Section 5.
Any attempted Transfer of Other Shares not permitted by this Section 5 shall be
null and void, and the Company shall not in any way give effect to any such
impermissible Transfer.
5.1 Transfers to Affiliates. Subject to the provisions of Section 9.1,
-----------------------
any holder of Other Shares may Transfer any or all of such Other Shares to an
Affiliate of such holder or to the members of such holder.
5.2 Other Permitted Transfers. Notwithstanding the foregoing, any holder
-------------------------
of Other Shares may Transfer any or all Other Shares held by him as set forth
below:
5.2.1. Investors and Company. Any holder of Other Shares may Transfer
---------------------
any or all of such Other Shares to (i) any Investor or (ii) with the
Board's approval, the Company or any subsidiary of the Company.
5.2.2. Tag Alongs, Drag Alongs, etc. Any holder of Other Shares may
----------------------------
Transfer any or all of such Other Shares in accordance with the provisions,
terms and conditions of Section 3 hereof.
-12-
<PAGE>
5.2.3. Sales to Public. Subject to the restrictions set forth in
---------------
Section 8.4.4, any holder of Other Shares may Transfer any or all of such
Other Shares in a public offering registered under the Securities Act or,
after the closing of the Initial Public Offering, pursuant to Rule 144.
5.2.4. Other Approved Transfers. Subject to the provisions of
------------------------
Section 9.1, any holder of Other Shares may Transfer any or all of such
Other Shares with the Board's approval, which approval shall not be
unreasonably withheld. In determining whether or not to grant approval to
any proposed Transfer of Other Shares, the Board may take into account the
proposed transaction, the proposed Transferee of the Other Shares and any
other transactions involving the Company which the Board may or may not be
considering or which the Company may or may not be pursuing.
5.3 Period. The foregoing provisions of this Section 5 shall expire upon
------
a Change of Control.
6. MANAGEMENT TRANSFER RIGHTS. No holder of Management Shares or Employee
Shares shall Transfer any of such Shares to any other Person except as permitted
by this Section 6. Any attempted Transfer of Management Shares or Employee
Shares not permitted by this Section 6 shall be null and void, and the Company
shall not in any way give effect to any such impermissible Transfer.
6.1 Transfers to Immediate Family. Subject to the provisions of Section
-----------------------------
9.1, any holder of Management Shares or Employee Shares may Transfer any or all
of his Management Shares or Employee Shares, as the case may be, to a Member of
the Immediate Family of such holder.
6.2 Transfer Upon Death. Subject to the provisions of Section 9.1, upon
-------------------
the death of any holder of Management Shares or Employee Shares, the Management
Shares or Employee Shares, as the case may be, held by such holder may be
distributed by will or other instrument taking effect at death or by applicable
laws of descent and distribution to such holder's estate, executors,
administrators and personal representatives, and then to such holder's heirs,
legatees or distributes, whether or not such recipients are Members of the
Immediate Family of such holder.
6.3 Other Permitted Transfers. Notwithstanding the foregoing, any holder
-------------------------
of Management Shares or Employee Shares may Transfer any or all Management
Shares or Employee Shares held by him as set forth below:
6.3.1 Investors and Company. Any holder of Management Shares or
---------------------
Employee Shares may Transfer any or all of such Management Shares or
Employee
-13-
<PAGE>
Shares, as the case may be, to (i) any Investor or (ii) with the Board's
approval, the Company or any subsidiary of the Company.
6.3.2. Tag Alongs, Drag Alongs, etc. Any holder of Management Shares
----------------------------
or Employee Shares may Transfer any or all of such Management Shares or
Employee Shares, as the case may be, in accordance with the provisions,
terms and conditions of Section 3 hereof.
6.3.3. Sales to Public. Subject to the restrictions set forth in
---------------
Section 8.4.4, any holder of Management Shares or Employee Shares may
Transfer any or all of such Management Shares or Employee Shares, as the
case may be, in a public offering registered under the Securities Act or,
after the closing of the Initial Public Offering, pursuant to Rule 144.
6.4 Period. The foregoing provisions of this Section 6 shall expire upon
------
a Change of Control.
7. PREEMPTIVE RIGHT. The Company shall not issue or sell any shares of any of
its capital stock or any securities convertible into or exchangeable for any
shares of its capital stock, issue or grant any options or warrants for the
purchase of, or enter into any agreements providing for the issuance (contingent
or otherwise) of, any of its capital stock or any stock or securities
convertible into or exchangeable for any shares of its capital stock (each an
"Issuance" of "Subject Securities"), except in compliance with the following
- --------- ------------------
provisions of this Section 7.
7.1 Right of Participation.
----------------------
7.1.1. Offer. Not fewer than 30 days prior to the consummation of the
-----
Issuance, a notice (the "Preemption Notice") shall be furnished by the
-----------------
Company to each Investor, Other Investor and Manager (the "Preemptive
----------
Offerees"). The Preemption Notice shall include:
--------
(a) The principal terms of the proposed Issuance, including,
without limitation, the amount and kind of Subject Securities to be
included in the Issuance, the number of Equivalent Shares represented
by such Subject Securities (if applicable), the percentage of the
total number of Equivalent Shares outstanding as of immediately prior
to giving effect to such Issuance which the number of Equivalent
Shares held by such Preemptive Offeree constitutes (the "Preemptive
----------
Portion"), the maximum and minimum price (including, without
-------
limitation, if applicable, the maximum and minimum Price Per
Equivalent Share) per unit of the Subject Securities and the name and
address of the Persons to whom the Subject Securities will be Issued
(the "Prospective Subscriber"); and
----------------------
-14-
<PAGE>
(b) An offer by the Company to Issue, at the option of each
Preemptive Offeree, to such Preemptive Offeree such portion of the
Subject Securities to be included in the Issuance as may be requested
by such Preemptive Offeree (not to exceed the Preemptive Portion of
the total amount of Subject Securities to be included in the
Issuance), on the same terms and conditions, with respect to each unit
of Subject Securities issued to the Preemptive Offerees, as each of
the Prospective Subscribers shall be Issued units of Subject
Securities.
7.1 Exercise.
--------
7.1.2.1. General. Each Preemptive Offeree desiring to accept
-------
the offer contained in the Preemption Notice shall send a written
commitment to the Company specifying the amount of Subject Securities
(not in any event to exceed the Preemptive Portion of the total amount
of Subject Securities to be included in the Issuance) which such
Preemptive Offeree desires to be issued within 20 days after the
effectiveness of the Preemption Notice (each a "Participating Buyer").
-------------------
Each Preemptive Offeree who has not so accepted such offer shall be
deemed to have waived all of his rights with respect to the Issuance,
and the Company shall thereafter be free to Issue Subject Securities
in the Issuance to the Prospective Subscriber and any Participating
Buyers, at a price no less than the minimum price set forth in the
Preemption Notice and on other principal terms not substantially more
favorable to the Prospective Subscriber than those set forth in the
Preemption Notice, without any further obligation to such non-
accepting Preemptive Offerees. If, prior to consummation, the terms
of such proposed Issuance shall change with the result that the price
shall be less than the minimum price set forth in the Preemption
Notice or the other principal terms shall be substantially more
favorable to the Prospective Subscriber than those set forth in the
Preemption Notice, it shall be necessary for a separate Preemption
Notice to be furnished, and the terms and provisions of this Section
7.1 separately complied with, in order to consummate such Issuance
pursuant to this Section 7.1.
7.1.2.2. Irrevocable Acceptance. The acceptance of each
----------------------
Participating Buyer shall be irrevocable except as hereinafter
provided, and each such Participating Buyer shall be bound and
obligated to acquire in the Issuance on the same terms and conditions,
with respect to each unit of Subject Securities Issued, as the
Prospective Subscriber, such amount of Subject Securities as such
Participating Buyer shall have specified in such Participating Buyer's
written commitment.
7.1.2.3. Time Limitation. If at the end of the 180th day
---------------
following the date of the effectiveness of the Preemption Notice the
Company has not
-15-
<PAGE>
completed the Issuance, each Participating Buyer shall be released
from his obligations under the written commitment, the Preemption
Notice shall be null and void, and it shall be necessary for a
separate Preemption Notice to be furnished, and the terms and
provisions of this Section 7.1 separately complied with, in order to
consummate such Issuance pursuant to this Section 7.1.
7.1.3. Certain Legal Requirements. In the event that the
--------------------------
participation in the Issuance by a holder of Shares as a Participating
Buyer would require under applicable law (i) the registration or
qualification of such securities or of any person as a broker or dealer or
agent with respect to such securities or (ii) the provision to any
participant in the Sale of any information other than such information as
would be required under Regulation D in an offering made pursuant to
Regulation D solely to "accredited investors" as defined in Regulation D,
the Company shall be obligated only to use its reasonable efforts to cause
the requirements under Regulation D to be complied with to the extent
necessary to permit such Participating Buyer to receive such securities, it
being understood and agreed that the Company shall not be under any
obligation to effect a registration of such securities under the Securities
Act or similar state statutes. Notwithstanding any provision of this
Section 8, if the use of reasonable efforts shall not result in such
requirements being complied with to the extent necessary to permit such
holder of Shares to participate in the Issuance, such holder shall not be
entitled to participate in the Issuance. The obligation of the Company to
use reasonable efforts to cause such requirements to be complied with to
the extent necessary to permit a holder of Shares to participate in the
Issuance shall be conditioned upon such holder of Shares executing such
documents and instruments, and taking such other actions (including,
without limitation, if required by the Company, agreeing to be represented
during the course of such transaction by a "purchaser representative" (as
defined in Regulation D) in connection with evaluating the merits and risks
of the prospective investment and acknowledging that he was so
represented), as the Company shall reasonably request in order to permit
such requirements to have been complied with.
7.1.4. Further Assurances. Each Participating Buyer and each
------------------
Stockholder to whom the Shares held by such Participating Buyer were
originally issued, shall, whether in his capacity as a Participating Buyer,
Stockholder, officer or director of the Company, or otherwise, take or
cause to be taken all such reasonable actions as may be necessary or
reasonably desirable in order expeditiously to consummate each Issuance
pursuant to this Section 7.1 and any related transactions, including,
without limitation, executing, acknowledging and delivering consents,
assignments, waivers and other documents or instruments; filing
applications, reports, returns, filings and other documents or instruments
with governmental authorities; and otherwise cooperating with the Company
and the Prospective Subscriber. Without limiting the generality of the
foregoing, each such Participating Buyer and Stockholder agrees to execute
and deliver such subscription and other agreements specified by the Company
to which the Prospective Subscriber will be party.
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<PAGE>
7.1.5. Expenses. All costs and expenses incurred by any holder of
--------
Shares or the Company in connection with any proposed Issuance of Subject
Securities (whether or not consummated), including, without limitation, all
attorney's fees and charges, all accounting fees and charges and all
finders, brokerage or investment banking fees, charges or commissions,
shall be paid by the Company; provided, however, that if holders of Other
-------- -------
Shares or Management Shares, or any of such holders, retain separate legal
counsel or other advisors in connection with such proposed Issuance, the
fees and expenses of such separate attorneys or other advisors shall be
borne by such holders.
7.1.6. Closing. The closing of an Issuance pursuant to Section 7.1
-------
shall take place at such time and place as the Company shall specify by
notice to each Participating Buyer. At the Closing of any Issuance under
this Section 7.1.7, each Participating Buyer shall be delivered the notes,
certificates or other instruments evidencing the Subject Securities to be
Issued to such Participating Buyer, registered in the name of such
Participating Buyer or his designated nominee, free and clear of any liens
or encumbrances, with any transfer tax stamps affixed, against delivery by
such Participating Buyer of the applicable consideration.
7.2. Excluded Transactions. Notwithstanding the preceding provisions of
---------------------
this Section 7, the preceding provisions of this Section 7 shall not restrict:
(a) Any Issuance of shares of Common Stock, Options or Convertible
Securities to officers, employees, directors or consultants of the Company
or its subsidiaries;
(b) Any Issuance of shares of Common Stock, Options or Convertible
Securities in connection with any business combination or acquisition
transaction involving the Company or any of its subsidiaries;
(c) Any Issuance of Common Stock upon the exercise or conversion of
any Options or Convertible Securities outstanding on the date hereof or
Issued after the date hereof in compliance with the provisions of this
Section 7;
(d) Any Issuance of Subject Securities, the acquisition of which is
conditioned upon the acquisition of securities of the Company or its
subsidiaries other than Subject Securities;
(e) Any Issuance of Common Stock pursuant to any Public Offering; and
(f) The Issuance of Shares to the Investors, the Other Investors, the
Lenders and the Managers at Closing.
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<PAGE>
7.3. Period. The foregoing provisions of this Section 7 shall expire on the
------
earlier of (i) the closing of the Initial Public Offering or (ii) a Change of
Control.
8. REGISTRATION RIGHTS. The Company will perform and comply, and cause each
of their respective subsidiaries to perform and comply, with such of the
following provisions as are applicable to it. Each holder of Shares will
perform and comply with such of the following provisions as are applicable to
such holder.
8.1. Demand Registration Rights for Investor Shares.
----------------------------------------------
8.1.1. General. One or more holders of Investor Shares representing
-------
at least 25% of the total amount of Investor Shares then outstanding
("Initiating Investors"), by notice to the Company specifying the intended
----------------------
method or methods of disposition, may request that the Company effect the
registration under the Securities Act for a Public Offering of all or a
specified part of the Registrable Securities held by such Initiating
Investors (for purposes of this Agreement, "Registrable Investor
--------------------
Securities" shall mean Registrable Securities constituting Investor
----------
Shares). The Company will then use its best efforts to effect the
registration under the Securities Act of the Registrable Securities which
the Company has been requested to register by such Initiating Investors
together with all other Registrable Securities which the Company has been
requested to register pursuant to Section 8.3 (which request shall specify
the intended method of disposition of such Registrable Securities), all to
the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities which
the Company has been so requested to register; provided, however, that the
-------- -------
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 8.1.1:
(a) Within 180 days immediately following the effective
date of any registration statement pertaining to an
underwritten public offering of securities of the Company for
its own account (other than a Rule 145 Transaction, or a
registration relating solely to employee benefit plans);
(b) (i) On any form other than Form S-3 (or any successor
form) if the Company has previously effected five or more
registrations of Registrable Securities under this Section
8.1.1 on any form other than Form S-3 (or any successor form);
provided, however, that no registrations of Registrable
-------- -------
Securities which shall not have become and remained effective
in accordance with the provisions of this Section 8, and no
registrations of Registrable Securities pursuant to which the
Initiating Investors and all other holders of Registrable
Investor Securities joining therein are not able to include at
least 90% of the Registrable Securities which they desired to
include, shall be included in
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<PAGE>
the calculation of numbers of registrations contemplated by
this clause (b);
(c) If the Company shall have furnished to the Initiating
Investors and such other holders of Registrable Securities
which the Company has been requested to register pursuant to
this Section 8.1.1 a certificate, signed by the President of
the Company, stating that in the good faith judgment of the
Board it would be seriously detrimental to the Company and its
shareholders for such Registration Statement to be filed at
the date filing would have been required, in which case the
Company shall have an additional period of not more than 60
days within which to file such Registration Statement;
provided, however, that the Company shall not so postpone a
-------- -------
registration pursuant to this clause (c) more than once in any
twelve month period;
(d) On any form other than Form S-3 (or any successor
form), if the anticipated aggregate offering price to the
public of the Registrable Securities to be included in the
registration by all holders is less than $5,000,000; or
(e) After five years after the closing of the Initial
Public Offering.
8.1.1.1. Form. Except as otherwise provided above, each
----
registration requested pursuant to this Section 8.1.1 shall be
effected by the filing of a registration statement on Form S-1 (or any
other form which includes substantially the same information as would
be required to be included in a registration statement on such form as
currently constituted), unless the use of a different form has been
agreed to in writing by holders of at least a majority of the
Registrable Investor Securities to be included in the proposed
registration statement in question (the "Majority Participating
----------------------
Investors").
---------
8.1.2. Payment of Expenses. The Company shall pay all reasonable
-------------------
expenses of holders of Investor Shares incurred in connection with each
registration of Registrable Securities requested pursuant to this Section
8.1, other than underwriting discount and commission, if any, and
applicable transfer taxes, if any.
8.1.3. Additional Procedures. In the case of a registration pursuant
---------------------
to Section 8.1 hereof, whenever the Majority Participating Investors shall
request that such registration shall be effected pursuant to an
underwritten offering, the Company shall include such information in the
written notices to holders of Registrable Securities referred to in Section
8.3. In such event, the right of any holder of Registrable Securities to
have securities owned by such holder included in such registration
-19-
<PAGE>
pursuant to Section 8.1 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed upon by the Majority Participating Investors and such holder) to the
extent provided herein. If requested by such underwriters, the Company
together with the holders of Registrable Securities proposing to distribute
their securities through such underwriting will enter into an underwriting
agreement with such underwriters for such offering containing such
representations and warranties by the Company and such holders and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, customary indemnity and contribution provisions.
8.2. DI Investors Demand Registration Rights.
---------------------------------------
8.2.1. General. To the extent DI Investors, L.L.C. or its Affiliates
-------
hold at least 50% of the Shares issued to them by the Company in connection with
the consummation of the Recapitalization Agreement, DI Investors, L.L.C. or such
Affiliate ("Initiating Other Investors"), by notice to the Company specifying
--------------------------
the intended method or methods of disposition, may request that the Company
effect the registration under the Securities Act for a Public Offering of all or
a specified part of the Registrable Securities held by such Initiating Other
Investors (for purposes of this Agreement, "Registrable Other Securities" shall
----------------------------
mean Registrable Securities constituting Other Shares). The Company will then
use its reasonable efforts to effect the registration under the Securities Act
of the Registrable Securities which the Company has been requested to register
by such Initiating Other Investors together with all other Registrable
Securities which the Company has been requested to register pursuant to Section
8.3 (which request shall specify the intended method of disposition of such
Registrable Securities), all to the extent requisite to permit the disposition
(in accordance with the intended methods thereof as aforesaid) of the
Registrable Securities which the Company has been so requested to register;
provided, however, that the Company shall not be obligated to take any action to
- -------- -------
effect any such registration pursuant to this Section 8.2.1:
(a) If the Company has previously effected two registrations
of Registrable Securities under this Section 8.2.1; provided, however, that
-------- -------
no registrations of Registrable Securities which either (i) shall not have
become and remained effective in accordance with the provisions of this
Section 8 or (ii) shall not have enabled the Initiating Other Investors to
include in such registration at least 90% of the Registrable Securities
which they desired to include shall be included in the calculation of the
number of registrations contemplated by this clause (a);
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<PAGE>
(b) Prior to the 360th day following the closing of the
Initial Public Offering;
(c) Within 180 days immediately following the effective date
of any registration statement pertaining to an underwritten public
offering of securities of the Company for its own account (other than
a registration on Form S-4 relating solely to a Rule 145 Transaction,
or a registration relating solely to employee benefit plans);
(d) If the Company shall have furnished to the Initiating
Other Investors and such other holders of Registrable Securities which
the Company has been requested to register pursuant to this Section
8.2.1 a certificate, signed by the President of the Company, stating
that in the good faith judgment of the Board it would be seriously
detrimental to the Company and its shareholders for such Registration
Statement to be filed at the date filing would have been required, in
which case the Company shall have an additional period of not more
than 60 days within which to file such Registration Statement;
provided, however, that the Company shall not so postpone a
-------- -------
registration pursuant to this clause (d) more than once in any twelve
month period;
(e) On any form other than Form S-3 (or any successor form);
or
(f) After five years after the closing of the Initial Public
Offering.
8.2.1.1. Form. Each registration requested pursuant to this
----
Section 8.2.1 shall be effected by the filing of a registration
statement on Form S-3 (or any successor form).
8.2.2. Payment of Expenses. The Company shall pay all reasonable
-------------------
expenses of holders of Other Shares incurred in connection with each
registration of Registrable Securities requested pursuant to this Section
8.2, other than underwriting discount and commission, if any, and
applicable transfer taxes, if any.
8.2.3. Additional Procedures. In the case of a registration pursuant
---------------------
to Section 8.2 hereof, whenever the Majority Other Investors shall request
that such registration shall be effected pursuant to an underwritten
offering, the Company shall include such information in the written notices
to holders of Registrable Securities referred to in Section 8.3. In such
event, the right of any holder of Registrable Securities to have securities
owned by such holder included in such registration pursuant to Section 8.2
shall be conditioned upon such holder's participation in such underwriting
and the inclusion of such holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed upon by the Majority
Participating Other Investors and such holder) to the extent provided
herein. If requested by such
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<PAGE>
underwriters, the Company together with the holders of Registrable
Securities proposing to distribute their securities through such
underwriting will enter into an underwriting agreement with such
underwriters for such offering containing such representations and
warranties by the Company and such holders and such other terms and
provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, without
limitation, customary indemnity and contribution provisions.
8.3. Piggyback Registration Rights.
-----------------------------
8.3.1. Piggyback Registration.
----------------------
8.3.1.1. General. Each time the Company proposes to
-------
register any shares of Common Stock under the Securities Act on a form
which would permit registration of Registrable Securities for sale to
the public, for its own account or for the account of any holder of
its shares of Common Stock, for sale in a Public Offering, the Company
will give notice to all holders of shares of Common Stock of its
intention to do so. Any such holder may, by written response delivered
to the Company within 20 days after the effectiveness of such notice,
request that all or a specified part of the Registrable Securities
held by such holder be included in such registration. The Company
thereupon will use its reasonable efforts to cause to be included in
such registration under the Securities Act all shares of Common Stock
which the Company has been so requested to register by such holders,
to the extent required to permit the disposition (in accordance with
the methods to be used by the Company or other holders of shares of
Common Stock in such Public Offering) of the Registrable Securities to
be so registered. No registration of Registrable Securities effected
under this Section 8.3 shall relieve the Company of any of its
obligations to effect registrations of Registrable Securities pursuant
to Section 8.1 hereof.
8.3.1.2. Excluded Transactions. The Company shall not be
---------------------
obligated to effect any registration of Registrable Securities under
this Section 8.3 incidental to the registration of any of its
securities in connection with:
(a) Any Public Offering relating to employee
benefit plans or dividend reinvestment plans;
(b) Any Public Offering relating to the
acquisition or merger after the date hereof by the Company
or any of its subsidiaries of or with any other
businesses; or
(c) The Initial Public Offering, unless one or
more of the Investors has exercised its rights under
Section 8.1 or 8.3.
-22-
<PAGE>
8.3.2. Payment of Expenses. The Company shall pay all reasonable
-------------------
expenses of holders of Registrable Securities incurred in connection with
each registration of Registrable Securities requested pursuant to this
Section 8.3, other than underwriting discount and commission, if any, and
applicable transfer taxes, if any; provided, however, that the Company
-------- -------
shall not be required to pay in respect of the fees and expenses of any
attorneys or other advisers retained by such holders more than an aggregate
for all such holders of $25,000 in the case of each such registration.
8.3.3. Additional Procedures. Holders of Shares participating in any
---------------------
Public Offering pursuant to this Section 8.3 shall take all such actions
and execute all such documents and instruments that are reasonably
requested by the Company to effect the sale of their Shares in such Public
Offering, including, without limitation, being parties to the underwriting
agreement entered into by the Company and any other selling shareholders in
connection therewith and being liable in respect of the representations and
warranties by, and the other agreements (including customary selling
stockholder indemnifications and "lock-up" agreements) on the part of, the
Company and any other selling shareholders to and for the benefit of the
underwriters in such underwriting agreement; provided, however, that (i)
-------- -------
with respect to individual representations, warranties and agreements of
sellers of Shares in such Public Offering, the aggregate amount of such
liability shall not exceed such holder's net proceeds from such offering
and (ii) with respect to all other representations, warranties and
agreements of sellers of shares in such Public Offering, the aggregate
amount of such liability shall not exceed the lesser of (a) such holder's
pro rata portion of any such liability, in accordance with such holder's
portion of the total number of Shares included in the offering or (b) such
holder's net proceeds from such offering.
8.4. Certain Other Provisions.
------------------------
8.4.1. Underwriter's Cutback. In connection with any registration of
---------------------
shares, the underwriter may determine that marketing factors (including,
without limitation, an adverse effect on the per share offering price)
require a limitation of the number of shares to be underwritten.
Notwithstanding any contrary provision of this Section 8 and subject to the
terms of this Section 8.4.1, the underwriter may limit the number of shares
which would otherwise be included in such registration by excluding any or
all Registrable Securities from such registration (it being understood that
the number of shares which the Company seeks to have registered in such
registration shall not be subject to exclusion, in whole or in part, under
this Section 8.4.1). Upon receipt of notice from the underwriter of the
need to reduce the number of shares to be included in the registration, the
Company shall advise all holders of the Company's securities that would
otherwise be registered and underwritten pursuant hereto, and the number of
shares of such securities, including Registrable Securities, that may be
included in the registration shall be allocated in the following manner,
unless the underwriter shall determine that marketing factors require a
different allocation: shares, other than
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<PAGE>
Registrable Securities, requested to be included in such registration by
shareholders shall be excluded; and, if a limitation on the number of
shares is still required, the number of Registrable Securities that may be
included in such registration shall be allocated among the holders thereof
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities which each such holder requested be registered in
such registration. For purposes of any underwriter cutback, all Registrable
Securities held by any holder of Registrable Securities which is a
partnership, corporation or limited liability company shall also include
any Registrable Securities held by the partners, retired partners,
shareholders, members or affiliated entities of such holder, or the estates
and family members of any such partners, retired partners and members and
any trusts for the benefit of any of the foregoing persons, and such holder
and other persons shall be deemed to be a single selling holder, and any
pro rata reduction with respect to such selling holder shall be based upon
the aggregate amount of Registrable Securities owned by all entities and
individuals included in such selling holder, as defined in this sentence.
No securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any holder
of Registrable Securities disapproves of the terms of the underwriting, it
may elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be
withdrawn from registration.
8.4.2. Other Actions. If and in each case when the Company is required
-------------
to use its best efforts to effect a registration of any Registrable
Securities as provided in this Section 9, the Company shall take
appropriate and customary actions in furtherance thereof, including,
without limitation: (i) promptly filing with the Commission a registration
statement and using reasonable efforts to cause such registration statement
to become effective, (ii) preparing and filing with the Commission such
amendments and supplements to such registration statements as may be
required to comply with the Securities Act and to keep such registration
statement effective for a period not to exceed 270 days from the date of
effectiveness or such earlier time as the Registrable Securities covered by
such registration statement shall have been disposed of in accordance with
the intended method of distribution therefor or the expiration of the time
when a prospectus relating to such registration is required to be delivered
under the Securities Act, (iii) use its best efforts to register or qualify
such Registrable Securities under the state securities or "blue sky" laws
of such jurisdictions as the sellers shall reasonably request; provided,
--------
however, that the Company shall not be obligated to file any general
-------
consent to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it would
not otherwise be so subject; and (iv) otherwise cooperate reasonably with,
and take such customary actions as may reasonably be requested by the
holders of Registrable Securities in connection with, such registration.
-24-
<PAGE>
8.4.3. Selection of Underwriters and Counsel. The underwriters and
-------------------------------------
legal counsel to be retained in connection with any Public Offering shall
be selected by the Board or, in the case of an offering following a request
therefor under Section 8.1.1, the Initiating Investors.
8.4.4. Lock-Up. Without the prior written consent of the underwriters
-------
managing any Public Offering, for a period beginning seven days immediately
preceding and ending on (a) in the case of the IPO, the 180th day following
the effective date of the registration statement used in connection with
such offering or (b) in the case of any other Public Offering, the 90th day
following the effective date of the registration statement used in
connection with such offering, no holder of Shares (whether or not a
selling shareholder pursuant to such registration statement) shall Transfer
any Common Stock except pursuant to such registration statement or to a
Permitted Transferee in accordance with the terms of this Agreement.
8.5. Indemnification and Contribution.
--------------------------------
8.5.1. Indemnities of the Company. In the event of any registration
--------------------------
of any Registrable Securities or other debt or equity securities of the
Company or any of its subsidiaries under the Securities Act pursuant to
this Section 9 or otherwise, and in connection with any registration
statement or any other disclosure document produced by or on behalf of the
Company or any of its subsidiaries including, without limitation, reports
required and other documents filed under the Exchange Act, and other
documents pursuant to which any debt or equity securities of the Company or
any of its subsidiaries are sold (whether or not for the account of the
Company or its subsidiaries), the Company will, and hereby do, and will
cause each of their respective subsidiaries, jointly and severally to,
indemnify and hold harmless each seller of Registrable Securities, any
Person who is or might be deemed to be a controlling Person of the Company
or any of its subsidiaries within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, their respective direct
and indirect partners, advisory board members, directors, officers,
trustees, members and shareholders, and each other Person, if any, who
controls any such seller or any such holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (each such
person being referred to herein as a "Covered Person"), against any losses,
--------------
claims, damages or liabilities, joint or several, to which such Covered
Person may be or become subject under the Securities Act, the Exchange Act,
any other securities or other law of any jurisdiction, the common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any registration statement under
the Securities Act, any preliminary prospectus or final prospectus included
therein, or any related summary prospectus, or any amendment or supplement
thereto, or any document incorporated by reference therein, or any other
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<PAGE>
such disclosure document (including without limitation reports and other
documents filed under the Exchange Act and any document incorporated by
reference therein) or other document or report, (ii) 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 or (iii)
any violation or alleged violation by the Company or any of its
subsidiaries of any federal, state, foreign or common law rule or
regulation applicable to the Company or any of its subsidiaries and
relating to action or inaction in connection with any such registration,
disclosure document or other document or report, and will reimburse such
Covered Person for any legal or any other expenses incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that neither the
-------- -------
Company nor any of its subsidiaries shall be liable to any Covered Person
in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, incorporated
document or other such disclosure document or other document or report, in
reliance upon and in conformity with written information furnished to the
Company or to any of its subsidiaries through an instrument duly executed
by such Covered Person specifically stating that it is for use in the
preparation thereof. The indemnities of the Company and of its subsidiaries
contained in this Section 8.5.1 shall remain in full force and effect
regardless of any investigation made by or on behalf of such Covered Person
and shall survive any transfer of securities.
8.5.2. Indemnities to the Company. The Company and any of its
--------------------------
subsidiaries may require, as a condition to including any securities in any
registration statement filed pursuant to this Section 9, that the Company
and any of its subsidiaries shall have received an undertaking satisfactory
to it from the prospective seller of such securities, to indemnify and hold
harmless the Company and any of its subsidiaries, each director of the
Company or any of its subsidiaries, each officer of the Company or any of
its subsidiaries who shall sign such registration statement and each other
Person (other than such seller), if any, who controls the Company and any
of its subsidiaries within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act with respect to any statement in or
omission from such registration statement, any preliminary prospectus or
final prospectus included therein, or any amendment or supplement thereto,
or any other disclosure document (including, without limitation, reports
and other documents filed under the Exchange Act or any document
incorporated therein) or other document or report, if such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Company or any of its subsidiaries through an
instrument executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, incorporated
document or other document or report. Such indemnity shall
-26-
<PAGE>
remain in full force and effect regardless of any investigation made by or
on behalf of the Company, any of its subsidiaries or any such director,
officer or controlling Person and shall survive any transfer of securities.
8.5.3. Indemnification Procedures. Promptly after receipt by a Person
--------------------------
entitled to indemnification pursuant to the foregoing provisions of this
Section 8.5 (an "Indemnitee") of notice of the commencement of any action
----------
or proceeding involving a claim of the type referred to in the foregoing
provisions of this Section 8.5, such Indemnitee will, if a claim in respect
thereof is to be made by such Indemnitee against any indemnifying party,
give written notice to each such indemnifying party of the commencement of
such action; provided, however, that the failure of any Indemnitee to give
-------- -------
notice to such indemnifying party as provided herein shall not relieve any
indemnifying party of its obligations under the foregoing provisions of
this Section 8.5, except and solely to the extent that such indemnifying
party is actually and materially prejudiced by such failure to give notice.
In case any such action is brought against an Indemnitee, each indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory to such Indemnitee
(who shall not, except with the consent of the Indemnitee, be counsel to
such an indemnifying party), and after notice from an indemnifying party to
such Indemnitee of its election so to assume the defense thereof, such
indemnifying party will not be liable to such Indemnitee for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof; provided, however, that (i) if the Indemnitee reasonably
-------- -------
determines that there may be a conflict between the positions of such
indemnifying party and the Indemnitee in conducting the defense of such
action or if the Indemnitee reasonably concludes that representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, then counsel for the Indemnitee
shall conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interests of the Indemnitee and such
indemnifying party shall employ separate counsel for its own defense, (ii)
in any event, the Indemnitee shall be entitled to have counsel chosen by
such Indemnitee participate in, but not conduct, the defense and (iii) the
indemnifying party shall bear the legal expenses incurred in connection
with the conduct of, and the participation in, the defense as referred to
in clauses (i) and (ii) above. If, within a reasonable time after receipt
of the notice, such indemnifying party shall not have elected to assume the
defense of the action, such indemnifying party shall be responsible for any
legal or other expenses incurred by such Indemnitee in connection with the
defense of the action, suit, investigation, inquiry or proceeding. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnitee of a release from
all liabilities in respect of such claim or litigation.
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8.5.4. Contribution. If the indemnification provided for in Sections
------------
8.5.1 or 8.5.2 hereof is unavailable to a party that would have been an
Indemnitee under any such Section in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such Indemnitee, contribute to
the amount paid or payable by such Indemnitee as a result of such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative fault
of such indemnifying party on the one hand and such Indemnitee on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault 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 such indemnifying party or such
Indemnitee and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The parties agree that it would not be just or equitable if
contribution pursuant to this Section 8.5.4 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 preceding sentence. The
amount paid or payable by a contributing party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8.5.4 shall include any legal or
other expenses reasonably incurred by such Indemnitee in connection with
investigating or defending any such action or claim. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
8.5.5. Limitation on Liability of Holders of Registrable Securities.
------------------------------------------------------------
The liability of each holder of Registrable Securities in respect of any
indemnification or contribution obligation of such holder arising under
this Section 8.5 shall not in any event exceed an amount equal to the net
proceeds to such holder (after deduction of all underwriters' discounts and
commissions) from the disposition of the Registrable Securities disposed of
by such holder pursuant to such registration.
9. CERTAIN ISSUANCES AND TRANSFERS, ETC.
9.1. Transfers to Permitted Transferees. Each holder of Shares agrees that
----------------------------------
no Transfer of any such Shares (other than Lender Warrants) to any Permitted
Transferee shall be effective unless such Permitted Transferee has delivered to
the Company a written acknowledgment and agreement in form and substance
reasonably satisfactory to the Company that such Shares to be received by such
Permitted Transferee shall remain Investor Shares, Other Shares, Management
Shares, Employee Shares or Lender Shares (and, if applicable, Restricted Common
Stock) hereunder, as the case may be, and shall continue to be subject to
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all of the provisions of this Agreement and that such Permitted Transferee shall
be bound by and a party to this Agreement as the holder of Investor Shares,
Other Shares, Management Shares, Employee Shares or Lender Shares, as the case
may be, hereunder; provided, however, that no Transfer by any party to a
-------- -------
Permitted Transferee shall relieve such party (including without limitation a
holder of Lender Warrants) of any of its obligations hereunder. Each Permitted
Transferee of a Lender Warrant shall automatically be bound by and a party to
this Agreement as a holder of Lender Shares and such Lender Warrants shall
remain Lender Shares hereunder and shall continue to be subject to all of the
provisions of this Agreement.
9.2. Other Transfers and Issuances. Notwithstanding any other provision of
-----------------------------
this Agreement, (i) Shares transferred pursuant to Section 3.1 (other than
3.1.3(a), (b) or (c)) or 3.2 hereof or in a Public Offering or to the public
under Rule 144 shall be conclusively deemed thereafter not to be Shares under
this Agreement and not to be subject to any of the provisions hereof or entitled
to the benefit of any of the provisions hereof, (ii) Shares Transferred as
described in Section 3.1.6(c) shall upon acquisition be deemed for all purposes
hereof to be Management Shares or Employee Shares, as the case may be, hereunder
and each holder of Investor Shares agrees that it will not Transfer any such
Shares to any Person described in Section 3.1.6(c) unless such Person shall have
executed a counterpart signature page to this Agreement and shall have delivered
to the Company a written acknowledgment and agreement in form and substance
reasonably satisfactory to the Company that such Shares to be received shall be
deemed to be Management Shares or Employee Shares, as the case may be, and shall
be subject to all of the provisions of this Agreement, that such Person shall be
bound by and be a party to this Agreement as a holder of Management Shares or
Employee Shares, as the case may be, hereunder and, if applicable, that such
Shares are Restricted Common Stock, and (iii) any Other Shares acquired by any
holder of Shares pursuant to Section 5.2.1, any Management Shares or Employee
Shares acquired by any holder of Shares pursuant to Section 6.3.1, any Subject
Securities constituting Common Stock acquired by any holder of Shares pursuant
to Section 7 hereof and any Lender Shares acquired by any Investor pursuant to
Section 4 hereof shall upon such acquisition be deemed for all purposes hereof
to be Investor Shares, Other Shares, Management Shares or Employee Shares
hereunder, as the case may be, of like kind with the other Shares held by such
acquiring holder.
10. REMEDIES.
10.1. Generally. The Company and each holder of Shares shall have all
---------
remedies available at law, in equity or otherwise in the event of any breach or
violation of this Agreement or any default hereunder by the Company or any
holder of Shares. The parties acknowledge and agree that in the event of any
breach of this Agreement, in addition to any other remedies which may be
available, each of the parties hereto shall be entitled to specific performance
of the obligations of the other parties hereto and, in addition, to such other
equitable remedies (including, without limitation, preliminary or temporary
relief) as may be appropriate in the circumstances.
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10.2. Deposit. Without limiting the generality of Section 10.1, if any
-------
Stockholder fails to deliver to the Company or the Prospective Buyer the
certificate or certificates evidencing Shares to be Transferred pursuant to
Section 3 hereof, the Company or the Prospective Buyer (as the case may be) may,
at its option, in addition to all other remedies it may have, deposit the
purchase price (including any promissory note constituting all or any portion
thereof) for such Shares with any national bank or trust company having combined
capital, surplus and undivided profits in excess of One Hundred Million Dollars
($100,000,000) (the "Escrow Agent") and the Company shall cancel on its books
------------
the certificate or certificates representing such Shares and thereupon all of
such holder's rights in and to such Shares shall terminate. Thereafter, upon
delivery to the Company by such holder of the certificate or certificates
evidencing such Shares (duly endorsed, or with stock powers duly endorsed, for
transfer, with signature guaranteed, free and clear of any liens or
encumbrances, and with any stock transfer tax stamps affixed), the Company shall
instruct the Escrow Agent to deliver the purchase price (without any interest
from the date of the closing to the date of such delivery, any such interest to
accrue to the Company) to such holder.
11. LEGENDS.
11.1. Restrictive Legend. Each certificate representing Shares shall have
------------------
the following legend endorsed conspicuously thereupon:
The voting of the shares of stock represented by this certificate,
and the sale, encumbrance or other disposition thereof, are subject to the
provisions of a Stockholders Agreement to which the issuer and certain of
its stockholders are party, a copy of which may be inspected at the
principal office of the issuer or obtained from the issuer without charge.
________________________.
Each certificate representing Investor Shares, Other Shares, Lender Shares,
Management Shares or Employee Shares shall also have the following legend
endorsed conspicuously thereupon:
The shares of stock represented by this certificate were originally
issued to, or issued with respect to shares originally issued to, the
following [insert Investor, Other Investor, Lender, Employee or Manager, as
appropriate]: __________________________.
Any person who acquires Shares which are not subject to all or part of the
terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such Shares.
11.2. 1933 Act Legends. Each certificate representing Shares shall have the
----------------
following legend endorsed conspicuously thereupon:
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The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of 1933,
as amended (the "Act"), and may not be sold, assigned, pledged or otherwise
transferred in the absence of an effective registration under the Act
covering the transfer or an opinion of counsel, satisfactory to the issuer,
that registration under the Act is not required.
11.3. Stop Transfer Instruction. The Company will instruct any transfer
-------------------------
agent not to register the Transfer of any Shares until the conditions specified
in the foregoing legends are satisfied.
11.4, Termination of Certain Restrictions. The legend set forth in Section
-----------------------------------
11.2 shall cease to be required as to any particular Shares (i) when, in the
opinion of Ropes & Gray, or other counsel reasonably acceptable to the Company,
such restrictions are no longer required in order to assure compliance with the
Securities Act or (ii) when such Shares have been effectively registered under
the Securities Act or transferred pursuant to Rule 144. Wherever (i) such
restrictions shall cease and terminate as to any Shares or (ii) such Shares
shall be transferable under paragraph (k) of Rule 144, the holder thereof shall
be entitled to receive from the Company, without expense, new certificates not
bearing the legend set forth in Section 11.2 hereof.
12. AMENDMENT, TERMINATION, ETC.
12.1. Oral Modifications. This Agreement may not be orally amended,
------------------
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
12.2. Written Modifications. This Agreement may be amended, modified,
---------------------
extended or terminated, and the provisions hereof may be waived, only by an
agreement in writing signed by the Majority Investors; provided, however, that
-------- -------
(a) the consent of the Majority Other Holders shall be required for any
amendment, modification, extension, termination or waiver which has a material
adverse effect on the rights or obligations of the holders of Other Shares as
such under this Agreement, (b) the consent of the Majority Managers shall be
required for any amendment, modification, extension, termination or waiver which
has a material adverse effect on the rights or obligations of the holders of
Management Shares as such under this Agreement, (c) the consent of the Majority
Employees shall be required for any amendment modification, extension,
termination or waiver which has a material adverse effect on rights or
obligations of the holders of Employee Shares as such under this Agreement, (d)
the consent of the Majority Lenders shall be required for any amendment,
modification, extension, termination or waiver which has a material adverse
effect on the rights or obligations of the holders of Lender Shares as such
under this Agreement and (e) the consent of the Majority Senior Lenders shall be
required for any amendment, modification, extension, termination or waiver which
has a material adverse effect on the rights or obligations of the holders of
Senior Lender Shares as such under this Agreement. Each such
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<PAGE>
amendment, modification, extension, termination and waiver shall be binding upon
each party hereto and each holder of Shares subject hereto. In addition, each
party hereto and each holder of Shares subject hereto may waive any right
hereunder by an instrument in writing signed by such party or holder.
12.3. Termination. No termination under this Agreement shall relieve any
-----------
Person of liability for breach prior to termination.
13. DEFINITIONS. For purposes of this Agreement:
13.1. Certain Matters of Construction. In addition to the definitions
-------------------------------
referred to or set forth below in this Section 13:
(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof;
(b) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined; and
(c) The masculine, feminine and neuter genders shall each include the
other.
13.2. Definitions. The following terms shall have the following meanings:
-----------
"AAA" shall have the meaning set forth in Section 1.6.1.
---
"Accepting Purchasers" shall have the meaning set forth in Section
--------------------
4.1.2.
"Affiliate" shall mean, with respect to any specified Person, any
---------
other Person which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control
with, such specified Person (for the 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,
means 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).
"Affiliated Fund" shall mean each corporation, trust, general or
---------------
limited partnership or other entity under common control with any Investor.
"Agreement" shall have the meaning set forth in the Preamble.
---------
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<PAGE>
"Board" shall have the meaning set forth in Section 2.1.
-----
"Change of Control" shall mean (i) any change in the ownership of the
-----------------
capital stock of the Company if, immediately after giving effect thereto,
any Person (or group of Persons acting in concert) other than the Investor
and its Affiliates will have the direct or indirect power to elect a
majority of the members of the Board; or (ii) any sale or other disposition
of all or substantially all of the assets of the Company (including without
limitation by way of a merger or consolidation or through the sale of all
or substantially all of the stock of its subsidiaries or sale of all or
substantially all of the assets of the Company and its subsidiaries, taken
as a whole) to another Person (the "Change of Control Transferee") if,
----------------------------
immediately after giving effect thereto, any Person (or group of Persons
acting in concert) other than the Investor and its Affiliates will have the
power to elect a majority of the members of the board of directors (or
other similar governing body) of the Change of Control Transferee.
"Charter" shall mean the Company's Articles of Incorporation, as in
-------
effect from time to time.
"Class A Stock" shall have the meaning set forth in the Recitals.
-------------
"Class L Stock" shall have the meaning set forth in the Recitals.
-------------
"Closing" shall have the meaning set forth in Section 1.1.
-------
"Commission" shall mean the Securities and Exchange Commission.
----------
"Common Stock" shall have the meaning set forth in the Recitals.
------------
"Company" shall have the meaning set forth in the Preamble.
-------
"Convertible Securities" shall mean any evidence of indebtedness,
----------------------
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable or exercisable for shares of
Common Stock.
"Covered Person" shall have the meaning set forth in Section 8.5.1.
--------------
"Drag Along Notice" shall have the meaning set forth in Section 3.2.1.
-----------------
"Drag Along Sale Percentage" shall have the meaning set forth in
--------------------------
Section 3.2.
"Drag Along Sellers" shall have the meaning set forth in Section
------------------
3.2.1.
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"Employee Shares" shall mean (i) all shares of Common Stock (other
---------------
than shares of Restricted Common Stock or Common Stock issued pursuant to
the exercise of any Option) originally issued to, or issued with respect to
shares originally issued to, or held by, an Employee, whenever issued and
(ii) for all purposes of this Agreement except as used in Section 7, all
Options (treating such Options as a number of Shares equal to the number of
Equivalent Shares represented by such Options), all shares of Common Stock
issued pursuant to the exercise of any Option and all shares of Restricted
Common Stock originally granted or issued to, or issued with respect to
shares or options originally issued to, or held by, an Employee, whenever
issued.
"Employees" shall have the meaning set forth in the Recitals.
---------
"Equivalent Shares" shall mean as to any outstanding shares of Common
-----------------
Stock, such number of shares of Common Stock, and as to any outstanding
Options or Convertible Securities, the maximum number of shares of Common
Stock for which or into which such Options or Convertible Securities may at
the time be exercised or converted.
"Escrow Agent" shall have the meaning set forth in Section 10.2.
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
------------
effect from time to time.
"Fair Market Value" shall mean, as of any date, the Board's good faith
-----------------
determination of the fair value of one Share of Common Stock as of the
applicable reference date (and if such term applies to any Option then
exercisable for Common Stock, such fair value of one share of Common Stock
as of the applicable reference date minus the exercise price per share of
such Option); provided, however, that in each case a Lender Share is the
-------- -------
Share to be valued (the "Relevant Share"), holders of at least a majority
of the Relevant Shares to be valued hereunder may deliver to the Company a
written objection to the value of the Relevant Shares which is set forth in
the applicable Drag Along Notice or Tag Along Notice. If the Board and
holders of a majority of the Relevant Shares thereafter agree on a Fair
Market Value of the Relevant Shares, such agreement shall be binding on the
Company and all of the holders of the Relevant Shares. If the parties are
unable to agree on the Fair Market Value of the Relevant Shares, they shall
submit such dispute to arbitration in accordance with Section 15. In the
event the Fair Market Value of the Relevant Shares shall not have been
agreed upon by the Board and the holders of a majority of the Lender Shares
(or, absent such agreement, through arbitration) prior to the closing to
which reference is made in Section 7.3.4, the Prospective Investor Seller
shall be entitled to deposit with an Escrow Agent, substantially
simultaneously with such closing, cash in an amount equal to the Fair
Market Value of the Relevant Shares as determined by the holders of the
majority of the Relevant Shares as set forth in their written objection to
the
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<PAGE>
Company referred to above and thereby require the surrender, against such
delivery of cash to an Escrow Agent, of the Relevant Shares at such
closing.
"First Refusal Notice" shall have the meaning set forth in Section
--------------------
4.1.1.
"Indemnitee" shall have the meaning set forth in Section 8.5.3.
----------
"Independent Investment Banking Firm" shall mean a nationally
-----------------------------------
recognized investment banking firm selected by the Board which does not
hold any equity interest in the Company or in any shareholder of the
Company and which is not employed by either the Company or the Investor at
the time the applicable fairness opinion is furnished (other than
employment for the purpose of providing such fairness opinion).
"Initial Public Offering" means the initial Public Offering registered
-----------------------
on Form S-1 (or any successor form under the Securities Act).
"Initiating Investors" shall have the meaning set forth in Section
--------------------
8.1.1.
"Initiating Other Investors" shall have the meaning set forth in
--------------------------
Section 8.2.1.
"Investor Shares" shall mean (i) all shares of Common Stock (other
---------------
than shares of Common Stock issued pursuant to the exercise of any Option)
originally issued to, or issued with respect to shares originally issued
to, or held by, any Investor, whenever issued and (ii) for all purposes of
this Agreement except as used in Section 7, all Options (treating such
Options as a number of Shares equal to the number of Equivalent Shares
represented by such Options) and all shares of Common Stock issued pursuant
to the exercise of any Option originally granted or issued to, or issued
with respect to shares or options originally issued to, or held by, an
Investor, whenever issued.
"Investors" shall have the meaning set forth in the Preamble.
---------
"Issuance" shall have the meaning set forth in Section 7.
--------
"Lender Shares" shall mean (i) all shares of Common Stock (other than
-------------
shares of Common Stock issued pursuant to the exercise of any Lender
Warrant or other Option) originally issued to, or issued with respect to
shares originally issued to, or held by, any Lender, whenever issued and
(ii) for all purposes of this Agreement except as used in Section 7, all
Lender Warrants or other Options (treating such Lender Warrants or other
Options as a number of Shares equal to the number of Equivalent Shares
represented by such Lender Warrants or other Options) and all shares of
Common Stock issued pursuant to the exercise of any Lender Warrant or other
Option
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<PAGE>
originally granted or issued to, or issued with respect to shares or
options originally issued to, or held by, a Lender, whenever issued.
"Lender Warrants" shall mean the warrants issued under the Warrant
---------------
Agreements to acquire Class A Stock and Class L Stock.
"Lenders" shall have the meaning set forth in the Preamble.
-------
"Majority Employees" shall mean, as of any date, the holders of a
------------------
majority of the Employee Shares outstanding on such date.
"Majority Investors" shall mean, as of any date, the holders of a
------------------
majority of the Investor Shares outstanding on such date.
"Majority Lenders" shall mean, as of any date, the holders of a
----------------
majority of the Lender Shares outstanding on such date.
"Majority Managers" shall mean, as of any date, the holders of a
-----------------
majority of the Management Shares outstanding on such date.
"Majority Other Holders" shall mean, as of any date, the holders of a
----------------------
majority of Other Shares outstanding on such date.
"Majority Participating Investors" shall have the meaning set forth in
--------------------------------
Section 8.1.1.
"Majority Participating Other Investors" shall mean holders of at
--------------------------------------
least a majority of the Registrable Other Securities to be included in any
given proposed registration statement.
"Management Shares" shall mean (i) all shares of Common Stock (other
-----------------
than shares of Restricted Common Stock or Common Stock issued pursuant to
the exercise of any Option) originally issued to, or issued with respect to
shares originally issued to, or held by, a Manager, whenever issued and
(ii) for all purposes of this Agreement except as used in Section 7, all
Options (treating such Options as a number of Shares equal to the number of
Equivalent Shares represented by such Options), all shares of Common Stock
issued pursuant to the exercise of any Option and all shares of Restricted
Common Stock originally granted or issued to, or issued with respect to
shares or options originally issued to, or held by, a Manager, whenever
issued.
"Managers" shall have the meaning set forth in the Preamble.
--------
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<PAGE>
"Members of the Immediate Family" shall mean, with respect to any
-------------------------------
individual, each spouse, child or other lineal descendent of such
individual (and their respective spouses), each partnership, limited
liability company, trust or other non-natural Person created solely for the
benefit of one or more of the aforementioned Persons and each custodian or
guardian of any property of one or more of the aforementioned Persons in
his capacity as such custodian or guardian.
"Options" shall mean any options or warrants (including without
-------
limitation the Lender Warrants) to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities.
"Other Investors" shall have the meaning set forth in the Preamble.
---------------
"Other Shares" shall mean (i) all shares of Common Stock (other than
------------
shares of Common Stock issued pursuant to the exercise of any Option)
originally issued to, or issued with respect to shares originally issued
to, or held by, an Other Investor, whenever issued and (ii) for all
purposes of this Agreement except as used in Section 7, all Options
(treating such Options as a number of Shares equal to the number of
Equivalent Shares represented by such Options) and all shares of Common
Stock issued pursuant to the exercise of any Option originally granted or
issued to, or issued with respect to shares or options originally issued
to, or held by, an Other Investor, whenever issued.
"Participating Buyer" shall have the meaning set forth in Section
-------------------
7.1.2.
"Participating Seller" shall have the meaning set forth in Section
--------------------
3.1.2 and 3.2.1.
"Permitted Transferee" shall mean (i) as to each Investor Share, a
--------------------
Transferee of such Investor Share resulting from a Transfer described in
Section 3.1.6(a) or (b), (ii) as to each Lender Share, a Transferee of such
Lender Share in compliance with Section 4.2.2, (iii) as to each Other
Share, a Transferee of such Other Share in compliance with Section 5.1 or
5.2.4 and (iv) as to each Management Share, a Transferee of such Management
Share in compliance with Section 6.1 or 6.2.
"Person" shall mean any individual, partnership, corporation, company,
------
association, trust, joint venture, unincorporated organization, entity or
division, or any government, governmental department or agency or political
subdivision thereof.
"Preemption Notice" shall have the meaning set forth in Section 7.1.1.
-----------------
"Preemptive Offerees" shall have the meaning set forth in Section
-------------------
7.1.1.
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<PAGE>
"Preemptive Portion" shall have the meaning set forth in Section
------------------
7.1.1.
"Price Per Equivalent Share" shall mean in the case of any Issuance
--------------------------
pursuant to Section 7 hereof, the price per Equivalent Share included in
the Issuance, calculated, in the case of Shares constituting Convertible
Securities, with appropriate deductions for amounts in respect of accrued
but unpaid interest or dividends added in determining the proceeds payable
in the Issuance to the Company and, in the case of Options, with
appropriate additions for amounts payable in the Issuance to the Company.
"Prospective Buyer" shall mean any Person; provided, however, that for
----------------- -------- -------
purposes of Sections 5, the term Prospective Buyer shall not include any
Person engaged in a business that is directly or indirectly competitive or
potentially competitive with any business of the Company and its
subsidiaries as conducted or under consideration from time to time.
"Prospective Lender Seller" shall have the meaning set forth in
-------------------------
Section 4.1.1.
"Prospective Selling Investor" shall have the meaning set forth in
----------------------------
Section 3.1 and 3.2.
"Prospective Subscriber" shall have the meaning set forth in Section
----------------------
7.1.1.
"Public Offering" shall mean a public offering and sale of Common
---------------
Stock for cash pursuant to an effective registration statement under the
Securities Act.
"Qualified Buyer" shall mean any domestic or foreign bank, savings
---------------
bank, savings and loan association, trust company, insurance company,
employee benefit plan or trust, investment company registered under the
Investment Company Act of 1940, as amended, business development company
(as defined in that Act), registered securities broker or dealer,
investment adviser registered under the Investment Advisers Act of 1940, or
other institutional lender or institutional investor, if in each such case
(i) such Person is acting for its own account or the accounts of other
Qualified Institutional Investors (as defined in the Act), (ii) such Person
in the aggregate owns and invests on a discretionary basis at least
$100,000,000 in securities of issuers that are not Affiliates of such
Person; provided, that for purposes of this Section 13.3.33 any two or more
--------
Persons who are Affiliates of each other shall be treated as a single
Person and (iii) such Person is not a Person which, to the knowledge of the
holder of Lender Shares to proposing Transfer the same, (x) is engaged in
any business which is directly or indirectly competitive or potentially
competitive with any business of the Company and its subsidiaries or under
consideration from time to time or (y) beneficially owns any of the voting
stock of any corporation which is so engaged in such business (if such
voting stock is not registered under Section 11 of the Securities Exchange
Act of 1934), or (z) beneficially owns more than 5% of the voting stock of
any corporation which is so
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<PAGE>
engaged in such business (if such voting stock is not registered under
Section 11 of the Securities Exchange Act of 1934).
"Qualified Public Offering" shall mean a Public Offering, other than
-------------------------
any Public Offering or sale pursuant to a registration statement on Form S-
8 or comparable form, in which the aggregate price to the public of all
such common stock sold in such offering shall exceed $20,000,000.
"Recapitalization Agreement" shall have the meaning set forth in the
--------------------------
Recitals.
"Registrable Investor Securities" shall have the meaning set forth in
-------------------------------
Section 8.1.1.
"Registrable Other Securities" shall have the meaning set forth in
----------------------------
Section 8.2.1.
"Registrable Securities" shall mean (i) all shares of Class A Stock,
----------------------
(ii) all shares of Class A Stock issuable upon conversion of Shares of
Class L Stock, (iii) all shares of Class A Stock issuable upon exercise of
any Option or any Warrant, and (iv) all shares of Class A Stock directly or
indirectly issued or issuable with respect to the securities referred to in
clauses (i), (ii) or (iii) above by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, in each case which (a) constitute
Shares or (b) are the subject of a separate registration rights agreement,
other than Shares transferred pursuant to Section 3.1 (other than Section
3.1(a) or (b)) or 3.2 hereof. As to any particular Registrable Securities,
such shares shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (b)
such securities shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) subject to
the provisions of Section 11 hereof, such securities shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration of them under
the Securities Act or such securities may be distributed without volume
limitation or other restrictions on transfer under Rule 144 (including
without application of paragraphs (c), (e) (f) and (h) of Rule 144), or (d)
such securities shall have ceased to be outstanding.
"Regulation D" shall mean Regulation D under the Securities Act.
------------
"Relevant Share" shall have the meaning set forth in the definition of
--------------
Fair Market Value.
"Rule 144" shall mean Rule 144 under the Securities Act.
--------
-39-
<PAGE>
"Rule 145 Transaction" shall mean a registration on Form S-4 pursuant
--------------------
to Rule 145 of the Securities Act.
"Restricted Common Stock" shall mean Shares issued or sold to Managers
-----------------------
with respect to which there are restrictions on Transfer independent of
this Agreement.
"Sale" shall have the meaning set forth in Section 3.1.
----
"Securities Act" shall mean the Securities Act of 1933, as in effect
--------------
from time to time.
"Shares" shall mean all Investor Shares, Lender Shares, Other Shares
------
and Management Shares.
"Stockholders" shall have the meaning set forth in the Preamble.
------------
"Subject Lender Shares" shall have the meaning set forth in Section
---------------------
4.1.1.
"Subject Securities" shall have the meaning set forth in Section 7.
------------------
"Tag Along Notice" shall have the meaning set forth in Section 3.1.1.
----------------
"Tag Along Offerees" shall have the meaning set forth in Section
------------------
3.1.1.
"Tag Along Sale Percentage" shall have the meaning set forth in
-------------------------
Section 3.1.1.
"Tag Along Sellers" shall have the meaning set forth in Section 3.1.2.
-----------------
"Transfer" shall mean any sale, pledge, assignment, encumbrance or
--------
other transfer or disposition of any Shares to any other Person, whether
directly, indirectly, voluntarily, involuntarily, by operation of law,
pursuant to judicial process or otherwise.
"Warrant Agreements" shall mean those certain Warrant Agreements, each
------------------
dated as of the date hereof, between the Company and ChaseMellon
Shareholder Services, L.L.C., as Warrant Agent.
14. MISCELLANEOUS.
14.1 Authority; Effect. Each party hereto represents and warrants to and
-----------------
agrees with each other party that the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized on behalf of such party and do not violate any agreement or other
instrument applicable to such party or by which its assets
-40-
<PAGE>
are bound. This Agreement does not, and shall not be construed to, give rise to
the creation of a partnership among any of the parties hereto, or to constitute
any of such parties members of a joint venture or other association.
14.2 Transactions with Affiliates. Prior to the consummation of a
----------------------------
transaction with an Affiliate of an Investor involving consideration of more
than $10 million, the Company will secure a fairness opinion from an Independent
Investment Banking Firm as to the fairness of such transaction to the Company
from a financial point of view.
14.3 Notices. Any notices and other communications required or permitted
-------
in this Agreement shall be effective if in writing and (a) delivered personally
or (b) sent (i) by Federal Express, DHL or UPS, delivery charges prepaid or (ii)
by registered or certified mail, return receipt requested, postage prepaid, in
each case, addressed as follows:
If to the Company or the Investors, to them:
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: David Dominik
Ed Conard
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Alfred O. Rose
If to an Other Investor, a Manager, an Employee or a Lender, to it at
the address set forth on the records of the Company.
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date received, if personally delivered, (b)
two business days after being sent by Federal Express, DHL or UPS and (c) three
business days, if sent by registered or certified mail. Each of the parties
hereto shall be entitled to specify a different address by giving notice as
aforesaid to each of the other parties hereto.
14.4 Binding Effect, etc. This Agreement constitutes the entire agreement
-------------------
of the parties with respect to its subject matter, supersedes all prior or
contemporaneous oral or
-41-
<PAGE>
written agreements or discussions with respect to such subject matter, and shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
14.5 Descriptive Headings. The descriptive headings of this Agreement are
--------------------
for convenience of reference only, are not to be considered a part hereof and
shall not be construed to define or limit any of the terms or provisions hereof.
14.6 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
14.7 Severability. In the event that any provision hereof would, under
------------
applicable law, be invalid or unenforceable in any respect, such provision shall
be construed by modifying or limiting it so as to be valid and enforceable to
the maximum extent compatible with, and possible under, applicable law. The
provisions hereof are severable, and in the event any provision hereof should be
held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
15. GOVERNING LAW, ARBITRATION.
15.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of the State of Delaware without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction; provided, however, that any dispute relating to the provisions of
Section 15.2 hereof shall be governed by the United States Arbitration Act as
then in force.
15.2 Arbitration.
-----------
15.2.1 Generally. Except solely as set forth in Section 15.2.3
---------
hereof, each dispute, difference, controversy or claim arising in
connection with or related or incidental to, or question occurring under,
this Agreement or the subject matter hereof shall be finally settled under
the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") by an arbitral tribunal composed of three arbitrators, at least
---
one of whom shall be an attorney experienced in corporate transactions,
appointed by agreement of the parties in accordance with said Rules. In the
event the parties fail to agree upon a panel of arbitrators from the first
list of potential arbitrators proposed by the AAA, the AAA will submit a
second list in accordance with said Rules. In the event the parties shall
have failed to agree upon a full panel of arbitrators from said second
list, any remaining arbitrators to be selected shall be appointed by the
AAA in accordance with said Rules. If, at the time of the arbitration, the
parties agree in writing to submit the dispute to a single arbitrator, said
-42-
<PAGE>
single arbitrator shall be appointed by agreement of the parties in
accordance with the foregoing procedure, or, failing such agreement, by the
AAA in accordance with said Rules. The foregoing arbitration proceedings
may be commenced by any party by notice to the other parties.
15.2.2. Place of Arbitration. The place of arbitration shall be New
--------------------
York, New York.
15.2.3 Recourse to Courts. The parties hereby exclude any right of
------------------
appeal to any court on the merits of the dispute. The provisions of this
Section 15.2 may be enforced in any court having jurisdiction over the
award or any of the parties or any of their respective assets, and judgment
on the award (including, without limitation, equitable remedies) granted in
any arbitration hereunder may be entered in any such court. Nothing
contained in this Section 15.2 shall prevent any party from seeking interim
measures of protection in the form of pre-award attachment of assets or
preliminary or temporary equitable relief.
15.3 Reliance. Each of the parties hereto acknowledges that he has been
--------
informed by each other party that the provisions of Section 15 constitute a
material inducement upon which such party is relying and will rely in entering
into this Agreement and the transactions contemplated hereby.
-43-
<PAGE>
Stockholders Agreement
October 28, 1997
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: DETAILS, INC.
By: /s/ Bruce McMaster
--------------------------------
Title: Bruce McMaster
THE INVESTORS: BAIN CAPITAL FUND V, L.P.
By Bain Capital Partners V, L.P.,
its general partner
By Bain Capital Investors V, Inc.,
its general partner
By: /s/ David Dominic
-----------------------------
Title: Managing Director
BAIN CAPITAL FUND V-B, L.P.
By Bain Capital Partners V, L.P.,
its general partner
By Bain Capital Investors V, Inc.,
its general partner
By: /s/ David Dominic
-----------------------------
Title: Managing Director
-44-
<PAGE>
Stockholders Agreement
October 28, 1997
BCIP ASSOCIATES
By /s/ David Dominic
-----------------------------------
Title: a general partner
BCIP TRUST ASSOCIATES, L.P.
By /s/ David Dominic
-----------------------------------
Title: a general partner
RGIP, LLC
By [SIGNATURE APPEARS HERE]
-----------------------------------
OTHER INVESTORS: DI INVESTORS, L.L.C.
By Chase Manhattan Capital, L.P., its managing member
By Chase Manhattan Capital Corporation, its general
partner
By [SIGNATURE APPEARS HERE]
-----------------------------
Title:
CHASE MANHATTAN CAPITAL, L.P.
By Chase Manhattan Capital Corporation, its general
partner
By [SIGNATURE APPEARS HERE]
-----------------------------
Title:
-45-
<PAGE>
Stockholders Agreement
October 28, 1997
PMI Mezzanine Fund, L.P.
By Pacific Mezzanine Investors, LLC, its general
partner
By [SIGNATURE APPEARS HERE]
----------------------------
Title: PRINCIPAL
CELERITY DETAILS, L.L.C.
By [SIGNATURE APPEARS HERE]
-------------------------------
Title:
Celerity Liquids, L.L.C.
By [SIGNATURE APPEARS HERE]
-------------------------------
Title:
MANAGERS:
By /s/ Bruce McMaster
--------------------------------
Bruce McMaster
By /s/ Lee Muse
--------------------------------
Lee Muse
By /s/ Terry Wright
--------------------------------
Terry Wright
-46-
<PAGE>
Stockholders Agreement
October 28, 1997
By /s/ Lee Muse
--------------------------------
Lee Muse
By /s/ Terry Wright
--------------------------------
Terry Wright
By /s/ Joseph P. Gisch
--------------------------------
Joseph P. Gisch
By /s/ Kathleen M. Gisch
--------------------------------
Kathleen M. Gisch
EMPLOYEES:
By /s/ Bob Barante
--------------------------------
Bob Barante
By /s/ Jorge Hernandez
--------------------------------
Jorge Hernandez
By /s/ Steve Garcia
--------------------------------
Steve Garcia
By N A
--------------------------------
Mihaela Ioana Dotiu
By N A
--------------------------------
Jerry Neidhart
By /s/ Anil Verma
--------------------------------
Anil Verma
By /s/ Joe Gardeski
--------------------------------
Joe Gardeski
By /s/ Paul Walker
--------------------------------
Paul Walker
By /s/ Ken Phillips
--------------------------------
Ken Phillips
By /s/ Armando Tongko
--------------------------------
Armando Tongko
By /s/ Michael Mosian
--------------------------------
Michael Mosian
By /s/Tom Ingham
--------------------------------
Tom Ingham
-47-
<PAGE>
Stockholders Agreement
October 28, 1997
By /s/ Paul Balius
--------------------------------
Paul Balius
By /s/ Ricki Blain
--------------------------------
Ricki Blain
-48-
<PAGE>
Stockholders Agreement
October 28, 1997
The undersigned, the sole beneficial owners of DI Investors, L.L.C., Celerity
Details, L.L.C., Celerity Liquids, L.L.C. (the "LLC Stockholders"), (i) agree to
cause the LLC Stockholder of which they are a member to perform each of its
obligations and responsibilities under this Agreement and (ii) agree that they
shall not Transfer any membership interests of, or other beneficial interests
in, the LLC Stockholders (the "LLC Interests") or permit the LLC Stockholders
issue or otherwise Transfer any membership interests or other beneficial
interests except to the extent such Transfer or issuance (treating such issuance
as a Transfer by such beneficial owners) would be permitted under Section 5 of
this Agreement if the LLC Interests were Other Shares.
[MEMBER]
By:
----------------------------
Title:
[MEMBER]
By:
----------------------------
Title:
<PAGE>
THE 1997 DETAILS, INC.
EQUITY INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used in
the Plan and sets forth certain operational rules related to those terms.
2. IN GENERAL
The Plan has been established to advance the interests of the Company by
giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
Stock-based incentives or incentives based on other performance measures
relating to the Company or its Affiliates.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express
provisions of the Plan, to interpret the Plan; determine eligibility for and
grant Awards; determine, modify or waive the terms and conditions of any Award;
prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once
an Award has been communicated in writing to a Participant, the Administrator
may not, without the Participant's consent, alter the terms of the Award so as
to affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication.
4. SHARES SUBJECT TO THE PLAN
a. A maximum of 235,000 Class A-5 shares of Stock may be delivered in
satisfaction of Awards under the Plan. For purposes of the preceding sentence,
the following shares shall not be considered to have been delivered under the
Plan: (i) shares remaining under an Award that terminates without having been
exercised in full; (ii) shares subject to an Award, where cash is delivered to a
Participant in lieu of such shares; (iii) shares of Restricted Stock that have
been forfeited in accordance with the terms of the applicable Award; and (iv)
shares held back, in satisfaction of the exercise price or tax withholding
requirements, from shares that would otherwise have been delivered pursuant to
an Award. The number of shares of Stock delivered under an Award shall be
determined net of any previously acquired Shares tendered by the Participant in
payment of the exercise price, if any, or of withholding taxes.
-1-
<PAGE>
b. Stock delivered by the Company under the Plan may be authorized but
unissued Stock or previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees,
directors and other individuals or entities providing services to the Company or
its Affiliates who, in the opinion of the Administrator, are in a position to
make a significant contribution to the success of the Company and its
Affiliates. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in Sections
421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
a. ALL AWARDS
(1) Performance Objectives. Where rights under an Award depend in
-----------------------
whole or in part on attainment of performance objectives, actions by the Company
that have an effect, however material, on such performance objectives or on the
likelihood that they will be achieved will not be deemed an amendment or
alteration of the Award unless accomplished by a change in the express terms of
the Award or other action that is without substantial consequence except as it
affects the Award.
(2) Alternative Settlement. The Company retains the right at any
-----------------------
time to extinguish rights under an Award in exchange for payment in cash, Stock
(subject to the limitations of Section 4) or other property on such terms as the
Administrator determines, provided the holder of the Award consents to such
exchange.
(3) Transferability Of Awards. Except as the Administrator otherwise
--------------------------
expressly provides, Awards (other than an Award in the form of an outright
transfer of cash or Unrestricted Stock) may not be transferred other than by
will or by the laws of descent and distribution, and during a Participant's
lifetime an Award requiring exercise may be exercised only by the Participant
(or in the event of the Participant's incapacity, the person or persons legally
appointed to act on the Participant's behalf).
(4) Vesting, Etc. Without limiting the generality of Section 3 and
-------------
subject to subsections (a) and (b) below, the Administrator may determine the
time or times at which an Award will vest (i.e., become free of forfeiture
restrictions) or become exercisable and the terms on which an Award requiring
exercise will remain exercisable.
-2-
<PAGE>
(a) Death. Except as the Administrator may otherwise determine, if a
Participant dies, the following will apply:
i) All Awards requiring exercise held by the Participant immediately
prior to death, to the extent then exercisable, may be exercised
by the Participant's executor or administrator or the person or
persons to whom the Award is transferred by will or the
applicable laws of descent and distribution, at any time within
the one year period ending with the first anniversary of the
Participant's death, and shall thereupon terminate. In no event,
however, shall an Award requiring exercise remain exercisable
beyond the latest date on which it could have been exercised
without regard to this Section 6.a.(4)(a). All Awards requiring
exercise held by a Participant immediately prior to death that
are not then exercisable shall terminate at death.
ii) All Restricted Stock held by the Participant must be transferred
to the Company together with duly executed stock powers (and, in
the event the certificates representing such Restricted Stock are
held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant provided that the
Participant deliver a duly executed stock power at such time) in
consideration of the payment by the Company of an amount equal to
$5.00 for each share of Restricted Stock and will be deemed for
all purposes to have been so transferred when the Company has
tendered such payment.
iii) Any payment or benefit under a Performance Award to which the
Participant was not irrevocably entitled prior to death will be
forfeited and the Award canceled as of the time of death.
(b) Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any reason
other than death or retirement with consent of the Company after attainment of
age 65, or if there is a termination (other than by reason of death or
satisfactory completion of the project or service as determined by the
Administrator) of the consulting, service or similar relationship in respect of
which a Non-Employee Participant was granted an Award hereunder (such
termination of the employment or other relationship being hereinafter referred
to as a "Status Change"), then, except as the Administrator may otherwise
determine, the following will apply:
i) All Awards requiring exercise held by the Participant that were
not exercisable immediately prior to the Status Change shall
terminate at the time of the Status Change. Any Awards requiring
exercise that were exercisable immediately prior to the Status
Change will continue to be
-3-
<PAGE>
exercisable for a period of three months, and shall thereupon
terminate, unless the Award provides by its terms for immediate
termination in the event of a Status Change or unless the Status
Change results from a discharge for cause which in the opinion of
the Administrator casts such discredit on the Participant as to
justify immediate termination of the Award. In no event, however,
shall an Award requiring exercise remain exercisable beyond the
latest date on which it could have been exercised without regard
to this Section 6.a.(4)(b). For purposes of this paragraph, in
the case of a Participant who is an Employee, a Status Change
shall not be deemed to have resulted by reason of (i) a sick
leave or other bona fide leave of absence approved for purposes
of the Plan by the Administrator, so long as the Participant's
right to reemployment is guaranteed either by statute or by
contract, or (ii) a transfer of employment between the Company
and a subsidiary or between subsidiaries, or to the employment of
a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to
which Section 424(a) of the Code applies.
ii) All Restricted Stock held by the Participant at the time of the
Status Change must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are
held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in consideration
of the payment by the Company of an amount equal to $5.00 for
each share of Restricted Stock and will be deemed for all
purposes to have been so transferred when the Company has
tendered such payment.
iii) Any payment or benefit under a Performance Award to which the
Participant was not irrevocably entitled prior to the Status
Change will be forfeited and the Award canceled as of the date of
such Status Change.
(5) Taxes. The Administrator will make such provision for the
------
withholding of taxes as it deems necessary. The Administrator may, but need not,
hold back shares of Stock from an Award or permit a Participant to tender
previously owned shares of Stock in satisfaction of tax withholding
requirements.
(6) Dividend Equivalents, Etc. The Administrator may provide for the
--------------------------
payment of amounts in lieu of cash dividends or other cash distributions with
respect to Stock subject to an Award.
(7) Rights Limited. Nothing in the Plan shall be construed as giving
---------------
any person the right to continued employment or service with the Company or its
Affiliates, or any
-4-
<PAGE>
rights as a shareholder except as to shares of Stock actually issued under the
Plan. The loss of existing or potential profit in Awards will not constitute an
element of damages in the event of termination of employment or service for any
reason, even if the termination is in violation of an obligation of the Company
or Affiliate to the Participant.
b. AWARDS REQUIRING EXERCISE
(1) Time And Manner Of Exercise. Unless the Administrator expressly
----------------------------
provides otherwise, (a) an Award requiring exercise by the holder will not be
deemed to have been exercised until the Administrator receives a written notice
of exercise (in form acceptable to the Administrator) signed by the appropriate
person and accompanied by any payment required under the Award; and (b) if the
Award is exercised by any person other than the Participant, the Administrator
may require satisfactory evidence that the person exercising the Award has the
right to do so.
(2) Payment Of Exercise Price, If Any. Where the exercise of an
----------------------------------
Award is to be accompanied by payment, the Administrator may specify one or more
of the following forms of payment:
i) cash or personal or certified check payable to the Company in an
amount equal to the aggregate option price of the shares with
respect to which the option is being exercised;
ii) stock certificates (in negotiable form) representing shares of
Stock (other than Restricted Stock) having a fair market value on
the date of exercise equal to the aggregate option price of the
shares with respect to which the option is being exercised;
iii) Options to purchase Vested Shares, valued for such purposes at
the fair market value per share of Common Stock on the date of
exercise net of the exercise price for each such share; or
iv) a combination of the methods set forth in clauses (i), (ii) and
(iii).
(3) Reload Awards. The Administrator may provide that upon the
--------------
exercise of an Award, either by payment of cash or (if permitted under Section
6.b.(2) above) through the tender of previously owned shares of Stock, the
Participant or other person exercising the Award will automatically receive a
new Award of like kind covering a number of shares of Stock equal to the number
of shares of Stock for which the first Award was exercised.
(4) ISOs. No ISO may be granted under the Plan after October ,
-----
2007, but ISOs previously granted may extend beyond that date.
-5-
<PAGE>
c. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in return for
either (i) services determined by the Administrator to have a value not less
than the par value of the awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the awarded shares of
Stock plus such additional amounts (if any) as the Administrator may determine
payable in such combination and type of cash, other property (of any kind) or
services as the Administrator may determine.
7. EFFECT OF CERTAIN TRANSACTIONS
a. MERGERS, ETC.
Except to the extent set forth in the next succeeding paragraph, in the
event of (i) a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of all or substantially all of
the Company's then outstanding common stock by a single person or entity or by a
group of persons and/or entities acting in concert or (ii) a dissolution or
liquidation of the Company (any of the foregoing, a "covered transaction"), all
outstanding Awards (other than shares of Stock that are outstanding and fully
vested) will be forfeited as of the effective time of the covered transaction
unless assumed by an acquiring or surviving entity or its affiliate as provided
in the following sentence. In connection with any covered transaction in which
there is an acquiring or surviving entity, the Administrator may provide for
substitute or replacement awards from, or the assumption of Awards by, the
acquiring or surviving entity or its affiliates, any such substitution,
replacement or assumption to be on such terms as the Administrator determines;
but if there is no acquiring or surviving entity, or if the Administrator does
not so provide for the substitution, replacement or assumption of Awards in
connection with the covered transaction, all outstanding Awards shall vest and
if relevant become exercisable and all deferrals, other than deferrals of
amounts that are neither measured by reference to nor payable in shares of
Stock, shall be accelerated, immediately prior to the covered transaction.
In the event of a (i) Change of Control or (ii) a sale or transfer of all
or substantially all the Company's assets (either of the foregoing, a "change of
control transaction"), all outstanding Awards (other than shares of Stock that
are outstanding and fully vested) shall vest and if relevant become exercisable
and all deferrals, other than deferrals of amounts that are neither measured by
reference to nor payable in shares of Stock, shall be accelerated, immediately
prior to the covered transaction.
-6-
<PAGE>
b. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
(1) Basic Adjustment Provisions. In the event of a stock dividend,
----------------------------
stock split or combination of shares, recapitalization or other change in the
Company's capital structure, the Administrator will make appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under
Section 4 and will also make appropriate adjustments to the number and kind of
shares of stock or securities subject to Awards then outstanding or subsequently
granted, any exercise prices relating to Awards and any other provision of
Awards affected by such change.
(2) Certain Other Adjustments. The Administrator may also make
--------------------------
adjustments of the type described in paragraph (1) above to take into account
distributions to common stockholders other than stock dividends or normal cash
dividends, mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, if the Administrator determines that
adjustments are appropriate to avoid distortion in the operation of the Plan and
to preserve the value of Awards made hereunder; provided, that no such
adjustment shall be made to ISOs except to the extent consistent with their
continued qualification under Section 422 of the Code.
(3) Continuing Application of Plan Terms. References in the Plan to
------------------------------------
shares of Stock shall be construed to include any stock or securities resulting
from an adjustment pursuant to Section 7.b.(1) or 7.b.(2) above.
8. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares of Stock previously
delivered under the Plan until: the Company's counsel has approved all legal
matters in connection with the issuance and delivery of such shares; if the
outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.
-7-
<PAGE>
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at any
time or times amend the Plan or any outstanding Award for any purpose which may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Awards; provided, that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without the approval
of the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the Plan to continue to qualify under Section
422 of the Code.
10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any way
affect the Company's right to award a person bonuses or other compensation in
addition to Awards under the Plan.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of the State of
California.
-8-
<PAGE>
EXHIBIT A
Definition of Terms
-------------------
The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:
"Administrator": The Board or, if one has been appointed, the Committee.
"Affiliate": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.
"Award": Any of the following:
(i) Options ("Stock Options") entitling the recipient to acquire
shares of Stock upon payment of the exercise price. Each Stock Option
(except as otherwise expressly provided by the Committee) will have an
exercise price equal to the fair market value of the Stock subject to the
option, determined as of the date of grant, except that an ISO granted to
an Employee described in Section 422(b)(6) of the Code will have an
exercise price equal to 110% of such fair market value. The Administrator
will determine the medium in which the exercise price is to be paid, the
duration of the option, the time or times at which an option will become
exercisable, provisions for continuation (if any) of option rights
following termination of the Participant's employment with the Company and
its Affiliates, and all other terms of the Stock Option. No Stock Option
awarded under the Plan will be an ISO unless the Administrator expressly
provides for ISO treatment.
(ii) Rights ("SARs") entitling the holder upon exercise to receive
cash or Stock, as the Administrator determines, equal to a function
(determined by the Administrator using such factors as it deems
appropriate) of the amount by which the Stock has appreciated in value
since the date of the Award.
(iii) Stock subject to restrictions ("Restricted Stock") under the
Plan requiring that such Stock be redelivered to the Company if specified
conditions are not satisfied. The conditions to be satisfied in connection
with any Award of Restricted Stock, the terms on which such Stock must be
redelivered to the Company, the purchase price of such Stock, and all other
terms shall be determined by the Administrator.
(iv) Stock not subject to any restrictions under the Plan
("Unrestricted Stock").
<PAGE>
(v) A promise to deliver Stock or other securities in the future on
such terms and conditions as the Administrator determines.
(vi) Securities (other than Stock Options) that are convertible into
or exchangeable for Stock on such terms and conditions as the Administrator
determines.
(vii) Cash bonuses tied to performance criteria as described at
(viii) below ("Cash Performance Awards").
(viii) Awards described in any of (i) through (vii) above where the
right to exercisability, vesting or full enjoyment of the Award is
conditioned in whole or in part on the satisfaction of specified
performance criteria ("Performance Awards").
(ix) Grants of cash, or loans, made in connection with other Awards
in order to help defray in whole or in part the economic cost (including
tax cost) of the Award to the Participant. The terms of any such grant or
loan shall be determined by the Administrator.
Awards may be combined in the Administrator's discretion.
"Board": The Board of Directors of the Company.
"Change of Control": Any (i) change in the ownership of the capital stock
of the Company if, immediately after giving effect thereto, any Person (or group
of Persons acting in concert) other than the shareholders of the Company on
October __, 1997 and their respective Affiliates will have the direct or
indirect power to elect a majority of the members of the Board or (ii) sale or
other disposition of all or substantially all of the assets of the Company
(including without limitation by way of a merger or consolidation or through the
sale of all or substantially all of the stock of its subsidiaries or sale of all
or substantially all of the assets of the Company and its subsidiaries, taken as
a whole) to another Person (the "Change of Control Transferee") if, immediately
after giving effect thereto, any Person (or group of Persons acting in concert)
other than the Shareholders of the Company on October __, 1997 and their
respective Affiliates will have the power to elect a majority of the members of
the board of directors (or other similar governing body) of the Change of
Control Transferee.
"Code": The U.S. Internal Revenue Code of 1986 as from time to time
amended and in effect, or any successor statute as from time to time in effect.
"Committee": A committee of the Board comprised solely of two or more
outside directors within the meaning of Section 162(m) of the Code. The
Committee may delegate ministerial tasks to such persons (including Employees)
as it deems appropriate.
"Company": Details, Inc., a California corporation.
<PAGE>
"Employee": Any person who is employed by the Company or an Affiliate.
"ISO": A Stock Option intended to be an "incentive stock option" within
the meaning of Section 422 of the Code.
"Participant": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.
"Plan": The Details, Inc. 1997 Equity Incentive Plan as from time to time
amended and in effect.
"Stock": Class A-5 Common Stock of the Company, no par value per share.
<PAGE>
DETAILS, INC.
1996 Employee Stock Option Plan
-------------------------------
1. PURPOSE OF THE PLAN; DEFINITIONS
(a) Purpose.
-------
The purpose of the DETAILS, INC., 1996 EMPLOYEE STOCK OPTION PLAN
(the "Plan") is (i) to further the growth and success of DETAILS, INC., a
California corporation (the "Company"), and its Subsidiaries (as hereinafter
defined) by enabling employees of the Company and its Subsidiaries to acquire
shares of Common Stock, no par value (the "Common Stock"), of the Company,
thereby increasing their personal interest in such growth and success, and (ii)
to provide a means of rewarding outstanding performance by such persons to the
Company and/or its Subsidiaries. Options granted under the Plan may be either
"incentive stock options" ("ISOs"), intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or non-qualified stock options ("NSOs"). In this Plan,
the terms "Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary
Corporation," respectively, as such terms are defined in Sections 424(e) and (f)
of the Internal Revenue Code. Unless the context otherwise requires, any ISO or
NSO is referred to in this Plan as an "Option."
(b) Definitions.
----------
As used in the Plan, the following capitalized terms have the
meanings set forth below:
"Affiliate" means, with respect to any Person, (i) a director or
executive officer of such Person, (ii) a spouse, parent, sibling or descendant
of such Person (or a spouse, parent, sibling or descendant of any director or
executive officer of such Person), and (iii) any other Person that, directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with such Person. For the purpose of the above definition,
the term "control" (including, with correlative meaning, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Asset Sale" means a sale or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries on a
consolidated basis and shall include the sale of all or substantially all of the
capital stock of Details.
"Board" has the meaning given to it in Section 2(a).
"Internal Revenue Code" has the meaning given to it in Section 1(a).
<PAGE>
"Committee" has the meaning given to it in Section 2(a).
"Common Stock" has the meaning given to it in Section 1(a)
"Company" has the meaning given to it in Section 1(a).
"Disqualifying Disposition" has the meaning given to it in
Section 20.
"Effective Date" has the meaning given to it in Section 15
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Notice" has the meaning given to it in Section 12(b)
"Involuntary Termination" has the meaning given to it in
Section 10(a)(ii).
"ISOs" has the meaning given to it in Section 1(a).
"Joinder Agreement" has the meaning given to it in the
Stockholders Agreement.
"NSOs" has the meaning given to it in Section 1(a).
"Option" has the meaning given to it in Section 1(a).
"Option Agreement" has the meaning given to it in Section 5(b).
"Option Price" has the meaning given to it in Section 6(a).
"Option Shares" means, with respect to any Option, the shares
of capital stock of the Company subject to purchase pursuant to the exercise of
such Option but which have not been purchased at the time in question whether or
not such shares constitute Vested Shares.
"Optioned Shares" has the meaning given to it in Section 10(b).
"Optionee" has the meaning given to it in Section 5(a).
"Parent" has the meaning given to it in Section 1(a).
"Person" shall be construed broadly and shall include an
individual, a partnership, a corporation, an association, a joint stock company,
a limited liability company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Plan" has the meaning given to it in Section 1(a).
"Rule 16b-3" has the meaning given to it in Section 2(a).
2
<PAGE>
"SEC" has the meaning given to it in Section 2(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders Agreement" means the Shareholders Agreement dated as of
January 31, 1996, and as hereafter amended from time to time, among the Company
and the shareholders of the Company named therein.
"Stock Sale" means a sale or other disposition of all or
substantially all of the outstanding capital stock of the Company, whether by
way of merger or otherwise.
"Subsidiary" has the meaning given to it in Section 1(a).
"Termination Date" means the tenth anniversary of the Effective Date
or such other date on which the Plan shall expire or terminate pursuant to
Section 16.
"Termination of Relationship" means, if the Optionee is an employee
of or consultant to the Company or any Subsidiary, the termination of the
Optionee's employment (in the case of an Optionee who is an employee) or
consulting relationship (in the case of an Optionee who is a consultant) with
the Company or its Subsidiaries for any reason.
"Vested Shares" means, with respect any Option, those Option Shares
which may at the time in question be purchased upon the exercise of such Option.
2. ADMINISTRATION OF THE PLAN
(a) Stock Option Committee
----------------------
The Plan shall be administered by the Board of Directors of the
Company (the "Board") or a committee (the "Committee") appointed from time to
time by the Board, which Committee shall have the power and authority to grant
Options under the Plan; provided, however, that, so long as it shall be required
-------- -------
to comply with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission (the "SEC") under the Exchange Act in order to permit
officers and directors of the Company to be exempt from the provisions of
Section 15(b) of the Exchange Act with respect to transactions effected pursuant
to the Plan, such Committee shall consist of at least two directors and, at the
effective date of his or her appointment to the Committee, each such director
shall be a "Non-Employee Director" within the meaning of Rule 16b-3. The members
of the Committee may be removed by the Board at any time either with or without
cause. Any vacancy on the Committee, whether due to action of the Board or any
other cause. Any vacancy on the Committee, whether due to action of the Board or
any other cause, shall be filled by the Board. The term "Committee" shall, for
all purposes of the Plan other than this Section, be deemed to refer to the
Board if the Board is administering the Plan.
(b) Procedures
----------
If the Plan is administered by a Committee, the Board shall from time
to time select a Chairman from among the members of the Committee. The Committee
shall adopt such
3
<PAGE>
rules and regulations as it shall deem appropriate concerning the holding of
meetings and the administration of the Plan. A majority of the entire Committee
shall constitute a quorum and the actions of a majority of the members of the
Committee present at a meeting at which a quorum is present, or actions approved
in writing by all of the members of the Committee, shall be the actions of the
Committee.
(c) Interpretation
--------------
Except as otherwise expressly provided in the Plan, the Committee
shall have all powers with respect to the administration of the Plan, including
without limitation, full power and authority to interpret the provisions of the
Plan and any Option Agreement and to resolve all questions arising under the
Plan. All decisions of the Board or Committee, as the Case may be, shall be
conclusive and binding on all participants in the Plan.
3. SHARES OF STOCK SUBJECT TO THE PLAN
(a) Number of Shares
----------------
Subject to the provisions of Section 13 (relating to adjustments upon
changes in capital structure and other corporate transactions), the number of
shares of Common Stock subject at any one time to Options granted under the
Plan, plus the number of shares of Common Stock therefore issued and delivered
pursuant to the exercise of Options granted under the Plan, shall not exceed 260
shares. Anything contained in the Plan to the contrary notwithstanding in no
event shall the aggregate number of shares issuable upon the exercise of all
outstanding Options granted under the Plan at any time exceed the 30% limitation
of Title 10, California Administration Code, Section 260.140.45. If and to the
extent that Options granted under the Plan terminate, expire or are canceled
without having been fully exercised, new Options may be granted under the Plan
with respect to the shares of Common Stock covered by the unexercised portion of
such terminated, expired or canceled Options. The number of shares of Common
Stock reserved for issuance under the Plan shall at no time be less than the
maximum number of shares which may be purchased at any time pursuant to
outstanding Options.
(b) Character of Shares
-------------------
The shares of Common Stock issuable upon exercise of an Option
granted under the Plan shall be authorized but unissued shares of Common Stock.
4. ELIGIBILITY
(a) General
-------
Options may be granted under the Plan only to persons who are
employees or directors of, or consultants to, the Company or any of its
Subsidiaries. Options granted to employees of the Company or any of its
Subsidiaries shall be, in the discretion of the Committee, either ISOs or NSOs,
and Options granted to independent consultants to or directors of the Company or
any of its Subsidiaries who are not employees of the Company or any of its
4
<PAGE>
Subsidiaries shall be NSOs. Notwithstanding the foregoing, Options may be
conditionally granted to persons who are prospective employees or directors of,
or independent consultants to, the Company or any of its Subsidiaries; provided,
--------
however, that any such conditional grant of an ISO to a prospective employee
- -------
shall, by its terms, become effective no earlier than the date on which such
person actually becomes an employee of the Company or any of its Subsidiaries.
(b) Exceptions
----------
Notwithstanding anything contained in Section 4(a) to the contrary:
(i) no ISO may be granted under the Plan to an employee who
owns, directly or indirectly (within the meaning of Section 422(b)(6) and
425(d) of the Internal Revenue Code), stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of
its Parent, if any, or any of its Subsidiaries, unless (A) the Option Price
of the shares of Common Stock subject to such ISO is fixed at not less than
110% of the Fair Market Value on the date of grant (as determined in
accordance with Section 6(b)) of such shares and (B) such ISO by its terms
is not exercisable after the expiration of five years from the date it is
granted; and
(ii) no Options may be granted to any Person in any one taxable
year of the Company in excess of 33% of the total Options issued or
issuable under the Plan.
5. GRANT OF OPTIONS
(a) General
-------
Options may be granted under the Plan at any time and from time to
time on or prior to the Termination Date. Subject to the provisions of the
Plan, the Committee shall have plenary authority, in its sole discretion, to
determine:
(i) the persons (from among the class of persons eligible to
receive Options under the Plan) to whom Options shall be granted (each, an
"Optionee");
(ii) the time or times at which Options shall be granted;
(iii) the number of shares subject to each Option;
(iv) the Option Price of the shares subject to each Option,
which price, in the case of ISOs, shall be not less than the minimum
specified in Section 4(b)(i) or Section 6(a)(as applicable); and
(v) the time or times when each Option shall become
exercisable and the duration of the exercise period.
(b) Option Agreements
-----------------
5
<PAGE>
Each Option granted under the Plan shall be designated as an ISO or an
NSO and shall be subject to the terms and conditions applicable to ISOs and/or
NSOs (as the case may be) set forth in the Plan. Each Option shall specify the
number of shares for which such Option shall be exercisable and the exercise
price for each such share. In addition, each Option shall be evidenced by a
written agreement (an "Option Agreement"), containing such terms and conditions
and in such form, not inconsistent with the Plan, as the Committee shall, in its
discretion provide. Each Option Agreement shall be executed by the Company and
the Optionee.
(c) No Evidence of Employment or Service
------------------------------------
Nothing contained in the Plan or in any Option Agreement shall confer
upon any Optionee any right with respect to the continuation of his or her
employment by or service with the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any such Subsidiary
(subject to the terms of any separate agreement to the contrary) at any time to
terminate such employment or service or to increase or decrease the compensation
of the Optionee from the rate in existence at the time of the grant of an
Option.
(d) Date of Grant
-------------
The date of grant of an Option under this Plan shall be the date as of
which the Committee approves the grant; provided however, that in the case of an
-------- -------
ISO, the date of grant shall in no event be earlier than the date as of which
the Optionee becomes an employee of the Company or one of its Subsidiaries.
6. OPTION PRICE
(a) General
-------
The price (the "Option Price") at which each share subject to an Option
granted hereunder may be purchased shall be determined by the Committee at the
time the Option is granted; provided, however, that (i) in the case of an ISO,
-------- -------
such Option Price shall in no event be less than 100% (or 110% if Section
4(b)(i) hereof is applicable) of the Fair Market Value on the date of grant (as
determined in accordance with Section 6(b)) of such share of Common Stock, and
(ii) in the case of an NSO, such Option Price shall in no event be less than 85%
(or 110% if the Optionee is a person owning Stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or its
Parent or Subsidiary).
(b) Determination of Fair Market Value
----------------------------------
Subject to the requirements of Section 422 of the Internal Revenue
Code, for purposes of the Plan, the "Fair Market Value" of a share of Common
Stock shall be equal to:
(i) if the Common Stock is publicly traded, (x) the closing
price, if any trades were made on the business day immediately preceding the
date of grant and such information is available, otherwise the average of the
last bid and asked prices on the business day immediately preceding the date of
grant, in the over-the-counter market as
6
<PAGE>
reported by the National Association of Securities Dealers Quotations
System ("NASDAQ") or (y) if the Common Stock is then traded on a national
securities exchange, the closing price, if any trades were made and such
information is available, otherwise the average of the high and low prices
on the business day immediately preceding the date of grant, on the
principal national securities exchange on which it is so traded; or
(ii) if there is no public trading market for such shares, the fair
value of such share on the date of grant as determined by the Committee
after taking into consideration all factors that it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arms' length.
Anything contained in the Plan to the contrary notwithstanding, all
determinations pursuant to Section 6(b)(ii) shall be made without regard to any
restriction other than a restriction that, by its terms, will never lapse.
(c) Repricing of NSOs
-----------------
Subsequent to the date of grant of any NSO, the Committee may, at its
discretion and with the consent of the Optionee, establish a new Option Price
for such NSO so as to increase or decrease the Option Price of such NSO.
7. EXERCISABILITY OF OPTIONS
Each Option granted under the Plan shall be exercisable at such time
or times, or upon the occurrence of such event or events, and for such number of
shares subject to the Option, as shall be determined by the Committee and set
forth in the Option Agreement evidencing such Option; provided, however, that if
-------- -------
the Company files a registration statement under the Securities Act for the
initial public offering of its securities, no Option granted under the Plan
shall be exercisable, and no shares of Common Stock acquired upon the exercise
of any Option may be sold during the 180-day period immediately following the
effective date of such registration statement. Subject to the proviso of the
immediately preceding sentence, if an Option is not at the time of grant
immediately exercisable, the Committee y (i) in the Option Agreement evidencing
such Option, provide for the acceleration of the exercise date or dates of the
subject Option upon the occurrence of specified events and/or (ii) at any time
prior to the complete termination of an Option, accelerate the exercise date or
dates of such Option.
8. REPRESENTATIONS OF OPTIONEE.
---------------------------
In the event of the exercise of the Option at a time when there is
not in effect a registration statement under the Securities Act relating to the
Option Shares, the Optionee, by its acceptance and exercise of such Option,
shall be deemed to represent and warrant, to the Company that the Option Shares
being purchased are being acquired for investment only and not with a view to
the distribution thereof, and the Optionee shall provide the Company with such
further representations and warranties as the Company may require in order to
ensure compliance
7
<PAGE>
with applicable federal and state securities and other laws. No Option Shares
shall be purchased upon the exercise of an Option unless and until the Company
and the Optionee shall have complied with all applicable federal and state
registration, listing and qualification requirements and all other requirements
of law or of any regulatory agencies having jurisdiction.
9. REPURCHASE OF SHARES.
By his or her acceptance of, and if applicable exercise of, an Option
granted under the Plan, each Optionee represents, warrants and agrees to and
with the Company as follows:
(i) Such Optionee acknowledges that all Optioned Shares
acquired by such Optionee are subject to repurchase upon the occurrence of
certain events as provided in Article VIII of the Shareholders Agreement,
provided, however, that the last sentence of Section 8.3(d) of the
-------- -------
Shareholders Agreement shall not be applicable to such Optionee or to any
Optioned Shares acquired by such Optionee, but that in lieu of the
provisions of such sentence, the provisions of Section 9(b) below shall
apply.
(ii) For purposes of Section 8.3 of the Shareholders Agreement
as it relates to Optioned Shares acquired by such Optionee, if the
termination of the employment of the Optionee is for any reason other than
an Involuntary Termination, then the purchase price payable under such
Section 8.3 for the shares being repurchased from such Optionee and the
other Terminated Management Holders (as defined in the Shareholders
Agreement) shall be an amount equal to the original cost of such shares
paid by such Optionee upon exercise of the Option.
(iii) Except as modified by this Section 9 (which modifications
shall apply only to such Optionee), the provisions of Section 8.3 of the
Shareholders Agreement shall apply, in accordance with their respective
terms, to all shares acquired by such Optionee upon exercise of the Option.
10. TERMINATION OF OPTIONS
(a) Termination.
-----------
Each Option granted under the Plan shall automatically terminate and
shall become null and void and be of no further force or effect upon the first
to occur of the following:
(i) in the case of (A) an ISO, the tenth anniversary of the
date on which such Option is granted or, in the case of any ISO granted to
a person described in Section 5(b)(i), the fifth anniversary of the date on
which such ISO is granted, and (B) a NSO, the tenth anniversary of the date
on which such Option is granted;
(ii) the expiration of 12 months after the effective date of a
Termination of Relationship, if such termination is due to such Optionee's
death or permanent and total disability, within the meaning of Section
22(e)(3) of the Internal Revenue Code (an "Involuntary Termination");
8
<PAGE>
(iii) the expiration of 30 days after the effective date of a
Termination of Relationship other than an Involuntary Termination;
(iv) the expiration of such period of time or the occurrence
of such event as the Committee, in its discretion, may provide in the
Option Agreement governing such Option; and
(v) simultaneously with the consummation of an Asset Sale or
Stock Sale if at such time a payment is made to each Optionee in an amount,
if any, equal to the consideration that would have been received by such
Optionee in such transaction if such Optionee had exercised his Option for
all Vested Shares with respect to which the Option is then exercisable
(including any shares which would become Vested Shares upon consummation of
such transaction) immediately prior thereto, less the aggregate exercise
price of such Shares.
11. LIMITATIONS ON ISOs; NOTICE TO OPTIONEES GRANTED ISOs
In accordance with Section 422(d) of the Internal Revenue Code, the
aggregate Fair Market Value determined on the applicable date of grant of all
stock with respect to which incentive stock options are exercisable for the
first time by such Optionee during any calendar year (under all plans of the
Company and its subsidiaries) cannot exceed $100,000, and thus any options
granted to acquire such stock with an aggregate Fair Market Value determined on
the applicable date of grant in excess of $100,000 shall be treated as NSOs.
Under certain circumstances, the exercise of an ISO may disqualify the holder
from recovering the favorable tax benefits ISOs offer. For example, ISO tax
treatment is currently not available if (i) an ISO is exercised within one year
of its date of grant or (ii) if the shares issuable upon exercise of an ISO are
sold within two years of the grant date of such ISO. Therefore, the Company
recommends that each Optionee holding an ISO consult with a competent tax
advisor before taking any action with respect to his ISOs.
12. PROCEDURE FOR EXERCISE
(a) Payment
-------
Payment for shares shall accompany each notice of exercise, and
shall be made in full at the time of delivery to the Company of the Exercise
Notice therefor in cash or by personal or certified check payable to the Company
in an amount equal to the aggregate Option Price of the shares with respect to
which the Option is being exercised.
(b) Exercise Notice
---------------
An Optionee (or other person, as provided in Section 14(b)) may
exercise an Option (for Vested Shares represented thereby) granted under the
Plan in whole or in part (but for the purchase of whole shares only), as
provided in the Option Agreement evidencing his Option, by delivering a written
notice (the "Exercise Notice") to the Secretary of the Company. The Exercise
Notice shall state:
9
<PAGE>
(i) that the Optionee elects to exercise the Option;
(ii) the number of Vested Shares with respect to which the
Option is being exercised (the "Optioned Shares");
(iii) any representations of the Optionee required by the Plan or
Option Agreement;
(iv) the date upon which the Optionee desires to consummate the
purchase (which date must be prior to the termination of such Option);
(v) a copy of any election filed by the Optionee pursuant to
Section 83(b) of the Internal Revenue Code; and
(vi) such further provisions consistent with the Plan as the
Committee may from time to time require.
The exercise date of an Option shall be the date on which the Company receives
the Exercise Notice from the Optionee.
(c) Issuance of Certificates
------------------------
Unless waived by the Committee, if, at the time any Option is
exercised hereunder, outstanding stock of the Company is then pledged to secure
outstanding indebtedness of the Company, all shares issued upon such exercise
shall also be subject to such pledge, with certificates therefor being delivered
to the pledgee upon issuance by Company, and each Optionee exercising an Option
shall further execute a joinder agreement in form specified by the Committee
adopting and agreeing to become a party to such pledge agreement as a condition
to such exercise of the Option.
If at the time of exercise of an Option the Optionee is not a
party to the Shareholder Agreement, then, unless otherwise waived by the
Committee, as a condition to the exercise of such Option such Optionee shall
execute and deliver to the Company a joinder agreement in the form specified by
the Committee adopting and agreeing to become a party to the Shareholders
Agreement as a "Management Shareholder" thereunder.
The Company shall issue a stock certificate in the name of the
Optionee (or such other person exercising the Option in accordance with the
provisions of Section 14(b)) for the Optioned Shares as soon as practicable
after receipt of the Exercise Notice and payment of the aggregate Option Price
for such shares. Neither the Optionee nor any person exercising an Option in
accordance with the provisions of Section 14(b) shall have any privileges as a
stockholder of the Company with respect to any shares of stock subject to an
Option granted under the Plan until the date of issuance of a stock certificate
pursuant to this Section 12(c).
10
<PAGE>
(d) Optionee's Employment.
---------------------
Nothing in this Plan or in any Option Agreement or Option shall
confer upon the Optionee any right to continue in the employ of the Company or
any of its Affiliates or interfere in any way with the right of the Company or
its Affiliates or stockholders, as the case may be, to terminate the Optionee's
employment or to increase or decrease the Optionee's compensation at any time.
13. ADJUSTMENTS
(a) Changes in Capital Structure
----------------------------
If the Common Stock is changed by reason of a stock split, reverse
stock split, stock dividend or recapitalization, or converted into or exchanged
for other securities as a result of a merger, consolidation or reorganization,
the Committee shall make such adjustments in the number and class of shares of
stock available under the Plan as shall be equitable and appropriate. A
corresponding adjustment changing the number and class of shares allocated to,
and the Option Price of, each Option or portion thereof outstanding at the time
of such change shall likewise be made. Anything contained in the Plan to the
contrary notwithstanding, in the case of ISOs, no adjustment under this Section
13(a) shall be appropriate if such adjustment (i) would constitute a
modification, extension or renewal of such ISOs within the meaning of Sections
422 and 425 of the Internal Revenue Code, and the regulations promulgated by the
Treasury Department thereunder, or (ii) would, under Section 422 of the Internal
Revenue Code and the regulations promulgated by the Treasury Department
thereunder, be considered as the adoption of a new plan requiring stockholder
approval.
(b) Special Rules
-------------
The following rules shall apply in connection with Section 13(a)
above:
(i) no fractional shares shall be issued as a result of any
such adjustment, and any fractional shares resulting from the
computations pursuant to Section 14(a) shall be eliminated without
consideration from the respective Options;
(ii) no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares of
Common Stock or other securities; and
(iii) any adjustments referred to in Section 13(a) shall be
made by the Board in its sole discretion and shall be conclusive and
binding on all persons holding any Options granted under the Plan.
14. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES
(a) Compliance With Securities Laws
-------------------------------
11
<PAGE>
No Options shall be granted under the Plan, and no shares of Common Stock
shall be issued and delivered upon the exercise of Options granted under the
Plan, unless and until the Company and/or the Optionee shall have complied with
all applicable federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
The Company in its discretion may, as a condition to the exercise of any
Option granted under the Plan, require an Optionee (i) to represent in writing
that the shares of Common Stock received upon exercise of an Option are being
acquired for investment and not with a view to distribution and (ii) to make
such other representations and warranties as are deemed appropriate by the
Company. Stock certificates representing shares of Common Stock acquired upon
the exercise of Options that have not been registered under the Securities Act
shall, if required by the Board, bear the following legend and such additional
legends as may be required by the Option Agreement evidencing a particular
Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPTHECATED,
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE
ISSUER HEREOF THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
(b) Nonassignability of Option Rights
---------------------------------
No Option granted under this Plan shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. If an Optionee dies, his or her Option shall thereafter be
exercisable, during the period specified in Section 10(a)(i) or (ii) (as the
case may be ), by his or her executors or administrators to the full extent to
which such Option was exercisable by the Optionee at the time of his or her
death. The Option shall not be subject to execution, attachment or similar
process. Any attempted transfer of the Option contrary to the provisions hereof,
and the levy of any execution, attachment or similar process upon the Option,
shall be null and void and without effect.
15. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date (the "Effective Date")
of its adoption by the Board; provided, however, that no Option shall be
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company in accordance with the provisions of its
Articles of Incorporation and By-laws, which approval shall be obtained by a
simple majority of the votes that may be cast by the stockholders, voting either
in person or by proxy, at a duly held stockholders' meeting, or by written
consent in lieu of meeting, within 12 months before or after the adoption of the
Plan by the Board.
12
<PAGE>
16. TERMINATION OF THE PLAN
No Options may be granted after (i) the tenth anniversary of the date
on which the Plan is approved by the stockholders of the Company and (ii) the
date as of which the Committee, in its sole discretion, determines that the Plan
shall terminate. Any Option outstanding as of the Termination Date shall remain
in effect until they have been exercised or terminated or have expired by their
respective terms.
17. AMENDMENT OF PLAN
The Committee may, at any time prior to the Termination Date and with
the consent of the Board, modify and amend the Plan in any respect: provided,
--------
however; that the approval of the holders of a majority of the votes that may be
- -------
cast by all of the holders of shares of capital stock of the Company, entitled
to vote (voting as a single class) shall be obtained prior to any such amendment
becoming effective if such approval is required by law or is necessary to
comply with regulations promulgated by the SEC under Section 16(b) of the
Exchange Act or with Section 422 of the Internal Revenue Code or the regulations
promulgated by the Treasury Department thereunder.
18. FINANCIAL STATEMENTS
To the extent required pursuant to Title 10, California Administrative
Code, Section 260.140.46, annual financial statements shall be provided to
current Optionees.
19. CAPTIONS
The use of captions in this Plan is for convenience. The captions are
not intended to provide substantive rights.
20. DISQUALIFYING DISPOSITIONS
If Optioned Shares acquired by exercise of an ISO granted under this
Plan are disposed of within two years following the date of grant of the ISO or
one year following the issuance of the Optioned Shares to the Optionee (a
"Disqualifying Disposition"), the holder of the Optioned Shares shall,
immediately prior to such Disqualifying Disposition, notify the Company in
writing of the date and terms of such Disqualifying Disposition and provide such
other information regarding the Disqualifying Disposition as the Company may
reasonably require.
21. WITHHOLDING TAXES
Whenever under the Plan shares of Common Stock are to be delivered by
an Optionee upon exercise of an NSO, the Company shall be entitled to require as
a condition of delivery that the Optionee remit or, in appropriate cases, agree
to remit when due, an amount sufficient to satisfy all current or estimated
future federal, state and local withholding tax, and employment tax requirements
relating thereto in the event that such remittance is required to allow the
Company to receive a deduction in connection with the delivery of such Common
13
<PAGE>
Stock or to the extent the Company is unable to satisfy its withholding
obligations out of other amounts due from the Company to the Optionee. At the
time of a Disqualifying Disposition, the Optionee shall remit to the Company in
cash the amount of any applicable federal, state and local withholding taxes and
employment taxes.
22. OTHER PROVISIONS
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Committee,
in its sole discretion. Notwithstanding the foregoing, each ISO granted under
the Plan shall include those terms and conditions that are necessary to qualify
the ISO as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code and the regulations thereunder and shall not include any
terms or conditions that are inconsistent therewith.
23. OPTIONEE'S UNDERTAKING.
The Optionee hereby agrees to take whatever additional actions and
execute whatever additional documents the Company may in its reasonable judgment
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on the Optionee pursuant to the express
provisions of this Plan.
24. MODIFICATION; WAIVER.
The rights of the Optionee are subject to modification and termination
in certain events as provided in this Plan. Any waiver by the Company of a
breach of any provision of this Agreement must be in writing and shall not
operate or be construed as a waiver of any other or subsequent breach.
25. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine gender,
and vice-versa, as the context requires.
26. GOVERNING LAW
All questions concerning the construction, interpretation and validity
of this Plan and the instruments evidencing the Options granted hereunder shall
be governed by and construed and enforced in accordance with the domestic laws
of the State of California, without giving effect to any choice or conflict of
law provision or rule (whether in the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. In furtherance of the foregoing, the
internal law of the State of California will control the interpretation and
construction of this Agreement, ever if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
14
<PAGE>
27. NOTICES
All notices, claims, certificates, requests, demands and other
communications to be given in connection with this Plan or any Option Agreement
shall be in writing and shall be deemed to have been duly given and delivered if
personally delivered or if sent by nationally-recognized overnight courier, by
telecopy, or by registered or certified mail, return receipt requested and
postage prepaid, addressed as follows:
(i) if to the Company, to it:
Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention: Chairman of the Board
Telecopier: (714) 630-6933
Telephone: (714) 630-4077
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: John J. Suydam, Esq.
Telecopier: (212) 408-2420
Telephone: (212) 408-2400;
(ii) if to an Optionee, to him at his address last appearing in
the records of the Company;
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date sent), (ii) in the case of
nationally-recognized overnight courier, on the next business day after the date
sent, (iii) in the case of telecopy transmission, when received (or if not sent
on a business day, on the next business day after the date sent), and (iv) in
the case of mailing, on the third business day following that on which the piece
of mail containing such communication is posted.
As adopted by the Board of Directors
of Details, Inc., on December 31, 1996.
15
<PAGE>
DETAILS, INC.
1996 Performance Stock Option Plan
----------------------------------
1. PURPOSE OF THE PLAN
The purpose of the DETAILS, INC., 1996 PERFORMANCE STOCK OPTION PLAN
(the "Plan") is (i) to further the growth and success of DETAILS, INC., a
California corporation (the "Company"), and its Subsidiaries (as hereinafter
defined) by enabling employees of the Company and its Subsidiaries to acquire
shares of Common Stock, no par value (the "Common Stock"), of the Company,
thereby increasing their personal interest in such growth and success, and (ii)
to provide a means of rewarding outstanding performance by such persons to the
Company and/or its Subsidiaries. Options granted under the Plan may be either
"incentive stock options" ("ISOs"), intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options ("NSOs"). In this Plan, the terms
"Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary
Corporation," respectively, as such terms are defined in Sections 424(e) and (f)
of the Code. Unless the context otherwise requires, any ISO or NSO is referred
to in this Plan as an "Option."
2. DEFINITIONS
As used in the Plan, the following capitalized terms have the
meanings set forth below:
"Acquisition" shall mean the purchase by the Company or any
Subsidiary of all or a substantial portion of the assets or stock of
another Person, whether by means of an asset acquisition, stock
purchase, merger or otherwise.
"Affiliate" means, with respect to any Person, (i) a
director or executive officer of such Person, (ii) a spouse, parent,
sibling or descendant of such Person (or a spouse, parent, sibling or
descendant of any director or executive officer of such Person), and
(iii) any other Person that, directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control
with such Person. For the purpose of the above definition, the term
"control" (including, with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect
to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
<PAGE>
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Asset Sale" means a sale or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries on a consolidated basis
and shall include the sale of all or substantially all of the capital stock of
Details.
""Board" has the meaning given to it in Section 3(a).
"Closing Price" means, as of the date preceding the date of
calculation, the average closing sales price of shares of Common Stock of the
Company on the twenty (20) business days immediately preceding the time of such
determination, as reported by NASDAQ or the national securities exchange on
which such shares are traded.
"Code" has the meaning given to it in Section 1.
"Committee" has the meaning given to it in Section 3(a).
"Company" has the meaning given to it Section 1.
"Tranche II Cumulative EBITDA Target," with respect to any Scheduled
Vesting Date, means the amount set forth on Annex I under the heading "Tranche
II Cumulative EBITDA Target."
"EBITDA" means the earnings of the Company and its consolidated
subsidiaries before interest expense, provision for income taxes, depreciation
and amortization. EBITDA shall be computed based upon the Company's audited
consolidated financial statements for the relevant fiscal period.
"Effective Date" has the meaning given to it in Section 13 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Implied Value" of the Investor Shares means the value of the Investor
Shares calculated as the product of (i) the total number of Investor Shares at
the time of such determination times (ii) the Closing Price.
"Initial Public Offering" means the initial public offering of Common
Stock of the Company pursuant to a registration statement declared effective
under the Securities Act, other than an offering made in connection with a
business acquisition or an employee benefit plan.
-2-
<PAGE>
"Investor Shares" means, collectively, the 5,357.3 shares of Series A
Preferred issued by the Company to the Original Investor on the Original
Issuance Date.
"Investors" shall mean, at any time, the holders of the Investor Shares.
"IRR" means, with respect to the Investor Shares at the time of a
Liquidity Event, the pre-tax, compounded annual internal rate of return realized
thereon, calculated on a pro forma basis after giving effect to the vesting, if
--- -----
any, of the Reserved Shares that vest (and become Vested Shares) pursuant to
Sections 7 and 7A and the exercise of Options to purchase such Vested Shares
(including any Reserved Shares vesting in connection with an event for which the
IRR is being calculated), assuming all Investor Shares were purchased by one
Person on the Original Issuance Date at a price equal to the Original Purchase
Price and all such Investor Shares were held continuously by such Person from
the Original Issuance Date through the date of such Liquidity Event. In
calculating such IRR, there shall be included as a return on the Investor Shares
any cash dividends or distributions made by the Company on or with respect to
the Investor Shares during such period.
"ISOs" has the meaning given to it in Section 1.
"Joinder Agreement" has the meaning given to it in the Stockholders
Agreement.
"Liquidity Event" means the consummation of an Asset Sale or a Stock
Sale or the occurrence of a Public Float Event.
"Net Proceeds" means the proceeds received, or to be received, by the
holders of the Investor Shares on or in consideration for such shares in
connection with an Asset Sale or Stock Sale, net of all expenses incurred by the
Investors in connection therewith that are allocable to such shares other than
taxes payable by the Investors in respect of any income or gain recognized on
receipt of such net proceeds.
"NSOs" has the meaning given to it in Section 1.
"Option" has the meaning given to it in Section 1.
"Option Agreement" has the meaning given to it in Section 5(b).
"Optionee" has the meaning given to it in Section 5(a).
-3-
<PAGE>
"Original Investors" means, collectively, Chase Manhattan Capital
Corporation and its Affiliates (including Baseball Partners, a New York general
partnership).
"Original Issuance Date" means January 31, 1996.
"Original Purchase Price" means, with respect to each share of Series A
Preferred, $2,178.65.
"Parent" has the meaning given to it in Section 1.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a governmental entity or any department, agency or political subdivision
thereof.
"Plan" has the meaning given to it in Section 1.
"Preferred Stock" has the meaning given to it in Section 1.
"Public Float Event" means that time, occurring after the first
anniversary of the consummation of an Initial Public Offering, when the Value of
the Unrestricted Shares equals or exceeds $75 million.
"Reserved Shares" means, collectively, the Tranche I Reserved Shares and
the Tranche II Reserved Shares.
"Rule 16b-3" has the meaning given to it in Section 3(a).
"Scheduled Vesting Date" means May 1 of each of 1997, 1998, 1999, 2000
and 2001.
"SEC" has the meaning given to it in Section 3(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred" means the Series A Preferred Sock, no par value, of
the Company.
"Stockholders Agreement" means the Stockholders Agreement as of January
31, 1996, and as hereafter amended from time to time, among the Company and the
stockholders of the Company named therein.
"Stock Sale" means a sale or other disposition of all or substantially
all of the outstanding capital stock of the Company, whether by way of merger or
otherwise.
-4-
<PAGE>
"Subsidiary" has the meaning given to it in Section 1.
"Target IRR," with respect to any Liquidity Event, means an IRR of 30%.
"Termination Date" means the earlier to occur of a Liquidity Event or
the tenth anniversary of the Effective Date.
"Termination of Relationship" means if the Optionee is an employee of or
consultant to the Company or any Subsidiary, the termination of the Optionee's
employment (in the case of an Optionee who is an employee) or consulting
relationship (in the case of an Optionee who is a consultant) with the Company
or its Subsidiaries for any reason.
"Tranche II Cumulative EBITDA" means, with respect to any fiscal year of
the Company set forth on Annex I, the EBITDA of the Company and its consolidated
subsidiaries for the period commencing on January 1, 1996, and ending on the
last day of such fiscal year (with such period being treated as one accounting
period for such purposes).
"Tranche I EBITDA Target" means, with respect to any Scheduled Vesting
Date or fiscal year of the Company set forth on Annex I, the amount set forth on
Annex I opposite such Scheduled Vesting Date or fiscal year under the heading
"Tranche I EBITDA Target."
"Tranche II EBITDA Target" means, with respect to any Scheduled Vesting
Date or fiscal year of the Company set forth on Annex I, the amount set forth on
Annex I opposite such Scheduled Vesting Date or fiscal year under the heading
"Tranche II EBITDA Target."
"Tranche I Option" means an Option to purchase Tranche I Vested Shares.
"Tranche II Option" means an Option to purchase Tranche II Vested
Shares.
"Tranche I Reserved Shares" means, at any time, an aggregate of 880
shares of Common Stock.
"Tranche II Reserved Shares" means, at any time, an aggregate of 929
shares of Common Stock.
"Tranche I Vested Shares" means the Tranche I Reserved Shares, if any,
that vest in accordance with Section 7 of this Plan.
-5-
<PAGE>
"Tranche II Vested Shares" means the Tranche II Reserved
Shares, if any, that vest in accordance with Section 7A of this Plan.
"Transfer" means, with respect to any Shares, to sell, or in
any other way transfer, assign, pledge, distribute, encumber or otherwise
dispose of (including, without limitation, the foreclosure or other
acquisition by any lender with respect to any shares pledged to such lender
by an Optionee), such shares, either voluntarily or involuntarily and with
or without consideration.
"Value of Unrestricted Shares," at any time after the first
anniversary of the consummation of an Initial Public Offering, means the
product of (i) the total number of shares of Common Stock of the Company
outstanding at such time that are not restricted securities within the
meaning of Rule 144 under the Securities Act, times (ii) the Closing Price.
"Vested Shares" means, collectively, the Tranche I Vested
Shares and the Tranche II Vested Shares, if any.
3. ADMINISTRATION OF THE PLAN
(a) Stock Option Committee
----------------------
The Plan shall be administered by the Board of Directors of the
Company (the "Board") or a three-person stock option committee (the "Committee")
appointed from time to time by the Board, which Committee shall have the power
and authority to grant Options under the Plan; provided, however, that, so long
-------- -------
as it shall be required to comply with Rule 16b-3 ("Rule 16b-3") promulgated by
the Securities and Exchange Commission (the "SEC")under the Exchange Act in
order to permit officers and directors of the Company to be exempt from the
provisions of Section 16(b) of the Exchange Act with respect to transactions
effected pursuant to the Plan, each of such persons, at the effective date of
his or her appointment to the Committee, shall be a "disinterested person"
within the meaning of Rule 16b-3. The members of the Committee may be removed by
the Board at any time either with or without cause. Any vacancy on the
Committee, whether due to action of the Board or any other cause, shall be
filled by the Board. The term "Committee" shall, for all purposes of the Plan
other than this Section, be deemed to refer to the Board if the Board is
administering the Plan.
(b) Procedures
----------
If the Plan is administered by a Committee, the Board shall from time
to time select a Chairman from among the members of the Committee. The Committee
shall adopt such rules and regulations as it shall deem appropriate concerning
the holding of meetings and the administration of the Plan. A majority of
-6-
<PAGE>
the entire Committee shall constitute a quorum and the actions of a majority of
the members of the Committee present at a meeting at which a quorum is present,
or actions approved in writing by all of the members of the Committee, shall be
the actions of the Committee.
(c) Interpretation
--------------
Except as otherwise expressly provided in the Plan, the Committee
shall have all powers with respect to the administration of the Plan, including
without limitation, full power and authority to interpret the provisions of the
Plan and any Option Agreement (as defined in Section 5 (b)) and to resolve all
questions arising under the Plan. All decisions of the Board or the Committee,
as the case may be, shall be conclusive and binding on all participants in the
Plan.
4. ELIGIBILITY
(a) General
-------
Options may be granted under the Plan only to persons who are
employees of, or consultants to, the Company or any of its Subsidiaries. Options
granted to employees of, or consultants to, the Company or any of its
Subsidiaries shall be, in the discretion of the Committee, either ISOs or NSOs.
(b) Exceptions
----------
Notwithstanding anything contained in Section 4(a) to the contrary:
(i) no ISO may be granted under the Plan to an employee who
owns, directly or indirectly (within the meaning of Sections 422(b) (6)
and 425(d) of the Code), stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its
Parent, if any, or any of its Subsidiaries, unless (A) the Option Price (as
defined in Section 6(a) of the shares of Common Stock subject to such ISO
is fixed at not less than 110% of the Fair Market Value on the date of
grant (as determined in accordance with Section 6(b)) of such shares and
(B) such ISO by its terms is not exercisable after the expiration of five
years from the date it is granted;
(ii) no Option may be granted to (A) a person who has been
appointed pursuant to Section 3(a) to serve on the Committee effective as
of a future date at any time during the period from the date such
appointment is made to the date such appointment is to become effective or
(B) to a person who is serving as a member of the Committee; and
-7-
<PAGE>
(iii) no Options may be granted to any Person in any one
taxable year of the Company in excess of 33% of the total Options issued or
issuable under the Plan.
5. GRANT OF OPTIONS
(a) General
-------
Options may be granted under the Plan at any time and from time to
time on or prior to the Termination Date. Subject to the provisions of the Plan,
the Committee shall have plenary authority, in its sole discretion, to
determine:
(i) the persons (from among the class of persons eligible to
receive Options under the Plan) to whom Options shall be granted (the
"Optionees");
(ii) the time or times at which Options shall be granted;
(iii) the percentage of the Vested Shares subject to each
Option; and
(iv) the Option Price of the shares subject to each Option,
which price, in the case of ISOs, shall be not less than the minimum specified
in Section 4(b) (i) or Section 6(a) (as applicable).
(b) Option Agreements
-----------------
Each Option granted under the Plan shall be designated as an ISO or
an NSO and shall be subject to the terms and conditions applicable to ISOs
and/or NSOs (as the case may be) set forth in the Plan. Each Option shall
specify the percentage of the Tranche I Vested Shares and/or Tranche II Vested
Shares for which such Option shall be exercisable and the exercise price for
each such Vested Share. In addition, each Option shall be evidenced by a written
agreement (an "Option Agreement"), in substantially the form of Exhibit A for an
---------
ISO and Exhibit B for an NSO, with such changes thereto as are consistent with
---------
the Plan as the Committee shall deem appropriate. Each Option Agreement shall be
executed by the Company and the Optionee.
(c) No Evidence of Employment or Service
------------------------------------
Nothing contained in the Plan or in any Option Agreement shall confer
upon any Optionee any right with respect to the continuation of his or her
employment by or service with the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any such Subsidiary
(subject to the terms of any separate agreement to the contrary) at any time to
terminate such employment or service or to increase or decrease the compensation
of the Optionee from the rate in existence at the time of the grant of an
Option.
-8-
<PAGE>
(d) Date of Grant
-------------
The date of grant of an Option under this Plan shall be the date as of
which the Committee approves the grant; provided, however, that in the case of
-------- -------
an ISO, the date of grant shall in no event be earlier than the date as of which
the Optionee becomes an employee of the Company or one of its Subsidiaries.
(e) Shares
------
Options shall be granted to purchase a specified percentage of the
Tranche I Reserved Shares and/or Tranche II Reserved Shares that become Tranche
I Reserved Shares and/or Tranche II Vested Shares, respectively. All Options
shall be exercisable for Common Stock.
6. OPTION PRICE
(a) General
-------
The price (the "Option Price") at which each Vested Share may be
purchased shall be determined by the Committee at the time the Option is
granted; provided, however, that in the case of an ISO, such Option Price shall
-------- -------
in no event be less than 100% (or 110% if Section 4(b) (i) hereof is applicable)
of the Fair Market Value on the date of grant (as determined in accordance with
Section 6(b)) of such share of Common Stock.
(b) Determination of Fair Market Value
----------------------------------
Subject to the requirements of Section 422 of the Code, for purposes of
the Plan, the "Fair Market Value" of shares of the Common Stock shall be equal
to:
(i) if the Common Stock is publicly traded, (x) the closing price,
if any trades were made on the business day immediately preceding the date
of grant and such information is available, otherwise the average of the
last bid and asked prices on the business day immediately preceding the date
of grant, in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") or
(y) if the Common Stock is then traded on a national securities exchange,
the closing price, if any trades were made and such information is
available, otherwise the average of the high and low prices on the business
day immediately preceding the date of grant, on the principal national
securities exchange on which it is so traded; or
(ii) if there is no public trading market for such shares, the fair
value of such shares on the date of grant as determined by the Committee
after taking into consideration all factors that it deems
-9-
<PAGE>
appropriate, including, without limitation, recent sale and offer prices of
the Common Stock in private transactions negotiated at arms' length.
Anything contained in the Plan to the contrary notwithstanding, all
determinations pursuant to Section 6(b)(ii) shall be made without regard to any
restriction other than a restriction that, by its terms, will never lapse.
(c) Repricing of NSOs
-----------------
Subsequent to the date of grant of any NSO, the Committee may, at its
discretion and with the consent of the Optionee, establish a new Option Price
for such NSO so as to increase or decrease the Option Price of such NSO.
7. VESTING OF TRANCHE I RESERVED SHARES
(a) General. Unless accelerated in the sole discretion of the
-------
Committee, each Tranche I Option granted pursuant to the Plan shall be
exercisable for a specified percentage of the Tranche I Reserved Shares that
vest in accordance with this Section 7.
(b) Annual Performance. If the Company's EBITDA for any fiscal year
------------------
set forth on Annex I with respect to Tranche I Options equals or exceeds the
Tranche I EBITDA Target for such fiscal year set forth on Annex I, then on the
next Scheduled Vesting Date following such fiscal year that number of Tranche I
Reserved Shares set forth opposite such Scheduled Vesting Date under the heading
"Vested Shares" shall vest. Subject to Section 7(c), if the Company fails to
meet the Tranche I EBITDA Target for any fiscal year set forth on Annex I, then
the Tranche I Reserved Shares that would have otherwise vested on the next
Scheduled Vesting Date following such fiscal year shall cease to be Reserved
Shares under the Plan and shall no longer be subject to Options granted under
the Plan. If the Company makes any capital expenditures not contemplated by the
---------------------------------------------------------------------
projections upon which the Tranche I EBITDA Targets are based, or consummates
- ---------------- --------------
any Acquisition or other extraordinary transaction, the Board of Directors will
- -------------------------------------------------------------------------------
determine in good faith appropriate adjustments to the Tranche I EBITDA Targets
- -----------------------------------------------
and will give the Optionee notice of such adjustments, along with a brief
summary of the calculations upon which such adjustments were based.
(c) Liquidity Event. If a Liquidity Event occurs at anytime on or
---------------
prior to December 31, 2000, then upon the occurrence of such Liquidity Event or
as promptly thereafter as practical, the Committee shall determine in good faith
the IRR on the Investor Shares in accordance with generally accepted financial
practices and in accordance with the following;
(i) if the Liquidity Event is a Public Float Event, then the IRR on the
Investor Shares shall be determined on
-10-
<PAGE>
the basis of the Implied Value of the Investor Shares at the time of such
Public Float Event;
(ii) if the Liquidity Event is an Asset Sale, then the IRR on the
Investor Shares shall be determined on the basis of the pro forma Net
--- -----
Proceeds that would be distributed to the holders of the Investor Shares,
after payment or provision of all liabilities of the Company and its
Subsidiaries has been made, if the Company was liquidated immediately
following the occurrence of such Asset Sale; and
(iii) if the Liquidity Event is a Stock Sale, then the IRR on the
Investor Shares shall be determined on the basis of the Net Proceeds
actually received by the holders of the Investor Shares in such Stock Sale.
If the IRR on the Investor Shares with respect to a Liquidity Event occurring on
or prior to December 31, 2000, equals or exceeds the Target IRR, all of the
remaining Tranche I Reserved Shares that were eligible to vest after such
Liquidity Event shall vest upon the occurrence or consummation of such Liquidity
Event. If the IRR on the Investor Shares with respect to a Liquidity Event
occurring on or prior to December 31, 2000, is less than the Target IRR, the
remaining Tranche I Reserved Shares that have not theretofore vested shall cease
to be Reserved Shares under the Plan and shall no longer be subject to Options
granted under the Plan. All decisions by the Committee with respect to any
determination of the IRR shall be final and binding on all Optionees.
7A. VESTING OF TRANCHE II RESERVED SHARES
(a) General. Unless accelerated in the sole discretion of the
-------
Committee, each Tranche II Option granted pursuant to the Plan shall be
exercisable for a specified percentage of the Tranche II Reserved Shares that
vest in accordance with this Section 7A.
(b) Annual Performance. (i) If the Company's EBITDA for any
------------------
fiscal year set forth on Annex I with respect to Tranche II Options equals or
exceeds the Tranche II EBITDA Target for such fiscal year set forth on Annex I,
then on the next Scheduled Vesting Date following such fiscal year that number
of Tranche II Reserved Shares set forth opposite such Scheduled Vesting Date
under the heading "Vested Shares" shall vest. Subject to Section 7A(b) (ii), if
the Company fails to meet the Tranche II EBITDA Target for any fiscal year set
forth on Annex I, then the Tranche II Reserved Shares that would have otherwise
vested on the next Scheduled Vesting Date following such fiscal year (the
"Terminated Portion") shall cease to be Reserved Shares under the Plan and shall
no longer be subject to Options granted under the Plan.
-11-
<PAGE>
(ii) Anything contained in Section 7A(b)(i) to the contrary
notwithstanding, if, with respect to any fiscal year set forth on Annex I (other
than the fiscal year ending December 31, 1996), the Company's EBITDA for such
fiscal year is equal to or greater than the Tranche II EBITDA Target for such
fiscal year set forth on Annex I or the Company's Cumulative EBITDA for such
fiscal year is equal to or greater than the Tranche II Cumulative EBITDA Target
for such fiscal year set forth on Annex I, then the Terminated Portion or
Portions of the Tranche II Reserved Shares shall vest on the Scheduled Vesting
Date following such fiscal year together with the portion of the Tranche II
Reserved Shares scheduled to vest on such Scheduled Vesting Date.
(iii) If the Company makes any capital expenditures not
contemplated by the projections upon which the Tranche II EBITDA Targets and
Tranche II Cumulative EBITDA Targets are based, or consummates any Acquisition
or other extraordinary transaction, the Board of Directors will determine in
good faith appropriate adjustments to the Tranche II EBITDA Targets and Tranche
II Cumulative EBITDA Targets and will give the Optionees notice of such
adjustments, along with a brief summary of the calculations upon which such
adjustments were based.
(c) Liquidity Event. If an Asset Sale or a Stock Sale occurs at any
---------------
time on or prior to December 31, 2000, then upon such event or as promptly as
practicable thereafter, the Committee shall determine in good faith the IRR on
the Investor Shares in accordance with Section 7(c) of this Plan. If the IRR on
the Investor Shares with respect to such Asset Sale or Stock Sale occurring on
------------------------------------------
or prior to December 31, 2000 equals or exceeds the Target IRR, all of the
- --------------------------------------------------------------------------
remaining Tranche II Reserves Shares that were eligible to vest after such Asset
- --------------------------------------------------------------------------------
Sale or Stock Sale shall vest upon the occurrence or consummation of such event.
- -------------------------------------------------------------------------------
If the IRR on the Investor Shares with respect to such Asset Sale or Stock Sale
occurring on or prior to December 31, 2000 is less than the Target IRR, the
remaining Tranche II Reserved Shares that have not theretofore vested shall
cease to be Reserved Shares under the Plan and shall no longer be subject to
Options granted under the Plan. All decisions by the Committee with respect to
any determination of the IRR shall be final and binding on all Optionees.
8. TERMINATION OF OPTION
(a) Each Option granted under the Plan shall automatically terminate
and shall become null and void and be of no further force or effect upon the
first to occur of the following:
(i) (A) in the case of an ISO, the tenth anniversary of the date
on which such Option is granted or, in the case of any ISO granted to a
person described in Section 5(b)(i), the fifth anniversary of the date on
which such ISO is granted, and (B) in the
-12-
<PAGE>
case of a NSO, the tenth anniversary of the date on which such Option is
granted;
(ii) the expiration of 90 days from the effective date of a
Termination of Relationship (other than as a result of an Involuntary
Termination (as defined in clause (iii) below)) or a Termination For Cause
(as defined in clause (iv) below); provided, however, that if the Optionee
-------- -------
shall die during such 90-day period, the time of termination of the
unexercised portion of such Option shall be the expiration of 12 months
from such effective date;
(iii) the expiration of 12 months after the effective date of a
Termination of Relationship, if such termination is due to such Optionee's
death or permanent and total disability, within the meaning of Section
22(e)(3) of the Code (as "Involuntary Termination");
(iv) immediately upon a Termination of Relationship, if such
termination is for cause, as determined in accordance with the provisions
of an employment agreement between the Optionee and the Company (provided
that cause shall not be deemed to include the death or disability of
Optionee), or if no such agreement exists, as determined by the Committee
in good faith, or is otherwise attributable to a breach by the Optionee of
an employment or other agreement with the Company or any of its
Subsidiaries (a "Termination For Cause");
(v) the expiration of such period of time or the occurrence
of such event as the Committee, in its discretion, may provide in the
Option Agreement governing such Option; and
(vi) simultaneously with the consummation of an Asset Sale or
Stock Sale if at such time a payment is made to each Optionee in an amount,
if any, equal to the consideration that would have been received by such
Optionee in such transaction if such Optionee had exercised his Option for
all Vested shares (including any shares which would become Vested Shares
upon consummation of such transaction) immediately prior thereto, less the
aggregate exercise price of such Vested Shares.
(b) The Committee shall have the power to determine what
constitutes a Termination For Cause for Purposes of the Plan, and the date upon
which such Termination For Cause shall occur. All such determinations shall be
final and conclusive and binding upon the Optionee.
-13-
<PAGE>
9. LIMITATIONS ON ISOs; NOTICE TO OPTIONEES GRANTED ISOs
In accordance with Section 422(d) of the Code, the aggregate Fair
Market Value determined on the applicable date of grant of all stock with
respect to which incentive stock options are exercisable for the first time by
such Optionee during any calendar year (under all plans of the Company and its
subsidiaries) cannot exceed $100,000, and thus any options granted to acquire
such stock with an aggregate Fair Market Value determined on the applicable date
of grant in excess of $100,000 shall be treated as NSOs.
Under certain circumstances, the exercise of an ISO may disqualify
the holder from recovering the favorable tax benefits ISOs offer. For example,
ISO tax treatment is currently not available if (i) an ISO is exercised within
one year of its date of grant or (ii) if the shares issuable upon exercise of an
ISO are sold within two years of the grant date of such ISO. Therefore, the
Company recommends that each Optionee holding an ISO consult with a competent
tax advisor before taking any action with respect to his ISOs.
10. PROCEDURE FOR EXERCISE
(a) Payment
-------
At the time an Option is granted under the Plan, the Committee shall,
in its discretion, specify one or more of the following forms of payment that
may be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to the
Company in an amount equal to the aggregate Option Price of the shares with
respect to which the Option is being exercised;
(ii) stock certificates (in negotiable form) representing
shares of Common Stock having a Fair Market Value on the date of exercise
(as determined in accordance with Section 6(b), with all references therein
to the "date of exercise" equal to the aggregate Option Price of the shares
with respect to which the Option is being exercised;
(iii) Options to purchase Vested Shares, valued for such
purposes at the Fair Market Value per share of Common Stock on the date of
exercise (as determined in accordance with Section 6(b), with all
references therein to the "date of grant" meaning the "date of exercise",
net of the exercise price for each such share; or
-14-
<PAGE>
(iv) a combination of the methods set forth in clauses (i),
(ii) and (iii).
(b) Notice
------
An Optionee (or other person, as provided in Section 12(b)) may
exercise an Option (for Vested Shares represented thereby) granted under the
Plan in whole or in part (but for the purchase of whole shares only), as
provided in the Option Agreement evidencing his Option, by delivering a written
notice (the "Notice") to the Secretary of the Company. The Notice shall state:
(i) that the Optionee elects to exercise the Option;
(ii) the number of Vested Shares with respect to which the
Option is being exercised (the "Optioned Shares");
(iii) any representations of the Optionee required by the Plan
or Option Agreement;
(iv) the method of payment for the Optioned Shares (which
method must be available to the Optionee under the terms of his Option
Agreement);
(v) the date upon which the Optionee desires to consummate
the purchase (which date must be prior to the termination of such Option);
(vi) a copy of any election filed by the Optionee pursuant to
Section 83(b) of the Code; and
(vii) such further provisions consistent with the Plan as the
Committee may from time to time require.
The exercise date of an Option shall be the date on which the Company
receives the Notice from the Optionee. Such Notice shall also contain, to the
extent such Optionee is not then a party to the Stockholders Agreement, a
Joinder Agreement.
(c) Issuance of Certificates
------------------------
The Company shall issue a stock certificate in the name of the
Optionee (or such other person exercising the Option in accordance with the
provisions of Section 12(b)) for the Optioned Shares as soon as practicable
after receipt of the Notice and payment of the aggregate Option Price for such
shares. Neither the Optionee nor any person exercising an Option in accordance
with the provisions of Section 12(b) shall have any privileges as a stockholder
of the Company with respect to any shares of stock subject to an Option granted
under the Plan until the date of issuance of a stock certificate pursuant to
this Section 10(c).
-15-
<PAGE>
11. ADJUSTMENTS
(a) Changes in Capital Structure
----------------------------
If the Common Stock is changed by reason of a stock split, reverse
stock split, stock dividend or recapitalization, or converted into or exchanged
for other securities as a result of a merger, consolidation or reorganization,
the Committee shall make such adjustments in the number and class of shares of
stock available under the Plan as shall be equitable and appropriate. A
corresponding adjustment changing the number and class of shares allocated to,
and the Option Price of, each Option or portion thereof outstanding at the time
of such change shall likewise be made. Anything contained in the Plan to the
contrary likewise be made. Anything contained in the Plan to the contrary
notwithstanding, in the case of ISOs, no adjustment under this Section II(a)
shall be appropriate if such adjustment (i) would constitute a modification,
extension or renewal of such ISOs within the meaning of Sections 422 and 425 of
the Code, and the regulations promulgated by the Treasury Department thereunder,
or (ii) would, under Section 422 of the Code and the regulations promulgated by
the Treasury Department thereunder, be considered as the adoption of a new plan
requiring stockholder approval.
(b) Special Rules
-------------
The following rules shall apply in connection with Section 11(a)
above:
(i) no fractional shares shall be issued as a result of any
such adjustment, and any fractional shares resulting from the computations
pursuant to Section 12(a) shall be eliminated without consideration from
the respective Options;
(ii) no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares of
Common Stock or other securities; and
(iii) any adjustments referred to in Section 11(a) shall be
made by the Board in its sole discretion and shall be conclusive and
binding on all persons holding any Options granted under the Plan.
12. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES
(a) Compliance With Securities Laws
-------------------------------
No Options shall be granted under the Plan, and no shares of Common
Stock shall be issued and delivered upon the exercise of Options granted under
the Plan, unless and until the Company and/or the Optionee shall have complied
with all applicable federal or state registration, listing and/or
-16-
<PAGE>
qualification requirements and all other requirements of law or of any
regulatory agencies having jurisdiction.
The Company in its discretion may, as a condition to the exercise of
any Option granted under the Plan, require an Optionee (i) to represent in
writing that the shares of Common Stock received upon exercise of an Option are
being acquired for investment and not with a view to distribution and (ii) to
make such other representations and warranties as are deemed appropriate by the
Company. Stock certificates representing shares of Common Stock acquired upon
the exercise of Options that have not been registered under the Securities Act
shall, if required by the Board, bear the following legend and such additional
legends as may be required by the Option Agreement evidencing a particular
Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE
ISSUER HEREOF THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
(b) Nonassignability of Option Rights
---------------------------------
No Option granted under this Plan shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. If an Optionee dies, his or her Option shall thereafter be
exercisable, during the period specified in Section 8(a)(i) or (ii) (as the case
may be), by his or her executors or administrators to the full extent to which
such Option was exercisable by the Optionee at the time of his or her death.
Before issuing any Options to any Person who is not already a party
to the Stockholders Agreement, the Company shall obtain a duly executed Joinder
Agreement (as defined in the Stockholders Agreement) from such person.
13. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date (the "Effective Date")
of its adoption by the Board; provided, however, that no Option shall be
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company in accordance with the provisions of its
Articles of Incorporation and By-laws, which approval shall be obtained by a
simple majority of the votes that may be cast by the stockholders, voting either
in person or by proxy, at a duly held stockholders' meeting, or by written
consent in lieu of
-17-
<PAGE>
meeting, within 12 months before or after the adoption of the Plan by the Board.
14. TERMINATION OF THE PLAN
No Options may be granted after (i) the tenth anniversary of the date
on which the Plan is approved by the stockholders of the Company and (ii) the
date as of which the Committee, in its sole discretion, determines that the Plan
shall terminate (the "Expiration Date"). Any Option outstanding as of the
Expiration Date shall remain in effect until they have been exercised or
terminated or have expired by their respective terms.
15. AMENDMENT OF PLAN
The Committee may, at any time prior to the Expiration Date and with
the consent of the Board, modify and amend the Plan in any respect; provided,
--------
however, that the approval of the holders of a majority of the votes that may be
- -------
cast by all of the of shares of capital stock of the Company, entitled to vote
(voting as a single class) shall be obtained prior to any such amendment
becoming effective if such approval is required by law or is necessary to comply
with regulations promulgated by the SEC under Section 16(b) of the Exchange Act
or with Section 422 of the Code or the regulations promulgated by the Treasury
Department thereunder.
16. CAPTIONS
The use of captions in this Plan is for convenience. The captions are
not intended to provide substantive rights.
17. DISQUALIFYING DISPOSITIONS
If Optioned Shares acquired by exercise of an ISO granted under this
Plan are disposed of within two years following the date of grant of the ISO or
one year following the issuance of the Optioned Shares to the Optionee (a
"Disqualifying Disposition"), the holder of the Optioned Shares shall,
immediately prior to such Disqualifying Disposition, notify the Company in
writing of the date and terms of such Disqualifying Disposition and provide such
other information regarding the Disqualifying Disposition as the Company may
reasonably require.
18. WITHHOLDING TAXES
Whenever under the Plan shares of Common Stock are to be delivered by
an Optionee upon exercise of an NSO, the Company shall be entitled to require as
a condition of delivery that the
-18-
<PAGE>
Optionee remit or, in appropriate cases, agree to remit when due, an amount
sufficient to satisfy all current or estimated future federal, state and local
withholding tax and employment tax requirements relating thereto in the event
that such remittance is required to allow the Company to receive a deduction in
connection with the delivery of such Common Stock or to the extent the Company
is unable to satisfy its withholding obligations out of other amounts due from
the Company to the Optionee. At the time of a Disqualifying Disposition, the
Optionee shall remit to the Company in cash the amount of any applicable
federal, state and local withholding taxes and employment taxes.
19. OTHER PROVISIONS
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Committee,
in its sole discretion. Notwithstanding the foregoing, each ISO granted under
the Plan shall include those terms and conditions that are necessary to qualify
the ISO as an "incentive stock option" within the meaning of Section 422 of the
Code and the regulations thereunder and shall not include any terms or
conditions that are inconsistent therewith.
20. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine gender,
and vice-versa, as the context requires.
21. GOVERNING LAW
All questions concerning the construction, interpretation and validity
of this Plan and the instruments evidencing the Options granted hereunder shall
be governed by and construed and enforced in accordance with the domestic laws
of the State of California, without giving effect to any choice or conflict of
law provisions or rule (whether in the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. In furtherance of the foregoing, the
internal law of the State of California will control the interpretation and
construction of this Agreement, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
As adopted by the Board of Directors
of DETAILS, INC., on January 31, 1996.
-19-
<PAGE>
ANNEX I
Performance Targets
-------------------
Tranche I Options
-----------------
================================================================================
<TABLE>
<CAPTION>
Tranche I
Scheduled Vesting EBITDA
FYE Date Target Vested Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
12/31/96 5/1/97 $29,900,000 176
- --------------------------------------------------------------------------------
12/31/97 5/1/98 $31,900,000 176
- --------------------------------------------------------------------------------
12/31/98 5/1/99 $36,545,000 176
- --------------------------------------------------------------------------------
12/31/99 5/1/00 $41,845,000 176
- --------------------------------------------------------------------------------
12/31/00 5/1/01 $45,991,688 176
================================================================================
</TABLE>
Tranche II Options
------------------
================================================================================
<TABLE>
<CAPTION>
Tranche II Tranche II
Scheduled EBITDA Vested Cumulative
FYE Vesting Date Target Shares EBITDA Target
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/96 5/1/97 $33,200,000 185 --
- --------------------------------------------------------------------------------
12/31/97 5/1/98 $34,900,000 186 --
- --------------------------------------------------------------------------------
12/31/98 5/1/99 $39,745,000 186 --
- --------------------------------------------------------------------------------
12/31/99 5/1/00 $45,245,000 186 --
- --------------------------------------------------------------------------------
12/31/00 5/1/01 $50,291,688 186 --
================================================================================
</TABLE>
-20-
<PAGE>
REAL PROPERTY
MASTER LEASE AGREEMENT
This Master Lease Agreement is made as of the 1st day of January,
1996 between JAMES I. SWENSON and SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON
FAMILY TRUST ("LESSOR") and DETAILS, INC. ("LESSEE") with respect to the
following recitals of fact:
R E C I T A L S
A. LESSOR is the owner of the following improved parcels of property
in the city of Anaheim, with industrial buildings thereon with the square
footages listed below which have been leased to LESSEE:
<TABLE>
<CAPTION>
PARCEL ADDRESS RENTABLE LEASE
DESIGNATION SQUARE FOOTAGE DATE
<S> <C> <C> <C>
1 1205 Lance Lane 5,500 8/1/94
2 1290 Lance Lane 6,740 8/1/94
3 1270 Lance Lane 3,530 1/12/92
4 1260 Lance Lane 6,260 12/15/93
5 1240 Lance Lane 5,000 8/1/92
6 1220 Lance Lane 5,000 8/1/94
7 1200 Lance Lane 4,500 *
8 3021 East Coronado 4,512 2/1/95
9 1211 Simon Circle 5,264 2/5/93
10 1221 Simon Circle 5,264 10/1/92
11 1231 Simon Circle 4,960 6/1/92
12 1241/51 Simon Circle 10,000 None
</TABLE>
* Acquisition by LESSOR is contemplated.
B. The aggregate square footage of the buildings set forth in the
foregoing recital to be immediately lease to LESSEE hereunder is 62,030 (Parcels
1-6, 8-12). The average monthly lease rate as of October 1, 1995 on leases in
effect with respect to Parcels 1-6 and 8-11 was $1.04 per square foot. The
parties desire that such rate be applicable at the commencement of the term
hereof. Thus, the initial monthly base rent will aggregate $64,511.20.
C. The parties desire by this Master Lease Agreement to consolidate
the various leases, to provide for a single rental rate, to provide for common
lease terms and to provide for the leasing of Parcel 7,
<PAGE>
when and if acquired by LESSOR.
NOW THEREFORE, in consideration of the mutual covenants and
conditions hereof, the parties agree as follows:
1. ADOPTION OF LEASE TERMS. Except as modified herein, all provisions
of the American Industrial Real Estate Association Standard Industrial/
Commercial Single-Tenant Lease -- NET, form 204N-R-12/91, used in connection
with most of the leases described above, a copy of which is attached hereto as
Exhibit A, are incorporated herein and made a part of this Master Lease
Agreement. All leases described above (collectively "Terminated Leases") are
hereby superseded by this Master Lease Agreement. In the event of a conflict
between the provisions of Exhibit A and this agreement, the terms of this
agreement shall control.
2. ADDITIONAL LEASED AREA. LESSEE desires that LESSOR acquire Parcel
7 and lease same to LESSEE on the terms applicable to other Parcels under this
Master Lease Agreement including the rental payable by LESSEE at the time of
acquisition. In the event that a lease or lease(s) encumber the parcel at the
time of acquisition, LESSOR shall assign such lease(s) to LESSEE, and LESSEE
shall assume the obligations of lessor under such leases, and shall be entitled
to the rents thereunder. The parcel shall be acquired subject to such lease(s),
which LESSEE acknowledges having reviewed, and LESSEE shall thereafter deal
with each lessee thereunder with respect to any desired termination of the
lease(s), moving of the lessee(s), allowing extensions of the leases, except
that no extension shall exceed the term of this Master Lease Agreement. Parcel
7, upon acquisition (recordation of the deed in the name of LESSOR), shall
automatically become subject to all terms and conditions of this Master Lease
Agreement upon acquisition, including without limitation base rent at the rate
then in effect. LESSEE has inspected Parcel 7 and agrees to accept same upon
acquisition by LESSOR in its current AS IS condition, WITH ALL FAULTS.
3. BASE RENT. The base rent during the initial twenty four months of
this Master Lease Agreement shall be at the rate of $1.04 per square foot per
month for all space hereunder, commencing on January 1, 1996. Rent shall be
payable on the first day of each month. Biannually, effective on January 1,
1998, 2000, 2002 and
- 2 -
<PAGE>
2004 (and 2006, 2008, 2010, 2012 and 2014, if the Extension Option is exercised)
(each such year being an "Adjustment year"), the base rent shall be increased
for the next succeeding twenty four months. The base rent commencing on January
1 of such year shall be the amount of monthly rent in effect on December 1 of
the preceding year increased by an amount equal to the percentage increase in
Ending Index over the Beginning Index, as set forth in the following paragraph.
4. RENT ADJUSTMENTS. The amount of each biannual base rent increase
described in the foregoing paragraph shall be determined as follows. The
Consumer Price Index shall mean the Consumer Price Index -- U.S. City Average --
All Items -- All Urban Consumers [1982-84 = 100] (herein "Index") as published
by the Bureau of Labor Statistics of the United States Department of Labor. (If
at any time and from time to time, publication of the Index is ceased or
interrupted, or other changes in calculation or components of the Index render
it a less appropriate measure of inflation than is available from another index
regularly published by a government or commercial service, as determined by
Landlord in its sole discretion, then Landlord may elect to utilize such other
publication's index, which for all purposes hereunder shall become the "Index").
The base rent payable monthly commencing on January 1 of each
Adjustment Year shall increase over the monthly minimum rent in effect for the
previous month (December) based upon the percentage increase, if any, of the
Ending Index over the Beginning Index. If there has been no increase, or there
has been a decrease, the monthly minimum rent in effect for the previous month
(December) shall remain in effect during the twenty four months commencing on
January 1 of such Adjustment Year. If the Ending Index is greater than the
Beginning Index for the Adjustment Year, the rent increase shall be determined
as follows: The Beginning Index (which for any Adjustment Year shall be the
Index for the month of August two years preceding the Adjustment Year), shall be
divided into the difference between the Beginning Index and the Ending Index
(which shall be the Index for the month of August of the Adjustment Year). The
dividend thereof shall be multiplied by the monthly minimum rent in effect for
November of the Adjustment Year, and the product thereof shall be added to such
December rent, and the monthly minimum rent in effect commencing on January 1 of
such Adjustment Year shall be sum determined thereby.
- 3 -
<PAGE>
For example, assume the Index for August 1995 is 151.9 and for August
1997 is 159.1. The per square foot monthly minimum rent commencing January 1,
1998 and in effect through December 31, 1999 would be $1.090336 (being $1.04
[monthly minimum rent in effect for December, 1997], increased by $.050336 [the
amount determined by multiplying $1.04 [the monthly minimum rent for December,
1997] by the dividend determined by dividing the Beginning Index by the
difference between the Beginning Index and the Ending Index, being 7.2 divided
by 151.9, equaling 0.0474]. Therefore, when the next Adjustment Year calculation
is made for monthly minimum rents starting January 1, 2000, the monthly minimum
rent in effect for the previous month (December, 1999) would be $1.090366.
5. TENANTS IN PARCELS 2 AND 12. Parcel 2 is currently leased as to
approximately 4,000 square feet to Sierra Concrete Products, Inc., which
lease expires on January 31, 1996. The balance of Parcel 2 is occupied by
Lessee. Parcel 12 is currently leased to ATS Tool, Inc., as to 5,000 square
feet, and to National Specialty Alloys, Inc., as to 5,000 square feet. The space
occupied by ATS Tool, Inc. will be vacated on or before February 29, 1996
pursuant to a Lease Termination Agreement, to which Lessor, Lessee and ATS Tool,
Inc. are parties. The lease with National Specialty Alloys, Inc. expires on
February 14, 1997. Lessor hereby assigns to Lessee all rights, including rents
payable with respect to periods after the date hereof, and Lessee hereby assumes
the obligations of lessor, under the leases with respect to Sierra Concrete
Products, Inc. and National Specialty Alloys, Inc., copies of which leases are
attached hereto as Exhibits B and C, respectively.
6. TERM. The term of this Master Lease Agreement shall be from
January 1, 1996 to December 31, 2005. The term may be extended at LESSEE's
option for an additional ten years commencing on January 1, 2006 to December 31,
2015, provided that (i) this Master Lease Agreement has not theretofor been
terminated, (ii) LESSEE is not then in default under the terms of this Master
Lease Agreement, and (iii) LESSEE has exercised this Extension Option. LESSEE
may only exercise this Extension Option by delivering to LESSOR written notice
that LESSEE by such notice elects to exercise its Extension Option not later
than August 1, 2005, and shall be thereupon bound to perform the obligations of
LESSEE during the ten years
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commencing on January 1, 2006. As 2006 is an Adjustment Year, the rent
commencing on January 1, 2006 shall be determined as provided above.
7. PURCHASE OPTION. LESSEE shall have a purchase option to purchase
all parcels leased under this Master Lease Agreement at the Purchase Option
Exercise Date. LESSEE may purchase all such parcels provided that (i) this
Master Lease Agreement has not theretofor been terminated, (ii) LESSEE is not
then in default under the terms of this Master Lease Agreement, and (iii) LESSEE
has exercised this Purchase Option. LESSEE may only exercise this Purchase
Option by delivering to LESSOR written notice that LESSEE by such notice elects
to exercise its Purchase Option on the Purchase Option Exercise Date, which
shall be (i) not later than July 1, 2005, or (ii) if LESSEE has exercised its
Extension Option, not later than July 1, 2015, and shall be thereupon obligated
to purchase all parcels on December 31, 2005 (or if LESSEE has exercised its
Extension Option, on December 31, 2015) and if such December 31 is a legal
holiday, then the purchase shall be consummated on the first business day
preceding such December 31 on which the Orange County Recorder is open for
recordation of the deed of the parcels to LESSEE. To be valid such notice from
LESSEE shall be accompanied by escrow instructions executed by LESSEE with a
responsible escrow company in Orange County, reflecting LESSEE's deposit with
such escrow holder of $100,000, forfeitable to LESSOR should LESSEE fail to
close on the purchase of the parcels for any reason other than LESSOR's
inability to deliver title as provided herein. LESSOR shall within seven days of
receipt execute and deliver such escrow instructions to LESSEE and the escrow
holder. The escrow shall obligate LESSOR solely to take such action as is
reasonably necessary to deliver a grant deed or deeds to all Parcels then
subject to this Master Lease Agreement subject to the exceptions hereafter
provided. LESSOR shall cause the condition of title not later than the close of
escrow to be free and clear of all liens and encumbrances, except solely (i)
covenants, conditions and other matters of record at the date hereof, (ii) the
lien for current taxes, (iii) any liens or assessments for municipal
improvements hereafter arising, and (iv) any lien or encumbrance caused by any
act or omission of LESSEE. Escrow holder shall deduct and pay from the purchase
price, the amount of any liens or encumbrances other than items (i) - (iv). The
purchase price shall be paid in cash on close of escrow to LESSOR, and LESSOR
shall be without cost in the escrow, all fees, charges and
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costs shall be paid for by LESSEE. The purchase price shall be the fair market
value of the Parcels as determined: (i) by negotiation between the parties, or
(ii) if they are unable to agree within thirty days following exercise of the
option, by an appraiser selected by the parties to determine the fair market
value in such appraiser's discretion within thirty days following such
selection. If the parties cannot agree on an appraiser, they shall each appoint
an appraiser ("party appraiser") within 45 days following exercise of the
option, who in turn within five days following such appointment shall together
appoint a third appraiser. Within thirty days thereafter, each appraiser shall
independently submit his or her appraisal in writing. The purchase price shall
be the fair market value of the Parcels so determined by the third appraiser,
except that if both of the party appraisers submit a higher value, the purchase
price shall be the lowest of the amounts submitted by the party appraisers. In
the event that during the five years preceding the exercise of the option,
LESSEE shall have expended on structural repairs to the floor, roof or exterior
walls of the building on any one or more Parcels, an amount exceeding $50,000 in
the aggregate, then Lessee shall be entitled to a credit against such purchase
price for the Parcels of an amount equal to one half of such excess.
Notwithstanding Section 39.2 of Exhibit A, the option contained herein may be
exercised by any successor to Lessor's interest hereunder.
9. RIGHT OF FIRST REFUSAL. In the event LESSEE is not in default
hereunder, and LESSOR shall receive a bona fide offer from an unaffiliated third
party (excluding for this purpose, any transfers between LESSOR and its
trustees, beneficiaries, and other family members, or any trust, corporation or
other person controlling or controlled by any of the foregoing), for the
purchase of any parcel or parcels leased under this Master Lease Agreement,
during the term hereof, and LESSOR shall desire to accept same, LESSOR shall
make its acceptance subject to the provisions of this Paragraph 9. LESSOR shall
give written notice to LESSEE of such offer and the terms thereof within 10
business days following acceptance of such third party offer, which notice shall
constitute an offer to sell the parcel or parcels involved to LESSEE on the same
terms and conditions as are set forth in the offer. LESSEE shall have 10 days
thereafter to give LESSOR written notice of acceptance of LESSOR's offer, which
shall constitute LESSEE's unconditional commitment to purchase the parcels on
the same terms and conditions
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as are set forth in the notice from LESSOR, except that (i) LESSEE may specify
the vestee for title and select the title insurer and escrow company it desires,
and (ii) in the event the third party offer provides for a closing less than 30
days from date of delivery of LESSOR's written notice to LESSEE of such offer,
LESSEE shall be entitled to set a later closing date within such 30 day period.
If LESSEE shall fail to consummate the purchase of the parcel or parcels
involved for any reason other than LESSOR's failure to deliver title as provided
in such offer, such failure shall constitute a default under this Master Lease
Agreement and, in addition to other remedies of LESSOR, LESSEE's rights under
this Paragraph 9 shall thereupon automatically and forever terminate. In the
event LESSEE shall not give timely written notice to LESSOR required hereunder
regarding acceptance of the offer, LESSEE's rights under this Paragraph 9 shall
thereupon automatically terminate and LESSOR may consumate the transaction on
the terms set forth in the offer (subject to nonmaterial adjustments) within six
months of the date notice was given to LESSEE. If not so consummated within six
months, or if the purchase price is adjusted to effect a price reduction to the
purchaser of more than 5%, any agreement to a closing after such six month
period or to effect such a price reduction shall be deemed a new offer and
LESSEE's rights hereunder shall be reinstated. Notwithstanding Section 39.2 of
Exhibit A, LESSEE's rights contained herein may be exercised by any authorized
successor to LESSEE's interest hereunder.
10. NONWARRANTY AND NONMAINTENANCE. Notwithstanding anything
contained in the incorporated provisions of this Master Lease Agreement, LESSOR
makes no warranty with respect to the condition of the Parcels and improvements
thereon. LESSEE acknowledges that it has had exclusive possession and use of
Parcels 1-6 and 8-12 prior to entering this Master Lease Agreement, and has
inspected and accepts Parcel 7 when and as acquired, all AS IS and WITH ALL
FAULTS. LESSEE shall be exclusively responsible for the continuing maintenance
of all interior and exterior improvements under this Master Lease Agreement,
including without limitation, all roofs, exterior walls, floors, driveways,
pavement, parking areas, all structural components thereon, and all provision of
utilities and other services.
11. SECURITY DEPOSITS. LESSOR acknowledges that it holds security
deposits aggregating $64,511.20 with respect to Parcels 1-6 and 8-12, which
shall continue
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under this Master Lease Agreement. LESSEE shall increase the security deposit
from time to time, based on rental increases provided hereunder and base rental
for areas added pursuant to Paragraph 2 hereunder, such that at all times the
security deposit will be equal to the current monthly base rental under this
Master Lease Agreement.
12. TERMINATED LEASES. The Terminated Leases, to the extent expiring
prior to December 31, 1995 are hereby retroactively extended through December
31, 1995 on the same terms and conditions in effect immediately prior to such
expiration. Upon execution hereof, all of the Terminated Leases shall, as of
December 31, 1995, be without further force or effect, and each party hereto, as
lessee and lessor thereunder, hereby acknowledges that the other has performed
all obligations required under the Terminated Leases, and that neither party any
further claim or right against the other arising from the Terminated Leases,
except that lessee thereunder shall be responsible for any third party charges
for property taxes, insurance and maintenance charges otherwise payable by
lessee, but not yet billed.
13. FAIR DEALING, CONSENTS, ASSIGNMENT. In connection with the
performance of their respective obligations under this Master Lease Agreement,
LESSOR and LESSEE shall act in good faith and in a commercially reasonable
manner. Should any consent of LESSOR be required in connection with the
provisions hereof, (i) such consent shall not unreasonably be withheld, and (ii)
such consent shall be deemed granted if any trustee of LESSOR, or trustee or
other person (in the event LESSOR is not a trust) with the power to bind LESSOR,
while acting in the capacity of an officer or director of LESSEE shall take any
action, or while exercising rights as a shareholder of LESSEE, shall vote or
consent in writing to authorize a specific act or omission, requiring consent of
LESSOR under this Master Lease Agreement. LESSOR hereby consents to one or more
collateral assignments of LESSEE's interest hereunder pursuant to one or more
loan agreements, which each involve an extension of credit of not less than $7
million to LESSEE. LESSOR agrees to evidence its consent to such assignments by
executing documents reasonably satisfactory to LESSOR.
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<PAGE>
IN WITNESS WHEREOF, this Master Lease Agreement has been executed as of
the day and year first above written.
LESSOR: LESSEE:
THE SWENSON FAMILY TRUST DETAILS, INC.
by /s/ James I. Swenson by /s/ James I. Swenson
----------------------- ------------------------
James I. Swenson James I. Swenson
Trustee Chief Executive Officer
by /s/ Susan G. Swenson by /s/ Susan G. Swenson
----------------------- ------------------------
Susan G. Swenson Susan G. Swenson
Trustee Secretary
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[AIR LOGO APPEARS HERE]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only.
_______________ 19__ is made by and between _____________________________
_____________________________________________________________________("Lessor")
and ____________________________________________________________________________
_____________________________________________________________________("Lessee").
(collectively the "Parties," or individuality a "Party").
1.2 Premises: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of ________________________________ located in the County of
_________________________________________ State of _____________________________
and generally described as (describe briefly the nature of the property)________
________________________________________________________________________________
________________________________________________________________________________
_________________________("Premises"). (See Paragraph 2 for further provisions.)
1.3 Term: _____________years and ________ months ("Original Term") commencing
_________________________________________ ("Commencement Date") and ending _____
____________________________________("Expiration Date"). (See Paragraph 3 for
further provisions.)
1.4 Early Possession: ____________________________("Early Possession Date").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $____________ per month ("Base Rent"), payable on the _______
day of each month commencing____________________________________________________
________________________________________________________________________________
_______________________________________(See Paragraph 4 for further provisions.)
[ ] if this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $_________________________________________
as Base Rent for the period ____________________________________________________
_______________________________________________________________________________.
1.7 Security Deposit: $______________________("Security Deposit"). (See
Paragraph 5 for further provision.)
1.8 Permitted Use:__________________________________________________________
_______________________________________(See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties. (check applicable boxes):
_____________________________________________________________________ represents
[ ] Lessor exclusively ("Lessor's Broker"): [ ] both Lessor and Lessee and
____________________________________________________________________ represents
[ ] Lessor exclusively ("Lessee's Broker"): [ ] both Lessee and Lessor (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by __________________________________________________________________
______________________("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addends. Attached hereto is an Addendum or Addenda consisting of
Paragraphs _______ through ________ and Exhibits _______________________________
___________________________ all of which constitute a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is to subject to
revision whether or not the actual square footage as more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of
debts on the Commencement Data and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warrant within thirty (30) days
alter the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee's sole cost and expenses.
2.3 Compliance with Covenants Restrictions and Building Code. Losses
warrants to Lossno that the improvements on the Premises comply with all ##...##
or to be made by Lessee. If the Promises do not comply with said warranty,
Lessor shall, except as other wise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, readily the same at Lessor's expense. If
Lessee does not give lessor written notice of a non-compliance with this
warranty within six (6) months following the Commencement Date, correction of
that non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fine sprinkler
systems, security, environmental aspects compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use. (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warrants with respect to the said
matters other than as set forth in this area.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises, shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
Initials
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3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date if one
is specified in Paragraph 1.4, or if, no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any xxx therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessee
delivers possession of the Premises to Lessee. If possession of the Premises is
not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated hereof or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee; faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Base Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
form in Paragraph 1.8, or any other use which is comparable thereto, and for
another purpose Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees, assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold each consent, Lessor shall within five (5) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Content. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either, (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (iii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit from
or with respect to which a report, notice, registration or business plan is
required to be filed with, any governmental authority. Reportable Use shall also
include Lessee's being responsible for the presence in, on or about the Premises
of a Hazardous Substance with respect to which any Applicable Law requires that
a notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring properties
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to the use of presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
xxx, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to or received from, any governmental
authority or private party, or persons entering or occupying the Premises,
concerning the presence, spill, release, discharge of, or exposure to, any
Hazardous Substance or contamination in, on, or about the Premises, including
but not limited to all such documents as may be involved in any Reportable Uses
involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessees control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessor, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3) and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination caused or materially contributed to by Lessee is found to exist or
be imminent, or unless the inspection is requested or ordered by a governmental
authority as the result of any such existing or imminent violation or
contamination. In any such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.).
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7.2 (Lessors obligations to repair), 9 (damage and destruction), and 14
(condemnation). Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detector systems and equipment, fire hydrants, fixtures, walls (interior
and exterior); foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee in keeping the Premises in good order, condition and repair
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment thereon, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communications systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessor Owned
Alteration and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative costs thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon; (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishings of copies of
such permits together with a copy of the plans and specifications for the
Alterations or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the terms of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnished Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgement that may be rendered thereon before the enforcement thereof against
the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to one and
one-half times the amount of such contested lien claim or demand, indemnifying
Lessor against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4. all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to the Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party. Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said Insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a)
above. In addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
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8.3 Property insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such later amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Untility Installations shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
(b) Rental Value. The Issuing Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lesser shall be liable
for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
of if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if an increase is
caused by Lessee's acts, omissions use or occupancy of the premises.
(d) Tenant's Improvements . If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5. Lessee at its cost shall either by separate policy or, at Lessor's option
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property. Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be for
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee to the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a loan
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
that insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancelable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waving Party") each hereby release and relieve the other and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties. Lessee shall indemnity, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of involving or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee. Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence of a
condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense repair such damage
(but not Leasee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor, if Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for
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any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, nonwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 Partial Damage -- Uninsured Loss. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall,
at Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage -- Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue. Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13). Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent of $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense without reimbursement from Lessor except to the extent of an
amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.6 Termination -- Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all payments shall be made at least ten
(10) days prior to the delinquency date of the applicable installment. Lessee
shall promptly furnish Lessor with satisfactory evidence that such taxes have
been paid. If any such taxes to be paid by Lessee shall cover any period of time
prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) Advance Payment. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the
month in which the applicable tax installment would become delinquent (and
without interest thereon), would provide a fund large enough to fully discharge
before delinquency the estimated installment of taxes to be paid. When the
actual amount of the applicable tax bill is known, the amount of such equal
monthly advance payment shall be adjusted as taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as taxes to be paid. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or to other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change, in
the ownership of the Premises or in the improvements thereon, the execution of
this lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
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assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations. Unity
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable portion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either, (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
tax market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new tax market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then tax market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) after the primary liability of Lessee to the
payment of Base Rent and other sums due Lessor hereunder or for the performance
of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
subleases to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such subleasee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
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in defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is attached herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall enable Lessor in pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recession of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under the Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligation hereunder was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis
and Lessee's failure within sixty (60) days following written notice by or on
behalf of Lessor to Lessees of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor, if any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
xxxx Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the xxx proximately
caused by the Lessee's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
including but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorney's fees, and that portion of the leasing commission
paid by Lessor applicable to the unexpired term of this Lease. The worth at the
time of award of the amount referred to in provision (iii) of the prior sentence
shall be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b),(c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b),(c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b),(c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abaled rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abaled, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes
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title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damage required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $__________________) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required to such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants
under this Lease thereafter to be performed by the Lessor. Subject to the
foregoing, the obligations and/or covenants in this Lease to be performed by the
Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature of this Lease shall be that
Party's address for delivery or mailing of notice purpose. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If send by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service of courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppal to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration of earlier termination of
this Lease.
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27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
xxxx or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the Laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device") now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before involving any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered in to by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contain in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgement. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgement, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Sale" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntary or involuntary, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease. Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises: provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any
such event to make a written election to the contrary by written notice to the
holder of any such lesser interest, shall constitute Lessor's election to have
such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided xxxxxxxx, xxxxxxx xxx this Lease the consent of a Party is required to
an act by or for the other Party. Such consent shall not be unreasonably
withheld or delayed Lessor's actual reasonable costs and expenses (including but
not limited to xxxxxxxxxxx, attorney's, engineer's or other consultants fees)
incurred as the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subleting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor Subject to
Paragraph 12.2(e) (applicable to assignment or subletting). Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically slated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1xx,
the form of the guaranty to be executed by each Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement
and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term herein
subject to all of the provisions of this Lease.
39. Options.
39.1 Definitions. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
the Lease or to extend or renew any lease that Lessee has on other property of
Lessor: (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor: (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first refusal
to purchase other property of Lessor, or the right of first offer to purchase
other property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntary or involuntary assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease as any manner,
by reservation or otherwise.
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39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (1) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee) or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured during the twelve (12) month period immediately preceding the exercise
of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise or
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedications, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereby is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership. Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
requested by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OF THE
TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE
ADVISE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE, IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at __________________________ Executed at ____________________________
on ___________________________________ on _____________________________________
by LESSOR: by LESSEE:
______________________________________ ________________________________________
______________________________________ ________________________________________
By ___________________________________ By _____________________________________
Name Printed: ________________________ Name Printed: __________________________
Title: _______________________________ Title: _________________________________
By ___________________________________ By _____________________________________
Name Printed: ________________________ Name Printed: __________________________
Title: _______________________________ Title: _________________________________
Address: _____________________________ Address: _______________________________
______________________________________ ________________________________________
Tel. No. (___) _______________________ Tel. No. (___) _______________________
Fax No. (___) _______________________ Fax No. (___) _______________________
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax No. (213)
687-8516.
Copyright 1990 - By American Industrial Real Estate Association.
All rights reserved
<PAGE>
AMENDMENT NUMBER ONE TO REAL PROPERTY
MASTER LEASE AGREEMENT
This Amendment Number One to Real Property Master Lease Agreement is
made as of the 1st day of January, 1997, with respect to the Real Master Lease
Agreement dated January 1, 1997 ("Master Lease") between JAMES I. SWENSON and
SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY TRUST ("LESSOR") and
DETAILS, INC. ("LESSEE") with respect to the following recitals of fact:
R E C I T A L S
A. Under the terms of the Master Lease, the parties contemplated that
LESSEE would lease the building at 1200 Lance Lane when LESSOR's contemplated
acquisition of that property had been consummated.
B. LESSEE has not determined that additional square footage is
desirable, and that LESSOR's buildings at 1295 Lance Lane containing 6,740
square feet (hereafter "Parcel 7") and 1275 Lance Lane containing 4,512
(hereafter "Parcel 13"), would be preferable to the building at 1200 Lance Lane.
C. LESSEE and LESSOR, by this amendment to the Master Lease, desire
to delete from the Master Lease the contemplated acquisition of 1200 Lance Lane
and to include within the provisions of the Master Lease, Parcels 7 and 13,
subject to the terms and conditions hereof.
NOW THEREFORE, in consideration of the mutual covenants and
conditions hereof, the parties agree to amend the Master Lease in the following
respects only:
1. REVISION OF RECITAL B AND DELETION OF PARAGRAPH 2. Recital B of
the Master Lease is amended to change Parcel 7 to recite the address as 1295
Lance Lane and the square footage as 6740, and to add Parcel 13 with he address
of 1275 Lance Lane, and with square footage of 4,512. References in the Master
Lease to Parcels 7 shall be deemed to be references to Parcels 7 and 13 herein.
Paragraph 2 of the Master Lease is hereby deleted, and references in the Master
Lease to Paragraph 2 shall be deemed to be references to Paragraph 2 below.
<PAGE>
2. LEASE OF PARCELS 7 AND 13. LESSEE hereby leases from LESSOR, and
LESSOR hereby leases to LESSEE the Parcels 7 and 13, effective on the date set
forth in Paragraph 4 below. Each of the terms and conditions applicable to other
Parcels under the Master Lease shall be applicable to Parcels 7 and 13, except
only as expressly provided in the following paragraphs. LESSEE has inspected
Parcels 7 and 13 and agrees to accept same, upon vacation of the premises by the
current tenant, in their respective AS IS conditions, WITH ALL FAULTS.
3. RENT. The initial monthly base rent for Parcel 7 shall be $1.04 per
square foot, and shall be subject to adjustments in the manner and on the dates
provided in Paragraphs 3 and 4 of the Master Lease, except that the initial
Beginning Index shall be the Index for August, 1996. The initial monthly base
rent for Parcel 13 shall be $.60 per square foot, and shall be subject to
adjustments in the same manner and on the dates provided in Paragraphs 3 and 4
of the Master Lease, except that the initial Beginning Index shall be the Index
for August, 1996.
4. EFFECTIVE DATE. The leasing of Parcels 7 and 13 as set forth above
shall commence as of January 1, 1997. Commencing on that date, the monthly base
rent under the Master Lease will aggregate $74,228.00, subject to subsequent
adjustments as provided therein and herein.
5. SOLE AMENDMENT. Except as expressly provided herein, (i) all
provisions of the Master Lease shall be applicable to Parcels 7 and 13 leased
herein, (ii) all provisions of the Master Lease shall remain in full force and
effect, and (iii) terms used herein shall have the meanings ascribed thereto in
the Master Lease.
IN WITNESS WHEREOF, this Amendment Number One to Real Property Master
Lease Agreement has been executed as of the day and year first above written.
LESSOR: LESSEE:
THE SWENSON FAMILY TRUST DETAILS, INC.
by /s/ James I. Swenson, Trustee by /s/ Joseph P. Gisch
--------------------------------- -----------------------------------
James I. Swenson, Trustee Joseph P. Gisch, Vice President
Finance and Administration
by /s/ Susan G. Swenson, Trustee
---------------------------------
Susan G. Swenson, Trustee
<PAGE>
AMENDMENT NUMBER TWO TO REAL PROPERTY
MASTER LEASE AGREEMENT
This Amendment Number Two to Real Property Master Lease Agreement is made
as of the 28 day of october, 1997, with respect to the Real Property Master
Lease Agreement dated January 1, 1996, as amended (the "Master Lease") between
JAMES I. SWENSON AND SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY TRUST
("LESSOR"), AND DETAILS, INC. ("LESSEE"), which respect to the following
recitals of fact:
RECITALS
WHEREAS, THE LESSOR AND LESSEE are party to a Recapitalization Agreement
dated as of October 4, 1997, and in connection therewith LESSOR AND LESSEE have
agreed to amend the Master Lease in certain respects.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and conditions
hereof, the parties agree to amend the Master Lease in the following respects
only, when and if the closing contemplated by said Recapitalization Agreement
occurs:
1. SECTION 12.
----------
(A) PARAGRAPH 12.1(b). There is hereby added at the end of paragraph
12.1(b) the following:
"No change of control shall be deemed to have occurred by reason of the
dilution of any ownership position arising out of a public offering of
securities of Lessee."
(B) PARAGRAPHS 12.4 AND 12.5. There are hereby added to Section 12 of the
Lease new paragraphs 12.4 and 12.5 to read as follows:
12.4 MANDATORY CONSENT BY LESSOR: Wherever Lessor's consent is required
under 12.1 or 12.2 above, and Lessor shall not have otherwise granted such
consent, if Lessee shall not then be in default hereunder, Lessor shall
nevertheless grant its consent in connection with an assignment or subletting
proposed to any entity with a lawful use for the premises provided that either
subparagraphs (a)(i) or (a)(ii), and in each case (b) are satisfied:
(a) Lessee shall:
(i) provide to Lessor financial assurances in the form of security
reasonably satisfactory to Lessor equal to the aggregate of the
following: (i) 120% of the difference between the rent to be paid
under this Lease from the
<PAGE>
date of assignment or subletting to the end of the term of this
Lease, and the fair market rental value for the Premises (if
less) from the date of assignment or subletting and the end of
the term of this Lease (assuming the Premises are restored as
required under this Lease), (ii) the reasonably estimated costs
of placing the Premises in the condition required hereunder at
the end of the term of this Lease, and (iii) the reasonably
estimated costs of any repairs required to the Premises for which
Lessee is obligated hereunder at the date of assignment or
subletting.
(ii) furnish to Lessor reasonable evidence that the proposed
assignee's financial condition is sufficient to undertake the
obligations under this Lease. For purposes hereof, such
reasonable evidence shall consist of audited financial statements
of assignee for the preceding fiscal year, together with
financial statements for the interim period to the month
preceding the request for consent to assignment, and cash flow
projections for the remainder of the lease term all reflecting
that the proposed assignee, during the periods covered by such
financial statements would have cash flow sufficient to cover
200% of the rent ant other obligations payable under the Lease.
(b) Lessee shall comply with and remain subject to the requirements of
paragraph 12.2(a) of this Lease, but paragraphs 12.1(d), 12.2(g) and 12.2(h)
shall not be applicable to such assignment or subletting.
12.5 CURE RIGHT OF LENDER. In the event of any default under this
Lease, at least ten business days prior to effecting any remedy provided in this
Lease or by law against Lessee which involves termination of the Lease or
eviction from the premises, Lessor shall given written notice of the default and
of the amount necessary to cure such default, if a monetary default, and/or, of
the action necessary to cure the default if a non-monetary default is involved.
Such notice shall be given to The Chase Manhattan Bank, 170 Park Avenue, New
York, New york 10017-2070 (in its capacity as administrative agent under a
Credit Agreement to which Lessee and others are parties or any successor
administrative agent under such Credit Agreement which has notified Lessor in
writing of such capacity and such sucessor's mailing address, telephone and
telecopy numbers,
<PAGE>
contact person and loan or account reference number and such other relevant
information (The Chase Manhattan Bank in its capacity as administrative agent
or such successor being the "Administrative Agent"), by mail or facsimile
transmission or personal service. If the Administrative Agent shall pay to
Lessor any monetary default specified in such notice within said ten day period,
the default shall be deemed to have been cured, and if the Administrative Agent
shall cure the non-monetary default within such ten day period (or commence
therein and diligently pursue to completion a cure of a non-monetary default),
the default shall be deemed to have been cured. In the event that the
Administrative Agent shall succeed to the control of Lessee pursuant to the
Credit Agreement, fees and charges otherwise applicable in the event of a change
of control of Lessee shall not be applicable to the Administrative Agent. This
Paragraph 12.5 shall be applicable so long as monetary obligations of Lessee
remain outstanding under the Credit Agreement or obligations to extend credit to
Lessee under the Credit Agreement remain outstanding. The Administrative Agent
may rely on the provisions of this paragraph 12.5."
2. SOLE AMENDMENT. Except as expressly provided herein, (i) all
provisions of the Master Lease shall remain in full force and effect and (ii)
terms used herein shall have the meaning ascribed thereto in the Master Lease.
IN WITNESS WHEREOF, this Amendment Number Two to the Real Property
Master Lease has been executed as of the date first above written.
LESSOR: LESSEE:
THE SWENSON FAMILY TRUST DETAILS, INC.
by /s/ James I. Swenson by
--------------------------- ---------------------------
James I. Swenson, Trustee Joseph P. Gisch
Vice President
by /s/ Susan G. Swenson
---------------------------
Susan G. Swenson, Trustee
<PAGE>
contact person and loan or account reference number and such other relevant
information (The Chase Manhattan Bank in its capacity as administrative agent or
such successor being the "Administrative Agent"), by mail or facsimile
transmission or personal service. If the Administrative Agent shall pay to
Lessor any monetary default specified in such notice within said ten day period,
the default shall be deemed to have been cured, and if the Administrative Agent
shall cure the non-monetary default within such ten day period (or commence
therein and diligently pursue to completion a cure of a non-monetary default),
the default shall be deemed to have been cured. In the event that the
Administrative Agent shall succeed to the control of Lessee pursuant to the
Credit Agreement, fees and charges otherwise applicable in the event of a change
of control of Lessee shall not be applicable to the Administrative Agent. This
Paragraph 12.5 shall be applicable so long as monetary obligations of Lessee
remain outstanding under the Credit Agreement or obligations to extend credit to
Lessee under the Credit Agreement remain outstanding. The Administrative Agent
may rely on the provisions of this paragraph 12.5."
2. SOLE AMENDMENT. Except as expressly provided herein, (i) all
provisions of the Master Lease shall remain in full force and effect and (ii)
terms used herein shall have the meaning ascribed thereto in the Master Lease.
IN WITNESS WHEREOF, this Amendment Number Two to the Real Property
Master Lease has been executed as of the date first above written.
LESSOR: LESSEE:
THE SWENSON FAMILY TRUST DETAILS, INC.
by by /s/ Joseph P. Gisch
------------------------- -------------------------
James I. Swenson, Trustee Joseph P. Gisch
Vice President
by
-------------------------
Susan G. Swenson, Trustee
<PAGE>
PERSONAL PROPERTY
MASTER LEASE AGREEMENT
This Master Lease Agreement is made as of the 1st day of January, 1996,
between JAMES I. SWENSON and SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY
TRUST ("LESSOR") AND DETAILS, INC. ("LESSEE") with respect to the following
recitals of fact:
RECITALS
A. LESSOR is the owner of the equipment set forth on Schedule "A" hereto
("Equipment"), which is currently leased to LESSEE under Lease Agreements dated
May 1, 1981 and June 25, 1982, respectively, which Lease Agreements have been
amended from time to time and which have been extended through December 31, 1995
(collectively "Terminated Leases"). The Equipment is located in various of
LESSEE's facilities on Lance Lane and Simon Circle in Anaheim, California.
B. The aggregate current monthly rental for the Equipment as of December
1, 1995 is $30,400,00.
C. The parties desire by this Master Lease Agreement to consolidate the
Lease Agreements and the various amendments, to provide for a single rental
rate, and to provide for common lease terms.
NOW THEREFORE, in consideration of the mutual covenants and conditions
hereof, the parties agree as follows:
1. EQUIPMENT LEASED. LESSOR hereby leases to LESSEE and LESSEE hereby
leases from LESSOR the Equipment on and subject to the terms and conditions
hereinafter set forth.
2. RENT. The rent during the term hereof shall be $30,400 per month,
commencing on January 1, 1996. Rent shall be payable on the first day of each
month. Rent not paid by the tenth of each month shall bear interest at the
rate of 10% per annum from the first of such month, and shall be subject to a
late charge not exceeding 10% of the amount due, in addition to other remedies
at law or hereunder.
<PAGE>
3. TERM. The term of this Master Lease Agreement shall be from January
1, 1996 to December 31, 2005. The term may be extended at LESSEE's option for
an additional ten years commencing on January 1, 2006 to December 31, 2015,
provided that (i) this Master Lease Agreement has not theretofor been
terminated, (ii) LESSEE is not then in default under the terms of this Master
Lease Agreement, and (iii) LESSEE has exercised this Extension Option. LESSEE
may only exercise this Extension Option by delivering to LESSOR written notice
that LESSEE by such notice elects to exercise its Extension Option not later
than August 1, 2005, and shall be thereupon bound to perform the obligations of
LESSEE during the ten years commencing on January 1, 2006.
4. PURCHASE OPTION. LESSEE shall have a purchase option to purchase all
Equipment under this Master Lease Agreement at the Purchase Option Exercise
Date. LESSEE may purchase all such Equipment provided that (i) this Master
Lease Agreement has not theretofor been terminated, (ii) LESSEE is not then in
default under the terms of this Master Lease Agreement, and (iii) LESSEE has
exercised this Purchase Option. LESSEE may only exercise this Purchase Option
by delivering to LESSOR written notice that LESSEE by such notice elects to
exercise its Purchase Option on the Purchase Option Exercise Date, which shall
be (i) not later than July 1, 2005, or (ii) if LESSEE has exercised its
Extension Option, not later than July 1, 2015, and shall be thereupon obligated
to purchase the Equipment on December 31, 2005 (or if LESSEE has exercised its
Extension Option, on December 31, 2015) and if such December 31 is a legal
holiday, then the purchase shall be consummated on the first business day
preceding such December 31 that is not a legal holiday. To be valid such notice
from LESSEE shall be accompanied by escrow instructions executed by LESSEE with
a responsible escrow company in Orange County, reflecting LESSEE'S deposit with
such escrow holder of $100,000, forfeitable to LESSOR should LESSEE fail to
purchase such Equipment for any reason other than LESSOR's inability to deliver
title. LESSOR shall within seven days of receipt execute and deliver such
escrow instructions to LESSEE and the escrow holder. The escrow shall obligate
LESSOR solely to deliver an assignment to all Equipment then subject to this
Master Lease Agreement. LESSOR shall cause the condition of title not later
than the close of escrow to be free and clear of all liens and encumbrances,
except solely (i) the lien for current taxes, (ii) any liens or assessments for
municipal
- 2 -
<PAGE>
improvements hereafter arising, and (iii) any lien or encumbrance caused by any
act or omission of LESSEE occurring on or after the date hereof. Escrow holder
shall deduct and pay from the purchase price, the amount of any liens or
encumbrances other than items (i) and (ii). The purchase price shall be paid in
cash on close of escrow to LESSOR, and LESSOR shall be without cost in the
escrow, all fees, charges and costs shall be paid for by LESSEE. The purchase
price shall be fair market value of the Equipment as determined: (i) by
negotiation between the parties, or (ii) if they are unable to agree within
thirty days following exercise of the option, by an appraiser selected by the
parties to determine the fair market value in such appraiser's discretion within
thirty days following such appointment. If the parties cannot agree on an
appraiser, they shall each appoint an appraiser ("party appraiser") within 45
days following exercise of the option, who in turn within five days following
such appointment shall together appoint a third appraiser. Within thirty days
thereafter, each appraiser shall independently submit his or her appraisal in
writing. The purchase price shall be the fair market value of the Parcels so
determined by the third appraiser, except that if both of the party appraisers
submit a higher value, the purchase price shall be the lowest of the amounts
submitted by the party appraisers.
5. NONWARRANTY AND NONMAINTENANCE.
Notwithstanding anything contained in the incorporated provisions of this Master
Lease Agreement, LESSOR makes no warranty with respect to the condition of the
Equipment. LESSEE acknowledges that it has had exclusive possession and use of
the Equipment, prior to entering this Master Lease Agreement, and has inspected
and accepts same, all AS IS and WITH ALL FAULTS. LESSEE shall be exclusively
responsible for the continuing maintenance of all Equipment.
6. INSURANCE, INDEMNITY AND RISK OF LOSS.
LESSEE shall maintain at all times, at LESSEE's cost, insurance against all
insurable risks of loss for the full replacement value thereof, together with
insurance against all public liability, employer and other liability which may
arise from possession and use of the Equipment by LESSEE. Each such policy shall
name LESSOR as an additional insured, and shall contain an endorsement
requirement not less than thirty days prior notice to LESSOR in the event of
cancellation or non-renewal. LESSEE shall furnish LESSOR with a copy of each
policy.
-3-
<PAGE>
Notwithstanding any insurance requirement hereunder, LESSEE shall bear the
entire risk of loss or damage from any cause, and no loss or damage shall impair
any obligation of LESSEE hereunder, including without limitation, the obligation
to pay rent during the term hereof, LESSEE shall further indemnify, save
harmless and defend LESSOR, from and against all claims and demands, and any
loss, liability and expense, including reasonable attorneys fees, arising out of
the LESSEE's possession or use of the Equipment.
7. DEFAULT. Upon any default in the payment of rent, in addition to
late charges and interest, or upon any failure to observe the covenants of this
Master Lease Agreement, LESSOR may elect to declare a default. Upon such
election, LESSOR shall give LESSEE written notice of such default, and the
amount due if a rent default, or the nature of the default and the action
required to correct the default if other than nonpayment of rent. LESSEE shall
have twenty four hours thereafter to cure a rent default by full payment in
cash of the full amount due including late charges and interest, and by
compliance with the requirements for cure if other than payment of rent within
twenty four hours, or if same cannot be cured within twenty four hours to
commence such cure and pursue same diligently until completion. If such cure is
not so effected, or the default is of a nature which is not capable of cure,
then LESSOR may exercise any or all of the following remedies, the exercise of
any one or more of which shall not constitute an election of remedies and shall
not preclude recovery of any rent or damages due or to become due under this
Master Lease Agreement:
(a) Acceleration of Rent. To declare the entire amount of rent due
during the term of this Master Lease Agreement to be immediately due and
payable.
(b) Legal Action. To sue and recover all rents and other amounts due,
and recover the Equipment.
(c) Seizure. To enter the premises and take possession and remove the
Equipment, without demand or notice, wherever located, without court order or
other process of law, and without liability for damages occasioned thereby,
hereby waived by LESSEE.
(d) Termination. To terminate this Master Lease Agreement.
-4-
<PAGE>
(e) Other Remedies. To pursue any other remedy available to LESSOR at
law.
8. EXPENSES. LESSEE shall pay all costs and expenses, including
reasonable attorneys fees, incurred by LESSOR in enforcing any of the provisions
of this Master Lease Agreement.
9. ASSIGNMENT. LESSEE may assign its rights hereunder or sublease the
Equipment or portions thereof, provided that no such assignment or sublease
shall relieve LESSEE of any obligation hereunder, and that LESSEE shall remain
liable for the performance of all obligations of LESSEE hereunder.
10. OWNERSHIP. The Equipment is and shall remain owned solely by LESSOR,
unless a purchase of the Equipment by LESSEE is completed hereunder. The
Equipment shall at all times remain personal property, whether or not affixed in
any manner to real property.
11. PERMITS AND TAXES. LESSEE shall at its sole cost and expense obtain
all necessary permits, consents and authorizations connected with the movement,
installation, use and operation of the Equipment. LESSEE shall pay, on a timely
basis, all property taxes and assessments levied with respect to the Equipment.
12. NONWAIVER. No covenant of this Master Lease Agreement shall be
deemed to have been waived or released, unless LESSOR shall have waived or
released such covenant in writing. Any breach deemed waived by operation of law,
shall be a waiver solely of such individual circumstance of breach, and shall
not apply to any subsequent or continuing breach.
13. NOTICES. Any notice hereunder shall be in writing and shall be
deemed delivered when personally served, whether by courier or other person, or
three business day after deposit with the U.S. Postal Service, postage prepaid
and certified, addressed as follows, or to such other address as either party by
notice hereunder shall designate:
IF TO LESSEE: Details, Inc.
1231 Simon Circle
Anaheim, California 92806
-5-
<PAGE>
IF TO LESSOR: THE SWENSON FAMILY TRUST
JAMES I. AND SUSAN G. SWENSON, TRUSTEES
34372 Street of the Cove Lanterns
Dana Point, California 92529
with copy to:
ALAN R. WOLEN, ESQ.
POST OFFICE BOX 2711
BLUE JAY, CALIFORNIA 92317
14. TERMINATED LEASES. Upon execution hereof, the Terminated Leases
shall be without further force or effect, and each party hereto, as lessee and
lessor thereunder, hereby acknowledges that the other has performed all
obligations required under the Terminated Leases, and that neither party any
further claim or right against the other arising from the Terminated Leases,
except that lessee thereunder shall be responsible for any third party charges
for property taxes, insurance and maintenance charges otherwise payable by
lessee, but not yet billed.
15. FAIR DEALING, CONSENTS, ASSIGNMENT. In connection with the
performance of their respective obligations under this Master Lease Agreement,
LESSOR and LESSEE shall act in good faith and in a commercially reasonable
manner. Should any consent of LESSOR be required in connection with the
provisions hereof, (i) such consent shall not unreasonably be withheld, and (ii)
such consent shall be deemed granted if any trustee of LESSOR, or trustee or
other person (in the event LESSOR is not a trust) with the power to bind LESSOR,
while acting in the capacity of an officer or director of LESSEE shall take any
action, or while exercising rights as a shareholder of LESSEE, shall vote or
consent in writing to authorize s specific act or omission, requiring consent of
LESSOR under this Master Lease Agreement. LESSOR hereby consents to one or
more collateral assignments of LESSEE's interest hereunder pursuant to one or
more loan agreements, which each involve an extension of credit of not less than
$7 million to LESSEE. LESSOR agrees to evidence its consent to such assignments
by executing documents reasonably satisfactory to LESSOR.
-6-
<PAGE>
16. MISCELLANEOUS. This Master Lease Agreement: (i) is an
integration of all promises and agreements of the parties, (ii) shall be
governed and interpreted under California law, (iii) shall inure to the benefit
of and be binding upon the parties, their successors and assigns, (iv) may be
amended or modified solely by an agreement in writing signed by the parties.
IN WITNESS WHEREOF, the parties have executed this Master Lease
Agreement as of the day and year first above written.
LESSOR: THE SWENSON FAMILY TRUST
by /s/ James I. Swenson
------------------------------
James I. Swenson, Trustee
by /s/ Susan G. Swenson
------------------------------
Susan G. Swenson, Trustee
LESSEE: DETAILS, INC.
by /s/ James I. Swenson
------------------------------
James I. Swenson, Chairman
and Chief Executive Officer
by /s/ Susan G. Swenson
------------------------------
Susan G. Swenson, Secretary
- 7 -
<PAGE>
SCHEDULE "A"
SCHEDULE LEASED EQUIPMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM DESCRIPTION MODEL
SERIAL NUMBER
- ---- ----------- -------------
<S> <C> <C>
1 Orbotech Computerized Optical 390
Inspection System
2 Kahn Area Calculator KC-141-043
3 Electro Mechanico Drill Unit 105W
4 Barnaby Router 104
5 Screening Set Up Unit 5000
6 Stereo Microscope with Zoom 570
7 Light Table LT
8 Pressure Washer OPS 12
9 Arbor Press 125
10 Smear Removal Line -
11 Unidrill Unit 1230
12 Laminating Press PC75-18-4-TM
13 Grieve Oven 333
14 Light Table -
15 Screening Chases -
16 Gold Saver Pump and Resin Column -
17 Screening Table 5000
18 Mark VI Drilling Machine -
</TABLE>
- ------
* All Equipment is wholly owned by LESSOR, except that LESSEE has a one/third
undivided interest in Item 1 only.
- 8 -
<PAGE>
SCHEDULE "A" PAGE 2
SCHEDULE LEASED EQUIPMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM DESCRIPTION MODEL
SERIAL NUMBER
- ---- ----------- -------------
<S> <C> <C>
19 Wabash Multilayer Laminator -
20 Kol-Press Multilayer Laminator -
21 OPIC III "B" with General -
Automation Controller, CPC,
CRT, Power Supply 01731,
Reader, Punch, Accessory Kit
X/Y Display, Plotter and MCC
Software
22 XL5 "A" C/R with General -
Automation Controller, CNC-5,
Power Supply, Excellon Quiet
Drills, Automatic Tool Changer
Tooling Plates, Accessory Kit
Heat Exchanger, Subplates,
Automatic Feeds and Speeds,
Step Up Transformer, MCC Software
23 HYD Shear Unit - 16 Gauge -
24 Rotary Air Compressor with 120 -
Gallon Horizontal Air Receiver,
Aftercooler, Moisture Separator,
Fused Switch, Refrigerated Air
Dryer, Coalescing In-Line Filter
</TABLE>
- 9 -
<PAGE>
EMPLOYMENT AGREEMENT AND INCENTIVE
COMPENSATION PLAN
This Employment Agreement and Incentive Compensation Plan
("Agreement") is made as of the 1st day of September, 1995, between Details,
Inc., a California corporation ("Details"), and Bruce D. McMaster ("Employee")
with respect to the following recitals of facts:
R E C I T A L S
A. Details is an electronics component manufacturer engaged in the
business of quick turn-around production of high quality multilayer printed
circuit boards for production prototype applications and for urgently needed
assembly operations in the electronics industry.
B. Employee is presently an employee of Details who has been
appointed to the position of President.
C. Details and Employee entered into an Employee Incentive
Compensation Plan on December 12, 1994, with respect to the calendar year 1995
providing for a Base Salary and Additional Compensation to be paid to Employee
quarterly during such year, provided that employment has not theretofor been
terminated ("1955 Plan"). Definitions in the 1995 Plan are incorporated herein,
and capitalized terms used in the 1995 Plan which are utilized herein shall have
the meanings set forth in the 1995 Plan, unless otherwise provided herein.
D. Details and Employee desire by this Agreement to provide for the
terms of employment, an exclusive employment obligation, and a plan of
compensation for employee for the three year period following the expiration of
the 1995 Plan, and to amend the 1995 Plan as hereafter set forth.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions hereinafter set forth, the parties agree as
follows:
1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions
hereinafter set forth, Details
<PAGE>
hereby offers to Employee and Employee hereby accepts employment with Details,
Inc., as President.
2. TERM. This Agreement shall cover the term commencing on September
1, 1995 and ending on December 31, 1998.
3. COMPENSATION. The compensation payable to Employee while employed
under this Agreement during the term hereof shall be as follows:
A. Compensation for Period from September 1, 1995 through December
31, 1995. During the remainder of the term of the 1995 Plan, Employee shall
continue to receive the Base Salary and Additional Compensation as therein
provided.
B. Compensation for the Period January 1, 1996 through December
31, 1998.
(i) The Base Salary for each Year shall be as follows:
<TABLE>
<CAPTION>
Year Base Salary
---- -----------
<S> <C>
1996 $325,000
1997 $375,000
1998 $425,000
</TABLE>
(ii) The Additional Compensation for each Year shall be
determined using the methodology employed in the 1995 Plan, except that: (i) the
Gross Profit actually achieved in any month shall be subject to the adjustments
in subsection D below in determining Additional Compensation, and (ii) the
Minimum Gross Profit in each Month during the term hereof to be used in
determining Additional Compensation shall be the amount set forth below:
<TABLE>
<CAPTION>
Minimum
Year Gross Profit
---- ------------
<S> <C>
1996 $1,000,000
1997 $1,250,000
1998 $1,500,000
</TABLE>
-2-
<PAGE>
(iii) Under the 1995 Plan, the maximum Additional Compensation
for the Year does not exceed $250,000. The maximum Additional Compensation in
subsequent Years under this Agreement shall be as follows:
<TABLE>
<CAPTION>
Maximum Additional
Year Compensation
---- ------------------
<S> <C>
1996 $300,000
1997 $400,000
1998 $500,000
</TABLE>
C. Employee shall be paid Additional Compensation on a quarterly
basis, and subject to the usual deductions, in the same manner as is provided in
the 1995 Plan.
D. For purposes of determining the Additional Compensation in
each month, the Gross Profit actually achieved in such month shall be adjusted
as follows:
(i) In each Month in which the Minimum Gross Profit is not
achieved ("Deficient Month"), the deficiency shall be offset against the amounts
by which the Gross Profit actually achieved in each subsequent month exceeds the
applicable Minimum Gross Profit for such subsequent month, until the deficiency
arising from the Deficient Month if fully offset.
(ii) In each Month in which, in connection with enforcement of
any fire or building and safety law, environmental or toxics control law, wage
and hour law or other employee compensation or benefit law, occupational safety
or health law, or other law regulating production or other operations, Details
shall be assessed a fine, penalty or other charge by any governmental agency, or
is ordered to pay additional compensation to any employee, or is ordered to pay
any amount to a third party, or shall expend fees or costs for legal or other
services to defend against any such action or proceeding by any governmental
agency, the aggregate amount of such expenses shall reduce the Gross Profit
actually achieved for such Month, and in the event that such adjustment creates
or adds to a Deficient Month, the provisions of the preceding clause (ii) above
relating to offsets in
-3-
<PAGE>
subsequent Months shall also be applicable. In the event that the Board of
Directors had been apprised by any officer of the need to appropriate funds in
order to prevent the imposition of such fine, penalty or other charge, or
additional compensation, or amount ordered to be paid to a third party, in a
writing delivered to the Board members in sufficient time to hold a board
meeting, appropriate funds and effect compliance with such law, and the Board
shall fail to do so, then the adjustment to Gross Profit in this clause (ii)
shall not apply in such circumstance.
E. In addition to the foregoing, the Board of Directors, may, in
its sole and exclusive discretion, grant an additional bonus to Employee.
4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee
shall:
A. Devote his full employment energies, interest, abilities, time
and attention to the performance of his obligations hereunder, and shall not,
without the written consent of the Chairman and/or Chief Executive Officer of
Details, render any service of any kind to a third party for compensation.
B. Not engage in any activity which conflicts with or interferes
with the performance of his duties hereunder, whether or not for compensation.
C. Provide his exclusive loyalty to Details, with a view toward
maintaining the highest quality standards, improving profitability through cost
controls, increasing revenues consistent with holding margins, assuring
compliance with applicable laws, sustaining employee morale, and assuring
equipment is maintained in its best operating condition.
5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the
direction of the Board of directors and the approval of the Chairman and/or
Chief Executive officer, employee shall:
A. Establish, implement and oversee corporate policies,
objectives and planning for the administrative, marketing and operational
functions of Details.
-4-
<PAGE>
B. Assure prompt, accurate and complete reporting of all
material information regarding administrative, marketing and operational
functions of Details to the Chairman and Chief Executive Officer.
C. Maintain full and adequate controls over corporate
commitments and expenditures to assure continuous fiscal integrity and
profitability.
D. Establish and improve systems to monitor and investigate
corporate activities to assure continuous compliance with applicable laws and
regulations.
E. Investigate and correct irregularities as required from time
to time to assure full compliance with law, first quality effort and results by
personnel, and proper internal reporting and communications.
F. Represent and continuously promote the interests of Details
with all major customers, potential customers, personnel, sales and marketing
representatives, and major vendors.
G. Establish and maintain controls to assure proper morale of
personnel, adequacy of staffing, proper budgeting for current operations and
anticipated capital and other expenditures, maintenance and improvement of
product margins, full product quality assurance and proper operational systems
(including ISO 9000 standards compliance).
H. Coordinate with subordinate executives, managers and
supervisors to assure smooth implementation of corporate plans and objectives.
I. Perform such other reasonable tasks and functions as directed
by the Chairman and Chief Executive Officer of Details.
6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT.
A. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now
possesses and will obtain "Confidential Information", which is all information
disclosed or obtained in connection with employment with Details, (i) which has
been created, discovered, developed or otherwise become known to Details, its
customers, or
-5-
<PAGE>
suppliers, and/or in which proprietary rights have been assigned or otherwise
provided to Details, and (ii) which has commercial value in the businesses in
which Details and its customers and suppliers are engaged. Employee agrees that
all Confidential Information is a valuable property and asset of Details, and
Details shall be the sole owner of all patents, trademarks, copyrights, trade
secrets, and other proprietary rights arising therefrom. Employee shall at all
times, during and after employment maintain the confidentiality of Confidential
Information, and not use or disclose same other than (a) for a purpose connected
with Employee's obligations to Details under this agreement, or (b) with the
written consent of the Chairman and/or Chief Executive Officer of Details.
(i) The following are examples of Confidential Information, but
not an exclusive listing: information relating to trade secrets, processes,
customer lists, structures, formulas, data, know-how, techniques, marketing
plans, manufacturing methods, strategies, forecasts, products, equipment
utilization, software and financial data.
(ii) Notwithstanding the foregoing, Confidential Information
does not include information (a) generally available to the public, (b)
contained in an issued patent, or (c) generally known to persons in the printed
circuit board business.
B. INVENTION AND PROPRIETARY RIGHTS ASSIGNMENT. Employee hereby
irrevocably grants and assigns to Details for its sole use and benefit all
Proprietary Rights, being trade or service marks, designs, logos, inventions,
trade secrets, improvements, technical information and suggestions regarding
Details business and operations, which Employee may have heretofor developed or
acquired during his employment at Details, or which may hereafter be developed
or acquired during the term hereof, together with all applications, trademark,
patents, copyrights (including future copyrights pursuant to Section 37 of the
Copyright Act of 1986 and any amendment or successor provision thereto) related
thereto and to any improvements thereon. To carry out these obligations,
Employee shall during the term hereof and at any time thereafter:
(i) Assure that Details has received prompt and full
disclosures of all such Proprietary Rights.
-6-
<PAGE>
(ii) Execute and deliver on demand such applications,
assignments, descriptions and other instruments (prepared at Details' expense)
relating to Proprietary Rights as Details shall reasonably request to enable
proper documentation and registrations of its rights hereunder.
(iii) Assist Details, at Details expense, in the connection with
preparing and prosecuting applications relating to Proprietary Rights, and in
connection with otherwise securing and/or defending its Proprietary Rights,
including by way of litigation.
7. EXCLUSIVE EMPLOYMENT WITH DETAILS. During the term, Employee shall not
be employed by, seek any employment with (except after September 30, 1998, if
anticipating leaving Details on expiration of this agreement), any person
(including, without limitation, any individual, corporation, business
association, partnership or other entity) other than Details.
A. EMPLOYEE ACKNOWLEDGEMENTS. Employee herby expressly
acknowledges and agrees that he has received training and experience at Details
which has enabled him to become a special uniquely talented manager in the
printed circuit board business, possessing special capabilities to manage a high
speed turn around, high margin, superior quality product and high volume output
operation. Employee further acknowledges (i) the business of such quick
turn-around printed circuit board production is a small fraction of the
electronic component business, and even of the overall printed circuit board
production portion thereof, (ii) that a material portion of the consideration
being committed to by Details hereunder for the term hereof relates to the
value of Employee's exclusive employment with Details and nonemployment with
others, and (iii) the loss of such talents to another printed circuit board
manufacturer will cause damages to Details in amounts which are difficult of
ascertainment, and will cause irreparable injury to Details.
B. NONCOMPETITION. Employee hereby covenants that in the event
Employee shall refuse to work for Details or shall be discharged for cause as
hereafter defined, Employee shall not directly or indirectly: (i) discuss, seek
or obtain employment or consulting arrangements with any other electronic
component manufacturer who is engaged or intends to engage in product
manufacture of
-7-
<PAGE>
the type engaged in by Details (collectively: "competitive business") at any
time prior to December 31, 1998, (ii) indirectly engage in any competitive
business as a partner, stockholder, officer or director thereof, (iii) interfere
with, disrupt or attempt to disrupt the relationship, contractual or otherwise,
between Details and any other person, including without limitation, any
customer, supplier or employee of Details, or (iv) induce any employee of
Details to terminate employment or to engage in any competitive business. For
this purpose, the term employment, shall include any consultation with, or the
provision of advice or other services, to another electronic component
manufacturer, directly or indirectly, whether or not for compensation, which
advice or services may be used for purposes competitive with the business of
Details.
C. REMEDIES - SPECIFIC PERFORMANCE. In addition to all remedies which
may be available at law to Details arising from any breach of this section,
Employee agrees that Employee's services to be rendered are of a special,
unique, extraordinary and intellectual character, giving them a peculiar value,
the loss of which cannot be adequately or reasonably compensated in damages in
any action at law, and that a breach by Employee of any of the terms hereof will
cause Details to suffer irreparable injury and damage. Employee hereby expressly
agrees that Details shall be entitled to the remedies of injunction, specific
performance and other equitable relief in connection with a breach or potential
breach of this agreement by Employee.
8. DISCHARGE FOR CAUSE. Employee may be discharged only for any of the
following causes, which shall be effective upon written notice thereof to
employee. Upon any such discharge, (i) Employee's entitlement to benefits
(subject only to legal requirements of general application for continuation of
benefits, such as COBRA) and other compensation under this agreement shall
cease, and (ii) Employee shall return all property of Details within 24 hours
following such termination, including without limitation all Confidential
Information and Proprietary Rights.
A. BREACH. Any failure or refusal to comply in good faith with the
obligations of employee under this agreement. In the event such breach is, in
the sole determination of the Board of Directors, of a type which is not
irreparable and which has not diminished the reputation of Details or the moral
of its employees,
-8-
<PAGE>
Employee shall be given written notice of the nature of
such breach and the requirements for cure thereof, and
Employee shall immediately cure same, or if it cannot
immediately be cured, shall immediately commence and
diligently pursue to completion such cure, which may
require reimbursement of losses arising from such breach
to Details. Should such cure not be so effected, or
should such breach recur thereafter, Employee shall be
discharged.
B. INCAPACITY. The inability to perform the
obligations of employee under this agreement due to death,
injury, disease, mental illness or other disability, which
shall continue for a period of 90 days, or which, in the
aggregate shall involve 120 days in the preceding twelve
month period.
C. DISHONESTY. (i) As determined by the Board
in good faith based upon substantial evidence, any of the
following whether or not actual criminal prosecution or
conviction arises therefrom: (a) perpetration of, or
attempt to perpetrate, any fraud, embezzlement or theft
with respect to Details, or any of its shareholders,
directors, personnel, vendors or customers, or (b)
perpetration of any conduct involving moral turpitude, or
(ii) conviction of any misdemeanor where imprisonment
results, or (iii) conviction of any felony, or of any
misdemeanor originally charged as a felony, whether or not
imprisonment results.
D. DISCRIMINATORY/SEXUAL MISCONDUCT. As
involves personnel, vendors, and customers of Details, any
conduct involving (i) unlawful discrimination based on
age, gender, race, national origin, or religion; and/or
(ii) unlawful sexual harassment.
9. VACATIONS AND BENEFITS. Employee shall be
entitled to benefits generally available to Details full
time personnel, such as participation in health care plans
and similar benefit plans, including vacation and sick pay
entitlements for salaried employees, vehicle use or
allowances, and reimbursement of reasonable expenses
incurred in the discharge of Employee's obligations
hereunder.
-9-
<PAGE>
10. INUREMENT. This agreement shall be binding upon
and inure to the benefit of the parties, and their
successors, assigns and personal representatives.
11. ASSIGNMENT. Employee may not assign this
agreement or any interest therein. Details may assign
this agreement to any entity which shall assume all of the
obligations of Details hereunder, provided that either (i)
Details shall own a majority of the voting securities of
such entity, or (ii) such entity has purchased a majority
of the assets of Details. Upon any such assignment,
Details shall be released from all obligations hereunder.
12. NOTICES. Any notices required or permitted
under this agreement shall be in writing and shall be
deemed delivered to (i) Employee when (a) personally
handed to Employee, whether at Details or elsewhere, or
(b) two days following depositing same in the United
States Mail, postage prepaid, certified mail return
receipt requested, addressed to Employee at Employee's
home address as from time to time contained in the
personnel records of Details, or (ii) Details, when (a)
personally handed to the Chairman and/or Chief Executive
Officer, or (b) two days following depositing same in the
United States Mail, postage prepaid, certified mail return
receipt requested, addressed to the Chairman and/or Chief
Executive Officer of Details, at the then applicable
address for the administrative offices of Details.
13. INTEGRATION. This agreement, together with the
1995 Plan, contain the entire understanding of the parties
relating to the subject matter hereof, and shall supersede
all other written and oral prior and contemporaneous
promises and agreements.
14. APPLICABLE LAW AND INTERPRETATION. This
agreement is made in the State of California, and
California law shall govern its interpretation. The
provisions of this agreement were negotiated by the
parties and/or their representatives and shall be
construed in accordance with their fair meaning and
intent, and not against either party generally.
15. ENFORCEMENT. Should legal action between the
parties be necessary or appropriate to enforce any of the
provisions hereof, the prevailing party shall be entitled
to recover reasonable attorneys fees, whether or not such
action proceeds to a final judgement.
-10-
<PAGE>
16. SEVERABILITY. If any of the provisions of this agreement, as applied
to a particular party or circumstance, shall be found by a court with proper
jurisdiction to be void or unenforceable, such finding shall not affect the
provision in any other application, or the validity or enforceability of other
provisions hereof.
17. AMENDMENTS. any amendment to this agreement must be in writing and
signed by each of the parties to be valid, and any purported amendment not
meeting the requirements of this section shall be without force or effect.
IN WITNESS WHEREOF, this agreement is executed as of the day and year
first above written.
EMPLOYEE: DETAILS, INC.
/s/ Bruce D. McMaster by /s/ James I. Swenson CEO
- ------------------------ ------------------------
BRUCE D. McMASTER JAMES I. SWENSON
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
-11-
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN
This Amendment No. 1 to the Employment Agreement and Incentive
Compensation Plan is made as of October 28, 1997, between Details, Inc., a
California corporation ("Details"), and Bruce D. McMaster ("Employee") with
respect to the following recitals of facts:
RECITALS
A. Employee is presently an employee of Details.
B. Details and Employee entered into an Employment Agreement and
Incentive Compensation Plan on September 1, 1997 (the "Agreement") which
provided the terms of employment and a plan of compensation for Employee.
Capitalized terms used herein shall have the meanings set forth in the
Agreement, unless otherwise provided herein.
C. On October 28, 1997, Details entered into an Amended and Restated
Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which
it will exchange its capital stock for certain consideration on the closing date
(the "Closing Date"). Employee is a stockholder and optionholder of Details and
will derive substantial personal economic benefit from the consummation of the
transaction contemplated by the Recapitalization Agreement.
D. The Recapitalization Agreement contemplates that the parties
hereto execute this Agreement.
E. Details and Employee desire by this amendment to provide for the
continued employment and to extend the term of the employment of the Employee on
the terms contained in the agreement as amended hereby.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions hereinafter set forth, the parties agree as
follows:
1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and
conditions set forth in the Agreement as amended hereby (the "Amended
Agreement"), Details hereby offers to Employee and Employee hereby accepts
continued employment with Details as President. In the event of a conflict
between any provision of this Amended Agreement and the Agreement, the
provisions of the Amended Agreement shall control.
<PAGE>
2. TERM. This Amended Agreement shall cover the term commencing on the Closing
Date and ending three calendar years from the Closing Date (the "Expiration
Date").
3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be
$375,000, $425,000 and $450,000, respectively. The Base Salary for each
year on or after January 1, 2000 covered by the Amended Agreement will be
established by Details at a level that is at least as high as the Base
Salary for 1999.
The Additional Compensation shall be calculated according to the table set
forth on Schedule 1 hereto and shall be based on the following EBITDA
targets ("Target EBITDA")(rather than Gross Profit or any other measuring
device or indicator).
<TABLE>
<CAPTION>
Target
Fiscal Year EBITDA
----------- ------
(In Millions)
<S> <C>
1997 $33,396
1998 $37,571
1999 $42,267
</TABLE>
For purposes of this Agreement, EBITDA is defined in accordance with the
definition of Consolidated EBITDA in the Senior Credit Agreement dated
October 27, 1997.
After the preparation and finalization of the financial statements
reflecting the first six months of each fiscal year (the "Six Month
Financials"), Details shall pay the Employee an advance on the Additional
Compensation, if any, payable to the Employee for such fiscal year (the
"Advance").
The Advance shall equal seventy-five percent (75%) of fifty percent (50%)
of the Target Additional Compensation (i.e., the Additional Compensation
that Details expects to pay Employee at fiscal year end based on Detail's
good faith estimate of Details' EBITDA for such fiscal year).
If the Additional Compensation for the fiscal year is less than the amount
of the Advance paid to the Employee in such fiscal year, then the amount of
Additional Compensation to which the Employee would otherwise be entitled
in subsequent periods shall first be applied to eliminate such shortfall.
4. NONCOMPETITION. The parties hereby reaffirm the section of the Agreement
entitled "Noncompetition" (the "Noncompetition Section"). The
-2-
<PAGE>
Employee further agrees that the restrictions contained in the
Noncompetition Section on his activities during and after his employment are
necessary to protect the goodwill, confidential information and other legitimate
interests of Details and its Affiliates.
Section 7(b) of the Agreement is hereby amended by deleting the reference
therein to "December 31, 1998" and substituting therefor a reference to "the
Expiration Date."
5. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the
Agreement entitled "Discharge for Cause." The parties hereto further agree that
the following causes shall constitute the only causes for which the Employee may
be discharged.
a. BREACH. Any failure or refusal to comply in good faith with the
obligations of the Employee under the Amended Agreement, which failure shall, in
the sole determination of the Board of Directors, constitute gross neglect by
the Employee or result from the willful misconduct of the Employee.
b. DISHONESTY. As determined by the Board of Directors based upon
substantial evidence, any of the following whether or not actual criminal
prosecution or conviction arises therefrom: (a) perpetration of, or attempt to
perpetrate, any fraud, embezzlement or theft with respect to Details, or any of
its subsidiaries, shareholders, directors, personnel, vendors or customers, or
(b) conviction of any felony, or of any misdemeanor originally charged as a
felony, whether or not imprisonment results.
6. LIFE INSURANCE. Details agrees to use it reasonable efforts to procure a
term life insurance policy in the amount of one million dollars ($1,000,000) on
the life of the Employee, provided that the Employee presents typical
underwriting risks for a non-smoker in good health who is Employee's age and
that the Employee cooperates in Details' efforts to procure such policy.
Details will pay the premiums for such policy for the period beginning on the
date such policy is procured and ending on the earlier of (i) the Expiration
Date or (ii) the date Employee ceases to be an employee of Details.
7. DISABILITY. Details may terminate the Employee's employment upon notice to
the Employee in the event the Employee becomes disabled during his employment
hereunder through any illness, injury, accident or condition of either a
physical or psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities under the Amended Agreement
for a period of ninety (90) consecutive calendar days or for an aggregate of one
hundred eighty (180) days during any period of three hundred sixty-five (365)
-13-
<PAGE>
consecutive calendar days. In the event of a termination pursuant to the
preceding sentence, Details shall continue to pay to the Employee the Base
Salary payable to the Employee pursuant to the Amended Agreement for a
period of up to one calendar year from the date of such disability, such
Base Salary to be payable in such installments as the Base Salary is paid
him under the terms of the Amended Agreement, provided however if the
Employee is eligible to receive disability payments under a long-term
disability plan adopted by Details, such payments of the Employee's Base
Salary shall cease.
8. STOCK AWARD. Details will award Employee 4,747.0099 shares of Class A-5
Common Stock on the Closing Date, which shares will be duly authorized,
fully-paid and non-assessable.
9. BONUS. In addition to any other compensation to which Employee is entitled,
in consideration of services rendered to date, on the third anniversary of
the Closing Date, Details will pay to Employee, whether or not he continues
to be an employee at such time, an amount equal to $1,088,558.35. The
provisions of this Section 9 shall survive the Expiration Date.
10. ENFORCEMENT. In the event that any provision of this Amended Agreement
shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too
large a geographic area or too great a range of activities, such provision
shall be deemed to be modified to permit its enforcement to the maximum
extent permitted by law.
[Remainder of this page intentionally left blank]
-4-
<PAGE>
Employment Agreement
October 28, 1997
IN WITNESS WHEREOF, this agreement is executed as of the day and year first
above written.
EMPLOYEE: DETAILS, INC.
/s/ Bruce D. McMaster By /s/ Joseph P. Gisch
- --------------------------------- -------------------------------
Bruce D. McMaster
<PAGE>
SCHEDULE 1
----------
to Amendment No. 1
to Employment Agreement and
Incentive Compensation Plan
The Additional Compensation for each year shall be determined by the
following methodology. EBITDA for each year shall be divided by the Target
EBITDA for that year. The resulting fraction (expressed as a percentage) is the
"EBITDA Percentage". The amount of the Additional Compensation for each year is
a function of the EBITDA Percentage for that year as set forth on the table
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If the EBITDA The Additional Compensation
Percentage is: in each year shall equal:
- --------------------------------------------------------------------------------
1997 1998 1999
-----------------------------------------
<S> <C> <C> <C>
Below 90% -0- -0- -0-
- --------------------------------------------------------------------------------
Between 90% and Below 95% $20,100 $133,333 $141,667
- --------------------------------------------------------------------------------
95% $40,200 $266,667 $283,333
- --------------------------------------------------------------------------------
100% $60,300 $400,000 $425,000
- --------------------------------------------------------------------------------
105% $72,360 $480,000 $510,000
- --------------------------------------------------------------------------------
110% $84,420 $560,000 $595,000
- --------------------------------------------------------------------------------
115% $96,480 $640,000 $680,000
- --------------------------------------------------------------------------------
120% $108,540 $720,000 $765,000
- --------------------------------------------------------------------------------
</TABLE>
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be
determined from the foregoing table by linear interpolation based upon the
actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional
Compensation will be determined form the foregoing table by linear
extrapolation.
[Bruce D. McMaster]
<PAGE>
EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN
This Employment Agreement and Incentive Compensation Plan ("Agreement")
is made as of the 19th day of September, 1995, between Details, Inc., a
California corporation ("Details"), and JOSEPH P. GISCH ("Employee") with
respect to the following recitals of facts:
R E C I T A L S
A. Details is an electronics component manufacturer engaged in the
business of quick turn-around production of high quality multilayer printed
circuit boards for production prototype applications and for urgently needed
assembly operations in the electronics industry.
B. Employee is a Certified Public Accountant desiring to commence
employment with Details in the position of Vice President, Finance.
C. Details and Employee desire by this Agreement to provide for the
terms of employment, and a plan of compensation for employee for 36 months of
employment.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions
hereinafter set forth, Details hereby offers to Employee and Employee hereby
accepts employment with Details, Inc.
2. TERM. This Agreement shall cover the term commencing on November 13,
1995 and ending on October 31, 1998.
3. COMPENSATION. The compensation payable to Employee under this
Agreement during the term hereof shall be as follows:
A. BASE SALARY. The Base Salary for each year of the term shall
be the applicable amount set forth below, payable in weekly installments:
<PAGE>
<TABLE>
<CAPTION>
YEAR BASE SALARY
<S> <C>
11-1-95 - 10-31-96 $240,000
11-1-96 - 10-31-97 $252,000
11-1-97 - 10-31-98 $265,000
</TABLE>
B. ADDITIONAL COMPENSATION. Employee shall be entitled to
Additional Compensation in each month of employment, equal to 1% of the amount
by which the actual Earnings Before Income Tax (being all income less all
expenses except federal income tax, as reflected on Details normal statements of
income) during such month exceeds the following minimum levels:
<TABLE>
<CAPTION>
MINIMUM MONTHLY EARNINGS
MONTHS BEFORE INCOME TAX
------ ------------------------
<S> <C>
November, 1995 through December, 1995 $2,200,000
January, 1996 through October, 1996 $2,200,000
November 1996 through October, 1997 $2,500,000
November 1997 through October, 1998 $2,800,000
</TABLE>
C. Employee shall be paid Additional Compensation on a quarterly
basis, and subject to the usual deductions.
D. For purposes of determining the Additional Compensation in
each month, the Earnings Before Income Tax actually achieved in such month shall
be adjusted as follows:
(i) In each Month in which the Minimum Monthly Before
Income Tax is not achieved ("Deficient Month"), the deficiency shall be offset
against the amount by which the Earnings Before Income Tax actually achieved in
each subsequent month exceeds the applicable Minimum Monthly Earnings Before
Income Taxes for such subsequent month, until the deficiency arising from the
Deficient Month is fully offset.
(ii) In the event that long term indebtedness of Details
increases in connection with a sale of a majority of the outstanding stock of
Details, there shall be added back to Earnings Before Income Taxes actually
achieved: (a) an amount equal to the interest paid in such month on the amount
of such debt incurred in a contemplated transaction with Chase Manhattan Capital
Corporation, if consumated, exceeding any amounts therein received by Details
to: (1) payoff then existing long term
-2-
<PAGE>
indebtedness, and (2) provide equipment financing or working capital, and (b) an
amount equal to the goodwill amortized as expense during such month, to the
extent such amortization is required by generally accepted accounting
principles.
E. In addition to the foregoing, the Board of Directors, may, in
its sole and exclusive discretion, grant an additional bonus to Employee.
4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee
shall:
A. Devote his full employment energies, interest, abilities, time
and attention to the performance of his obligations hereunder, and shall not,
without the written consent of the Chairman and Chief Executive Officer of
Details, render any service of any kind to a third party for compensation.
B. Not engage in any activity which conflicts with or interferes
with the performance of his duties hereunder, whether or not for compensation.
C. Provide his exclusive loyalty to Details, with a view toward
maintaining the highest quality standards, improving profitability through cost
controls, increasing revenues consistent with holding margins, assuring
compliance with applicable laws, sustaining employee morale, and assuring
equipment is maintained in its best operating condition.
5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction
of the Board of Directors and the approval of the Chairman and Chief Executive
Officer, employee shall:
A. Establish, implement and oversee Details' accounting activities
and accounting personnel, to assure prompt, accurate and complete reporting of
all material information regarding fiscal activities and operations of Details
to the Board of Directors of Details.
B. Maintain full and adequate controls over corporate commitments
and expenditures to assure continuous fiscal integrity and profitability.
-3-
<PAGE>
C. Investigate and report irregularities as required from time to
time to assure full compliance with law, first quality effort and results by
personnel, and proper internal reporting and communications.
D. Represent and continuously promote the interests of Details in
fiscal matters with lenders, tax authorities, outside accountants, department
personnel, and major customers and vendors.
E. Establish and maintain budgets and variance reporting for all
operations of Details, including proper budgeting for current operations and
anticipated capital and other expenditures, maintenance and improvement of
product margins, full product quality assurance and proper operational systems
(including ISO 9000 standards compliance).
F. Coordinate with other officers and subordinate executives,
managers and supervisors to assure smooth implementation of accounting controls
and reporting.
G. Establish and implement computerized accounting and management
information systems, tax accounting and reporting systems, risk management
controls and insurance analysis, and personnel compensation accounting and
payments including incentive compensation benefits.
H. Perform such other tasks and functions as directed by the
President and the Chairman and Chief Executive Officer of Details.
6. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now possesses
and will obtain "Confidential Information", which is all financial and other
information disclosed or obtained in connection with employment with Details,
which has been created, discovered, developed or otherwise become known to
Details, its customers, or suppliers, and/or in which proprietary rights have
been assigned or otherwise provided to Details, and (ii) which has commercial
value in the businesses in which Details and its customers and suppliers are
engaged. Employee agrees that all Confidential Information is a valuable
property and asset of Details, and Details shall be the sole owner of all
patents, trademarks, copyrights, trade secrets, and other proprietary rights
arising therefrom. Employee shall at all times, during and after employment
-4-
<PAGE>
maintain the confidentiality of Confidential Information,
and not use or disclose same other than (a) for a purpose
connected with Employee's obligations to Details under
this agreement, or (b) with the written consent of the
Chairman and Chief Executive Officer of Details.
A. The following are examples of Confidential
Information, but not an exclusive listing: information
relating to trade secrets, processes, customer lists,
structures, formulas, data, know-how, techniques,
marketing plans, manufacturing methods, strategies,
forecasts, products, equipment utilization, software and
financial data.
B. Notwithstanding the foregoing,
Confidential Information does not include information (a)
generally available to the public, (b) contained in an
issued patent, or (c) generally known to persons in the
printed circuit board business.
7. DISCHARGE FOR CAUSE. Employee may be
discharged for any of the following causes, which shall be
effective upon written notice thereof to employee. Upon
any such discharge, (i) Employee's entitlement to benefits
(subject only to legal requirements of general application
for continuation of benefits, such as COBRA) and other
compensation under this agreement shall cease, and (ii)
Employee shall return all property of Details within 24
hours following such termination, including without
limitation all Confidential Information and Proprietary
Rights.
A. BREACH. Any failure or refusal to comply in
good faith with the obligations of employee under this
agreement, with a view toward providing the maximum
benefits available to Details hereunder, including without
limitation, refusal to work or resignation.
B. INCAPACITY. The inability to perform the
obligations of employee under this agreement due to death,
injury, disease, mental illness or other disability, which
shall continue for a period of 30 days, or which, in the
aggregate shall involve 60 days in the preceding twelve
month period.
C. DISHONESTY. The commission of a crime
punishable by imprisonment in the state prison (whether or
not actual criminal prosecution and imprisonment results),
or perpetration of, or attempt to perpetrate, any fraud,
-5-
<PAGE>
embezzlement or theft with respect to Details, or any or its shareholders,
directors, personnel, vendors or customers.
D. MISCONDUCT. As involves personnel, vendors, and customers of
Details, (i) discrimination based on age, gender, race, national origin, or
religion; and (ii) sexual harassment.
9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits
generally available to Details full time personnel, such as participation in
health care plans and similar benefits plans, including vacation and sick pay
entitlements for salaried employees. As an additional benefit, Details shall
pay, while Employee is employed by Details, an amount not exceeding $500
monthly, for up to 36 months, with respect to Employee's existing vehicle lease
obligation.
10. INUREMENT. This agreement shall be binding upon and inure to the
benefit of the parties, and their successors, assigns and personal
representatives.
11. ASSIGNMENT. Employee may not assign this agreement or any interest
therein. Details may assign this agreement to any entity which shall assume all
of the obligations of Details hereunder, provided that either (i) Details shall
own a majority of the voting securities of such entity, or (ii) such entity has
purchased a majority of the assets of Details. Upon any such assignment,
Details shall be released from all obligations hereunder.
12. INTEGRATION. This agreement contains the entire understanding of the
parties relating to the subject matter hereof, and shall supersede all other
written and oral prior and contemporaneous promises and agreements.
13. APPLICABLE LAW. This agreement is made in the State of California,
and California law shall govern its interpretation.
14. ENFORCEMENT. Should legal action between the parties be necessary or
appropriate to enforce any of the provisions hereof, the prevailing party shall
be entitled to recover reasonable attorneys fees, whether or not such action
proceeds to a final judgment.
15. SEVERABILITY. If any of the provisions of this agreement, as applied
to a particular party or
-6-
<PAGE>
circumstance, shall be found by a court with proper jurisdiction to be void or
unenforceable, such finding shall not affect the provision in any other
application, or the validity or enforceability of other provisions hereof.
16. AMENDMENTS. Any amendment to this agreement must be in writing and
signed by each of the parties to be valid, and any purported amendment not
meeting the requirements of this section shall be without force or effect.
IN WITNESS WHEREOF, this agreement is executed as of the day and year
first above written.
EMPLOYEE: DETAILS, INC.
/s/ Joseph P. Gisch by /s/ James I. Swenson, CEO
- ------------------- --------------------------
JOSEPH P. GISCH JAMES I. SWENSON,
CHIEF EXECUTIVE OFFICER
-7-
<PAGE>
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT AND INCENTIVE
COMPENSATION PLAN
This amendment is made as of December 12, 1996 to the Employment
Agreement and Incentive Compensation Plan ("Agreement") dated as of September
19, 1995, between Details, Inc., a California corporation ("Details"), and
Joseph P. Gisch. ("Employee").
NOW THEREFORE, in consideration of $1.00 paid to Employee, receipt of
which is hereby acknowledged, the Agreement is hereby amended in the following
particulars only, and except as so amended, shall continue in full force and
effect.
1. Paragraph 3B. of the Agreement is hereby deleted and replaced with
the following:
ADDITIONAL COMPENSATION. Employee shall be entitled to Additional
Compensation in each month of employment, equal to 1.5% of the amount by which
the actual Earnings Before Income Tax (being all income less all expenses except
federal and state income taxes, as reflected on Details normal statements of
income) during such month exceeds the following minimum levels:
<TABLE>
<CAPTION>
MINIMUM MONTHLY EARNINGS
MONTHS BEFORE INCOME TAXES
------ -------------------
<S> <C>
January, 1996 through December, 1996 $2,100,000
January, 1997 through December, 1997 $2,100,000
January, 1998 through October, 1998 $2,400,000
</TABLE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
DETAILS, INC. EMPLOYEE
by /s/ James I. Swenson /s/ Joseph P. Gisch
------------------------------ ------------------------------
James I. Swenson Joseph P. Gisch
Chairman and Chief
Executive Officer
-8-
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN
This Amendment No. 1 To The Employment Agreement And Incentive Compensation
Plan is made as of October 28, 1997, between Details, Inc., a California
corporation ("Details"), and Joseph P. Gisch ("Employee") with respect to the
following recitals of facts:
RECITALS
A. Employee is presently an employee of Details.
B. Details and Employee entered into an Employment Agreement and Incentive
Compensation Plan on September 19, 1997 (the "Agreement") which provided the
terms of employment and a plan of compensation for Employee. Capitalized terms
used herein shall have the meanings set forth in the Agreement, unless otherwise
provided herein.
C. On October 28, 1997, Details entered into an Amended and Restated
Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which
it will exchange its capital stock for certain consideration on the closing date
(the "Closing Date"). Employee is a stockholder and optionholder of Details and
will derive substantial personal economic benefit from the consummation of the
transaction contemplated by the Recapitalization Agreement.
D. The Recapitalization Agreement contemplates that the parties hereto
execute this Agreement.
E. Details and Employee desire by this amendment to provide for the
continued employment and to extend the term of the employment of the Employee on
the terms contained in the Agreement as amended hereby.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and
conditions set forth in the Agreement as amended hereby (the "Amended
Agreement"), Details hereby offers to Employee and Employee hereby
accepts continued employment with Details as Vice President, Finance.
In the event of a conflict between any provision of this Amended
Agreement and the Agreement, the provisions of the Amended Agreement
shall control.
<PAGE>
2. TERM. This Amended Agreement shall cover the term commencing on the
Closing Date and ending three calendar years from the Closing Date (the
"Expiration Date").
3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999
shall be $252,000, $265,000 and $275,000, respectively. The Base Salary
for each year on or after January 1, 2000 covered by the Amended
Agreement will be established by Details at a level that is at least as
high as the Base Salary for 1999.
The Additional Compensation shall be calculated according to the table
set forth on Schedule 1 hereto and shall be based on the following
EBITDA targets ("Target EBITDA")(rather than Gross Profit or any other
measuring device or indicator).
<TABLE>
<CAPTION>
Target
Fiscal Year EBITDA
----------- ------
(In Millions)
<S> <C>
1997 $33,396
1998 $37,571
1999 $42,267
</TABLE>
For purposes of this Agreement, EBITDA is defined in accordance with
the definition of Consolidated EBITDA in the Senior Credit Agreement
dated October 27, 1997.
After the preparation and finalization of the financial statements
reflecting the first six months of each fiscal year (the "Six Month
Financials"), Details shall pay the Employee an advance on the
Additional Compensation, if any, payable to the Employee for such
fiscal year (the "Advance").
The Advance shall equal seventy-five percent (75%) of fifty percent
(50%) of the Target Additional Compensation (i.e., the Additional
Compensation that Details expects to pay Employee at fiscal year end
based on Detail's good faith estimate of Details' EBITDA for such
fiscal year).
If the Additional Compensation for the fiscal year is less than the
amount of the Advance paid to the Employee in such fiscal year, then
the amount of Additional Compensation to which the Employee would
otherwise be entitled in subsequent periods shall first be applied to
eliminate such shortfall.
4. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of
the Agreement entitled "Discharge for Cause." The parties hereto
further agree
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<PAGE>
that the following causes shall constitute the only causes for which
the Employee may be discharged.
a. BREACH. Any failure or refusal to comply in good faith with
the obligations of the Employee under the Amended Agreement, which
failure shall, in the sole determination of the Board of Directors,
constitute gross neglect by the Employee or result from the willful
misconduct of the Employee.
b. DISHONESTY. As determined by the Board of Directors based upon
substantial evidence, any of the following whether or not actual
criminal prosecution or conviction arises therefrom: (a) perpetration
of, or attempt to perpetrate, any fraud, embezzlement or theft with
respect to Details, or any of its subsidiaries, shareholders,
directors, personnel, vendors or customers, or (b) conviction of any
felony, or of any misdemeanor originally charged as a felony, whether
or not imprisonment results.
5. LIFE INSURANCE. Details agrees to use its reasonable efforts to
procure a term life insurance policy in the amount of one million
dollars ($1,000,000) on the life of the Employee, provided that the
Employee presents typical underwriting risks for a non-smoker in good
health who is Employee's age and that the Employee cooperates in
Details' efforts to procure such policy. Details will pay the premiums
for such policy for the period beginning on the date such policy is
procured and ending on the earlier of (i) the Expiration Date or (ii)
the date Employee ceases to be an employee of Details.
6. DISABILITY. Details may terminate the Employee's employment upon
notice to the Employee in the event the Employee becomes disabled
during his employment hereunder through any illness, injury, accident
or condition of either a physical or psychological nature and, as a
result, is unable to perform substantially all of his duties and
responsibilities under the Amended Agreement for a period of ninety
(90) consecutive calendar days or for an aggregate of one hundred
eighty (180) days during any period of three hundred sixty-five (365)
consecutive calendar days. In the event of a termination pursuant to
the preceding sentence, Details shall continue to pay to the Employee
the Base Salary payable to the Employee pursuant to the Amended
Agreement for a period of up to one calendar year from the date of
such disability, such Base Salary to be payable in such installments
as the Base Salary is paid him under the terms of the Amended
Agreement, provided however if the Employee is eligible to receive
disability payments under a long-term disability plan adopted by
Details, such payments of the Employee's Base Salary shall cease.
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<PAGE>
7. STOCK AWARD. Details will award Employee 676.7889 shares of Class A-5
Common Stock on the Closing Date, which shares will be duly
authorized, fully-paid and non-assessable.
8. BONUS. In addition to any other compensation to which Employee is
entitled, on the date on which Employee ceases to be the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of any shares of capital stock of Details, Details
will pay to Employee, whether or not he continues to be an employee at
such time, an amount equal to $155,197.52. The provisions of this
Section 9 shall survive the Expiration Date.
9. ENFORCEMENT. In the event that any provision of this Amended Agreement
shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time,
too large a geographic area or too great a range of activities, such
provision shall be deemed to be modified to permit its enforcement to
the maximum extent permitted by law.
[Remainder of this page intentionally left blank]
-4-
<PAGE>
Employment Agreement
October 28, 1997
IN WITNESS WHEREOF, this agreement is executed as of the day and year first
above written.
EMPLOYEE: DETAILS, INC.
/s/ Joseph P. Gisch By /s/ Bruce McMaster
- ---------------------------------- ------------------------------------
Joseph P. Gisch Bruce McMaster
<PAGE>
SCHEDULE 1
----------
to Amendment No. 1
to Employment Agreement and
Incentive Compensation Plan
The Additional Compensation for each year shall be determined by the
following methodology. EBITDA for each year shall be divided by the Target
EBITDA for that year. The resulting fraction (expressed as a percentage) is the
"EBITDA Percentage". The amount of the Additional Compensation for each year is
a function of the EBITDA Percentage for that year as set forth on the table
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If the EBITDA The Additional Compensation
Percentage is: in each year shall equal:
- --------------------------------------------------------------------------------
1997 1998 1999
----------------------------------------------
<S> <C> <C> <C>
Below 90% -0- -0- -0-
- --------------------------------------------------------------------------------
Between 90% and below 95% $3,350 $66,667 $66,667
- --------------------------------------------------------------------------------
95% $6,700 $133,333 $133,333
- --------------------------------------------------------------------------------
100% $10,050 $200,000 $200,000
- --------------------------------------------------------------------------------
105% $11,558 $230,000 $230,000
- --------------------------------------------------------------------------------
110% $13,065 $260,000 $260,000
- --------------------------------------------------------------------------------
115% $14,573 $290,000 $290,000
- --------------------------------------------------------------------------------
120% $16,080 $320,000 $320,000
- --------------------------------------------------------------------------------
</TABLE>
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be
determined from the foregoing table by linear interpolation based upon the
actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional
Compensation will be determined from the foregoing table by linear
extrapolation.
[Joseph P. Gisch]
<PAGE>
EMPLOYMENT AGREEMENT AND INCENTIVE
COMPENSATION PLAN
This Employment Agreement and Incentive Compensation Plan ("Agreement") is
made as of the 1st day of September, 1995, between Details, Inc., a California
corporation ("Details"), and LEE W. MUSE, JR. ("Employee") with respect to the
following recitals of facts:
R E C I T A L S
A. Details is an electronics component manufacturer engaged in the
business of quick turn-around production of high quality multilayer printed
circuit boards for production prototype applications and for urgently needed
assembly operations in the electronics industry.
B. Employee is presently an employee of Details who has been appointed
to the position of Vice President - Marketing and Sales.
C. Details and Employee entered into an Employee Incentive Compensation
Plan on December 12, 1994, with respect to the calendar year 1995 providing for
a Base Salary and Additional Compensation to be paid to Employee quarterly
during such year, provided that employment has not therefor been terminated
("1995 Plan").
D. Details and Employee desire by this Agreement to provide for the
terms of employment, an exclusive employment obligation, and a plan of
compensation for employee for the three year period following the expiration of
the 1995 Plan, and to amend the 1995 Plan as hereafter set forth.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions
hereinafter set forth, Details hereby offers to Employee and Employee hereby
accepts employment with Details, Inc., as Vice President - Marketing and Sales.
-1-
<PAGE>
2. TERM. This Agreement shall cover the term commencing on September
1, 1995 and ending on December 31, 1998.
3. COMPENSATION. The compensation payable to Employee under this
Agreement during the term hereof shall be as follows:
A. Compensation for Period from September 1, 1995 through
December 31, 1995. During the remainder of the term of the 1995 Plan, Employee
shall continue to receive the Base Salary and Additional Compensation as therein
provided.
B. Compensation for Period from January 1, 1996 through December
31, 1998.
(i) The Base Salary for each Year shall be as follows:
<TABLE>
<CAPTION>
Year Base Salary
---- -----------
<S> <C>
1996 $250,000
1997 $300,000
1998 $350,000
</TABLE>
(ii) Additional Compensation for each calendar month while an
employee of Details commencing with the month of January, 1996, if the Gross
Profit of Details from such month shall exceed the applicable Minimum Gross
Profit set forth below. "Gross Profit" in any month shall constitute the amount
identified as such on Detail's regularly prepared Statement of Income for such
month on a basis consistent with that in effect on the date hereof, except that
the Gross Profit so reflected shall be subject to the adjustments in subsection
D below in determining Additional Compensation.
<TABLE>
<CAPTION>
Minimum
Year Gross Profit
---- ------------
<S> <C>
1996 $1,000,000
1997 $1,250,000
1998 $1,500,000
</TABLE>
- 2 -
<PAGE>
(iii) Subject to the maximums set forth in clause (iv)
below, Additional Compensation shall be determined by applying the following
percentages to the excess, in any month, of Gross Profit over Minimum Gross
Profit:
<TABLE>
<CAPTION>
AMOUNT OF EXCESS PERCENTAGE
<S> <C>
up to $100,000 1/2%
Over $100,000 to $200,000 1 %
Over $200,000 1 1/2%
</TABLE>
For example, if the Gross Profit in the month of February, 1997 was
$2,000,000, the Additional Compensation for such month would be $9,750
(determined by deducting from the Gross Profit of $2,000,000, the Minimum Gross
Profit of $1,250,000 applicable to such month, and applying the above
percentages to such $750,000 excess, i.e., 1/2% to the first $100,000, 1% to the
second $100,000 and 1 1/2% to the remaining $550,000.
(iv) The maximum Additional Compensation for years commencing
in 1996 shall be as follows:
<TABLE>
<CAPTION>
Maximum Additional
Year Compensation
---- ------------------
<S> <C>
1996 $300,000
1997 $375,000
1998 $500,000
</TABLE>
C. Employee shall be paid Additional Compensation on a quarterly
basis, and subject to the usual deductions, within 30 days following the end of
each calendar quarter.
D. For purposes of determining the Additional Compensation in
each month, the Gross Profit actually achieved in such month shall be adjusted
as follows:
(i) In each Month in which the Minimum Gross Profit is
not achieved ("Deficient Month"), the deficiency shall be offset against the
amount by which the Gross Profit actually achieved in each subsequent month
exceeds the applicable Minimum Gross Profit for such subsequent month, until the
deficiency arising from the Deficient Month is fully offset.
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<PAGE>
(ii) In each Month in which, in connection with enforcement
of any fire or building and safety law, environmental or toxics control law,
wage and hour law or other employee compensation or benefit law, occupational
safety or health law, or other law regulating production or other operations,
Detail shall be assessed a fine, penalty or other charge by any governmental
agency, or is ordered to pay additional compensation to any employee, or is
ordered to pay any amount to a third party, or shall expend fees or costs for
legal or other services to defend against any such action or proceeding by any
governmental agency, the aggregate amount of such expenses shall reduce the
Gross Profit actually achieved for such Month, and in the event that such
adjustment creates or adds to a Deficient Month, the provisions of the preceding
clause (i) above relating to offsets in subsequent Months shall also be
applicable. In the event that the Board of Directors had been apprised by any
officer of the need to appropriate funds in order to prevent the imposition of
such fine, penalty or other charge, or additional compensation, or amount
ordered to be paid to a third party, in a writing delivered to the Board members
in sufficient time to hold a board meeting, appropriate funds and effect
compliance with such law, and the Board shall fail to do so, then the adjustment
to Gross Profit in this clause (ii) shall not apply in such circumstance.
E. In addition to the foregoing, the Board of Directors, may, in
its sole and exclusive discretion, grant an additional bonus to Employee.
4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee
shall:
A. Devote his full employment energies, interest, abilities, time
and attention to the performance of his obligations hereunder, and shall not,
without the written consent of the Chairman and/or Chief Executive Officer of
Details, render any service of any kind to a third party for compensation.
B. Not engage in any activity which materially conflicts with or
interferes with the performance of his duties hereunder, whether or not for
compensation.
- 4 -
<PAGE>
C. Provide his exclusive employment and career loyalty to Details,
with a view toward maintaining the highest quality standards, improving
profitability through cost controls, increasing revenues consistent with holding
margins, seeking to assure compliance with applicable laws, sustaining employee
morale, and seeking to assure that equipment is maintained in its best operating
condition.
5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction of
the Board of Directors and the approval of the Chairman and/or Chief Executive
Officer, employee shall:
A. Implement and oversee marketing functions and sales activities,
including, without limitation, establishment of new and maintenance of existing
customer relationships, coordination of recruiting, training and continuing
education of sales representatives and regional directors, coordination with
operations managers to assure customer requirements are satisfied.
B. In the absence or incapacity of the President, carry out necessary
functions during such absence or incapacity, subject to established policies and
procedures, and if available, direction of the President.
C. Coordinate accurate and complete reporting of all information
regarding marketing and sales functions of Details with the President, including
without limitation, all information reasonably necessary for planning relating
to projected requirements of customers, based on personal customer interface and
reporting from marketing and sales subordinates.
D. Maintain controls over sales quotations to strive for continuous
fiscal integrity and profitability.
E. Maintain continuous compliance with applicable laws and
regulations relating to assigned requirements.
F. Implement policies to continuously discover and correct
deficiencies as required from time to time to strive for full compliance with
law, first quality effort and results by subordinate personnel and
representatives, and proper internal reporting and communications.
- 5 -
<PAGE>
G. Represent and continuously promote the interests of Details with
all major customers, potential customers, subordinate personnel, and sales and
marketing representatives.
H. Implement policies regarding proper morale of personnel, adequacy
of staffing, proper budgeting for current marketing and sales activities.
I. Coordinate with subordinate executives, managers and supervisors
to assure smooth implementation of corporate plans and objectives.
J. Perform such other reasonable tasks and functions as directed by
the Chairman and/or Chief Executive Officers of Details.
6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT.
A. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now possesses
and will obtain "Confidential Information," which is all information disclosed
or obtained in connection with employment with Details, (i) which has been
created, discovered, developed or otherwise become known to Details, its
customers, or suppliers, and/or in which proprietary rights have been assigned
or otherwise provided to Details, and (ii) which has commercial value in the
businesses in which Details and its customers and suppliers are engaged.
Employee agrees that all Confidential Information is a valuable property and
asset of Details, and Details shall be the sole owner of all patents,
trademarks, copyrights, trade secrets, and other proprietary rights arising
therefrom. Employee shall at all times, during and after employment maintain the
confidentiality of Confidential Information, and not use or disclose same other
than (a) for a purpose connected with Employee's obligations to Details under
this agreement, or (b) with the written consent of the Chairman and Chief
Executive Officer of Details.
(i) The following are examples of Confidential Information, but
not an exclusive listing: information relating to trade secrets, processes,
customer lists, structures, formulas, data, know-how, techniques, marketing
plans, manufacturing methods, strategies, forecasts, products, equipment
utilization, software and financial data.
- 6 -
<PAGE>
(ii) Notwithstanding the foregoing, Confidential Information does not
include information (a) generally available to the public, (b) contained in an
issued patent, or (c) generally known to persons in the printed circuit board
business.
B. INVENTION AND PROPRIETARY RIGHTS ASSIGNMENT. Employee hereby
irrevocably grants and assigns to Details for its sole use and benefit all
Proprietary Rights, being trade or service marks, designs, logos, inventions,
trade secrets, improvements, technical information and suggestions regarding
Details business and operations, which Employee may have heretofor developed or
acquired during his employment with Details, or which may hereafter be
developed or acquired during the term hereof, together with all applications,
trademark, patents, copyrights (including future copyrights pursuant to Section
37 of the Copyright Act of 1986 and any amendment or successor provision
thereto) related thereto and to any improvements thereon. To carry out these
obligations, Employee shall during the term hereof and at any time thereafter:
(i) Assure that Details has received prompt and full disclosures of
all such Proprietary Rights.
(ii) Execute and deliver on demand such applications, assignments,
descriptions and other instruments (prepared at Details' expense) relating to
Proprietary Rights as Details shall reasonably request to enable proper
documentation and registrations of its right hereunder.
(iii) Assist Details, at Details expense, in connection with
preparing and prosecuting applications relating to Proprietary Rights, and in
connection with otherwise securing and/or defending its Proprietary Rights,
including by way of litigation.
7. EXCLUSIVE EMPLOYMENT WITH DETAILS. During the term, Employee
shall not be employed by, or seek any employment with (except after September
30, 1998, if anticipating leaving Details on expiration of this agreement), any
person (including without limitation, any individual, corporation, business
association, partnership or other entity) other than Details.
-7-
<PAGE>
A. EMPLOYEE ACKNOWLEDGMENTS. Employee hereby expressly acknowledges
and agrees that he has received training and experience at Details which has
enabled him to become a special uniquely talented marketing and sales executive
in the printed circuit board business, possessing special capabilities and
knowledge relating to specific customer requirements in coordination with
Details' high speed turn around, high margin, superior quality product and high
volume output operation. Employee further acknowledges, (i) the quick turn-
around printed circuit board production business is a small fraction of the
electronic component business, and even of the overall printed circuit board
production portion thereof, (ii) that a material portion of the consideration
being committed to by Details hereunder for the term hereof relates to the value
of Employee's exclusive employment with Details and nonemployment with others,
and (iii) the loss of such talents to another printed circuit board manufacturer
will cause damages to Details in amounts which are difficult of ascertainment,
and will cause irreparable injury to Details.
B. NONCOMPETITION. Employee hereby covenants that in the event
Employee shall refuse to work for Details or shall be discharged for cause as
hereafter defined, Employee shall not directly or indirectly: (i) discuss, seek
or obtain employment or consulting arrangements with any other electronic
component manufacturer who is engaged or intends to engage in product
manufacture of the type engaged in by Details (collectively: "competitive
business") at any time prior to December 31, 1998, (ii) indirectly engage in any
competitive business as a partner, stockholder, officer or director thereof,
(iii) interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Details and any other person, including
without limitation, any customer, supplier or employee of Details, or (iv)
induce any employee of Details to terminate employment or to engage in any
competitive business. For this purpose, the term employment shall include any
consultation with, or the provision of advice or other services, to another
electronic component manufacturer, directly or indirectly, whether or not for
compensation, which advice or services may be used for purposes competitive
with the business of Details.
C. REMEDIES - SPECIFIC PERFORMANCE. In addition to all remedies
which may be available at law to Details arising from any breach of this
section, Employee
- 8 -
<PAGE>
special, unique, extraordinary and intellectual character, giving them a
peculiar value, the loss of which cannot be adequately or reasonably compensated
in damages in any action at law, and that a breach by Employee of any of the
terms hereof will cause Details to suffer irreparable injury and damage.
Employee hereby expressly agrees that Details shall be entitled to the remedies
of injunction, specific performance and other equitable relief in connection
with a breach or potential breach of this agreement by Employee.
8. DISCHARGE FOR CAUSE. Employee may be discharged only for any of the
following causes, which shall be effective upon written notice thereof to
employee. Upon any such discharge, (i) Employee's entitlement to benefits
(subject only to legal requirements of general application for continuation of
benefits, such as COBRA) and other compensation under this agreement shall
cease, and (ii) Employee shall return all property of Details within 24 hours
following such termination, including without limitation all Confidential
Information and Proprietary Rights.
A. BREACH. Any failure or refusal to comply in good faith with the
obligations of employee under this agreement. In the event such breach is, in
the sole determination of the Board of Directors, of a type which is not
irreparable and which has not diminished the reputation of Details or the morale
of its employees, Employee shall be given written notice of the nature of such
breach and the requirements for cure thereof, and Employee shall immediately
cure same, or if it cannot immediately be cured, shall immediately commence and
diligently pursue to completion such cure, which may require reimbursement of
losses arising from such breach to Details. Should such cure not be so effected,
or should such breach recur thereafter, Employee shall be discharged.
B. INCAPACITY. The inability to perform the obligations of employee
under this agreement due to death, injury, disease, mental illness or other
disability, which shall continue for a period of 90 days, or which, in the
aggregate shall involve 120 days in the preceding twelve month period.
C. DISHONESTY. (i) As determined by the Board in good faith based
upon substantial evidence, any of the following whether or not actual criminal
prosecution or
- 9 -
<PAGE>
following whether or not actual criminal prosecution or conviction arises
therefrom: (a) perpetration of, or attempt to perpetrate, any fraud,
embezzlement or theft with respect to Details, or any of its shareholders,
directors, personnel, vendors or customers, or (b) perpetration of any conduct
involving moral turpitude, or (ii) conviction of any misdemeanor where
imprisonment results, or (iii) conviction of any felony, or of any misdemeanor
originally charged as a felony, whether or not imprisonment results.
D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors,
and customers of Details, any conduct involving (i) unlawful discrimination
based on age, gender, race, national origin, or religion; and/or (ii) unlawful
sexual harassment.
9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits generally
available to Details full time personnel, such as participation in health care
plans and similar benefit plans, including vacation and sick pay entitlements
for salaried employees, vehicle use or allowances, and reimbursement of
reasonable expenses incurred in the discharge of Employee's obligations
hereunder.
10. INUREMENT. This agreement shall be binding upon and inure to the
benefit of the parties, and their successors, assigns and personal
representatives.
11. ASSIGNMENT. Employee may not assign this agreement or any interest
therein. Details may assign this agreement to any entity which shall assume all
of the obligations of Details hereunder, provided that either (i) Details shall
own a majority of the voting securities of such entity, or (ii) such entity has
purchased a majority of the assets of Details.
12. NOTICES. Any notices required or permitted under this agreement shall
be in writing and shall be deemed delivered to (i) Employee when (a) personally
handed to Employee, whether at Details or elsewhere, or (b) two days following
depositing same in the United States Mail, postage prepaid, certified mail
return receipt requested, addressed to Employee at Employee's home address as
from time to time contained in the personnel records of Details, or (ii)
Details, when (a) personally handed to the Chairman and/or Chief Executive
Officer, or (b) two days following depositing same in the United States Mail,
- 10 -
<PAGE>
postage prepaid, certified mail return receipt requested, addressed to the
Chairman and/or Chief Executive Officer of Details, at the then applicable
address for the administrative offices of Details.
13. INTEGRATION. This agreement, together with the 1995 Plan, contain the
entire understanding of the parties relating to the subject matter hereof, and
shall supersede all other written and oral prior and contemporaneous promises
and agreements.
14. APPLICABLE LAW AND INTERPRETATION. This agreement is made in the
State of California, and California law shall govern its interpretation. The
provisions of this agreement were negotiated by the parties and/or their
representatives and shall be construed in accordance with their fair meaning and
intent, and not against either party generally as drafter.
15. ENFORCEMENT. Should legal action between the parties be necessary or
appropriate to enforce any of the provisions hereof, the prevailing party shall
be entitled to recover reasonable attorneys fees, whether or not such action
proceeds to a final judgment.
16. SEVERABILITY. If any of the provisions of this agreement, as applied
to a particular party or circumstance, shall be found by a court with proper
jurisdiction to be void or unenforceable, such finding shall not affect the
provision in any other application, or the validity or enforceability of other
provisions hereof.
17. AMENDMENTS. Any amendment to this agreement must be in writing and
signed by each of the parties to be valid, and any purported amendment not
meeting the requirements of this section shall be without force or effect.
IN WITNESS WHEREOF, this agreement is executed as of the day and year
first above written.
EMPLOYEE: DETAILS, INC.
/s/ Lee W. Muse, Jr. by /s/ James I. Swenson CEO
- -------------------- ------------------------
LEE W. MUSE, JR. JAMES I. SWENSON
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
-11-
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN
This Amendment No. 1 to the Employment Agreement and Incentive Compensation
Plan is made as of October 28, 1997, between Details, Inc., a California
corporation ("Details"), and Lee W. Muse, Jr. ("Employee") with respect to the
following recitals of facts:
RECITALS
A. Employee is presently an employee of Details.
B. Details and Employee entered into an Employment Agreement and Incentive
Compensation Plan on September 1, 1997 (the "Agreement") which provided the
terms of employment and a plan of compensation for Employee. Capitalized terms
used herein shall have the meanings set forth in the Agreement, unless otherwise
provided herein.
C. On October 28, 1997, Details entered into an Amended and Restated
Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which
it will exchange its capital stock for certain consideration on the closing date
(the "Closing Date"). Employee is a stockholder and optionholder of Details and
will derive substantial personal economic benefit from the consummation of the
transaction contemplated by the Recapitalization Agreement.
D. The Recapitalization Agreement contemplates that the parties hereto
execute this Agreement.
E. Details and Employee desire by this amendment to provide for the
continued employment and to extend the term of the employment of the Employee on
the terms contained in the Agreement as amended hereby.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and
conditions set forth in the Agreement as amended hereby (the "Amended
Agreement"), Details hereby offers to Employee and Employee hereby
accepts continued employment with Details as Vice President, Marketing
and Sales. In the event of a conflict between any provision of this
Amended Agreement and the Agreement, the provisions of the Amended
Agreement shall control.
<PAGE>
2. TERM. This Amended Agreement shall cover the term commencing on the Closing
Date and ending three calendar years from the Closing Date (the "Expiration
Date").
3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be
$300,000, $350,000 and $375,000, respectively. The Base Salary for each
year on or after January 1, 2000 covered by the Amended Agreement will be
established by Details at a level that is at least as high as the Base
Salary for 1999.
The Additional Compensation shall be calculated according to the table set
forth on Schedule 1 hereto and shall be based on the following EBITDA
targets ("Target EBITDA") (rather than Gross Profit or any other target or
measuring device or indicator).
<TABLE>
<CAPTION>
Target
Fiscal Year EBITDA
----------- ------
(In Millions)
<S> <C>
1997 $33,396
1998 $37,571
1999 $42,267
</TABLE>
For purposes of this Agreement, EBITDA is defined in accordance with the
definition of Consolidated EBITDA in the Senior Credit Agreement dated
October 27, 1997.
After the preparation and finalization of the financial statements
reflecting the first six months of each fiscal year (the "Six Month
Financials"), details shall pay the Employee an advance on the Additional
Compensation, if any, payable to the Employee for such fiscal year (the
"Advance").
The Advance shall equal seventy-five percent (75%) of fifty percent (50%)
of the Target Additional Compensation (i.e., the Additional Compensation
that Details expects to pay Employee at fiscal year end based on Detail's
good faith estimate of Details' EBITDA for such fiscal year).
If the Additional Compensation for the fiscal year is less than the amount
of the Advance paid to the Employee in such fiscal year, then the amount of
Additional Compensation to which the Employee would otherwise be entitled
in subsequent periods shall first be applied to eliminate such shortfall.
4. NONCOMPETITION. The parties hereby reaffirm the section of the Agreement
entitled "Noncompetition" (the "Noncompetition Section"). The
-2-
<PAGE>
Employee further agrees that the restrictions contained in the
Noncompetition Section on his activities during and after his employment
are necessary to protect the goodwill, confidential information and other
legitimate interests of Details and its Affiliates.
Section 7(b) of the Agreement is hereby amended by deleting the reference
therein to "December 31, 1998" and substituting therefor a reference to
"the Expiration Date."
5. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the
Agreement entitled "Discharge for Cause." The parties hereto further agree
that the following causes shall constitute the only causes for which the
Employee may be discharged.
a. BREACH. Any failure or refusal to comply in good faith with the
obligations of the Employee under the Amended Agreement, which failure
shall, in the sole determination of the Board of Directors, constitute
gross neglect by the Employee or result from the willful misconduct of the
Employee.
b. DISHONESTY. As determined by the Board of Directors based upon
substantial evidence, any of the following whether or not actual criminal
prosecution or conviction arises therefrom: (a) perpetration of, or attempt
to perpetrate, any fraud, embezzlement or theft with respect to Details, or
any of its subsidiaries, shareholders, directors, personnel, vendors or
customers, or (b) conviction of any felony, or of any misdemeanor
originally charged as a felony, whether or not imprisonment results.
6. LIFE INSURANCE. Details agrees to use its reasonable efforts to procure a
term life insurance policy in the amount of one million dollars
($1,000,000) on the life of the Employee, provided that the Employee
presents typical underwriting risks for a non-smoker in good health who is
Employee's age and that the Employee cooperates in Details' efforts to
procure such policy. Details will pay the premiums for such policy for the
period beginning on the date such policy is procured and ending on the
earlier of (i) the Expiration Date or (ii) the date Employee ceases to be
an employee of Details.
7. DISABILITY. Details may terminate the Employee's employment upon notice to
the Employee in the event the Employee becomes disabled during his
employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is unable to
perform substantially all of his duties and responsibilities under the
Amended Agreement for a period of ninety (90) consecutive calendar days or
for an aggregate of one hundred eighty (180) days during any period of
three hundred sixty-five (365)
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<PAGE>
consecutive calendar days. In the event of a termination pursuant to the
preceding sentence, Details shall continue to pay to the Employee the Base
Salary payable to the Employee pursuant to the Amended Agreement for a
period of up to one calendar year from the date of such disability, such
Base Salary to be payable in such installments as the Base Salary is paid
him under the terms of the Amended Agreement, provided however if the
Employee is eligible to receive disability payments under a long-term
disability plan adopted by Details, such payments of the Employee's Base
Salary shall cease.
8. STOCK AWARD. Details will award Employee 3950.0435 shares of Class A-5
Common Stock on the Closing Date, which shares will be duly authorized,
fully-paid and non-assessable.
9. BONUS. In addition to any other compensation to which Employee is entitled,
on the date on which Employee ceases to be the beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of any
shares of capital stock of Details, Details will pay to Employee, whether
or not he continues to be an employee at such time, an amount equal to
$905,802.38. The provisions of this Section 9 shall survive the Expiration
Date.
10. ENFORCEMENT. In the event that any provision of this Amended Agreement
shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too
large a geographic area or too great a range of activities, such provision
shall be deemed to be modified to permit its enforcement to the maximum
extent permitted by law.
[Remainder of this page intentionally left blank]
-4-
<PAGE>
Employment Agreement
October 28, 1997
IN WITNESS WHEREOF, this agreement is executed as of the day and year
first above written.
EMPLOYEE: DETAILS, INC.
/s/ Lee W. Muse, Jr. By /s/ Terry L. Wright
- ---------------------------- --------------------------
Lee W. Muse, Jr. Terry L. Wright
<PAGE>
SCHEDULE 1
----------
to Employment Agreement and
Incentive Compensation Plan
The Additional Compensation for each year shall be determined by the
following methodology. EBITDA for each year shall be divided by the Target
EBITDA for that year. The resulting fraction (expressed as a percentage) is the
"EBITDA Percentage". The amount of the Additional Compensation for each year is
a function of the EBITDA Percentage for that year as set forth on the table
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If the EBITDA The Additional Compensation
Percentage is: in each year shall equal:
- --------------------------------------------------------------------------------
1997 1998 1999
---------------------------------------------
<S> <C> <C> <C>
Below 90% -0- -0- -0-
- --------------------------------------------------------------------------------
Between 90% and below 95% $22,971 $133,333 $142,857
- --------------------------------------------------------------------------------
95% $45,943 $266,667 $285,714
- --------------------------------------------------------------------------------
100% $60,300 $400,000 $425,000
- --------------------------------------------------------------------------------
105% $80,974 $470,000 $503,571
- --------------------------------------------------------------------------------
110% $93,034 $540,000 $578,571
- --------------------------------------------------------------------------------
115% $105,094 $610,000 $653,571
- --------------------------------------------------------------------------------
120% $117,154 $680,000 $728,571
- --------------------------------------------------------------------------------
</TABLE>
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be
determined from the foregoing table by linear interpolation based upon the
actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional
Compensation will be determined from the foregoing table by linear
extrapolation.
[Lee W. Muse, Jr.]
<PAGE>
EMPLOYMENT AGREEMENT AND INCENTIVE
COMPENSATION PLAN
This Employment Agreement and Incentive Compensation Plan
("Agreement") is made as of the 1st day of September, 1995, between Details,
Inc., a California corporation ("Details"), and TERRY L. WRIGHT ("Employee")
with respect to the following recitals of facts:
R E C I T A L S
A. Details is an electronics component manufacturer engaged in the
business of quick turn-around production of high quality multilayer printed
circuit boards for production prototype applications and for urgently needed
assembly operations in the electronics industry.
B. Employee is presently an employee of Details who has been
appointed to the position of Vice President - Engineering.
C. Details and Employee entered into an Employee Incentive
Compensation Plan on December 12, 1994, with respect to the calendar year 1995
providing for a Base Salary and Additional Compensation to be paid to Employee
quarterly during such year, provided that employment has not theretofor been
terminated ("1995 Plan").
D. Details and Employee desire by this Agreement to provide for the
terms of employment, an exclusive employment obligation, and a plan of
compensation for employee for the three year period following the expiration of
the 1995 Plan, and to amend the 1995 Plan as hereafter set forth.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions hereinafter set forth, the parties agree as
follows:
1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and
conditions hereinafter set forth, Details hereby offers to Employee and Employee
hereby accepts employment with Details as Vice President - Engineering.
<PAGE>
2. TERM. This Agreement shall cover the term commencing on
September 1, 1995 and ending on December 31, 1998.
3. COMPENSATION. The compensation payable to Employee under this
Agreement during the term hereof shall be as follows:
A. Compensation for Period from September 1, 1995 through
December 31, 1995. During the remainder of the term of the 1995 Plan, Employee
shall continue to receive the Base Salary and Additional Compensation as therein
provided.
B. Compensation for Period from January 1, 1996 through
December 31, 1998.
(i) The Base Salary for each Year shall be as follows:
<TABLE>
<CAPTION>
Year Base Salary
---- -----------
<S> <C>
1996 $125,000
1997 $140,000
1998 $155,000
</TABLE>
(ii) Additional Compensation for each calendar month
while an employee of Details commencing with the month of January, 1996, if the
Gross Profit of Details from such month shall exceed the applicable Minimum
Gross Profit set forth below. "Gross Profit" in any month shall constitute the
amount identified as such on Detail's regularly prepared Statement of Income for
such month on a basis consistent with that in effect on the date hereof, except
that the Gross Profit so reflected shall be subject to the adjustments in
subsection D below in determining Additional Compensation.
<TABLE>
<CAPTION>
Minimum
Year Gross Profit
---- ------------
<S> <C>
1996 $1,000,000
1997 $1,250,000
1998 $1,500,000
</TABLE>
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<PAGE>
(iii) Subject to the maximums set forth in clause (iv) below,
Additional Compensation shall be determined by applying the following
percentages to the excess, in any month, of Gross Profit over Minimum Gross
Profit:
<TABLE>
<CAPTION>
AMOUNT OF EXCESS PERCENTAGE
<S> <C>
Up to $100,000 1/2%
Over $100,000 to $200,000 1%
Over $200,000 1 1/2%
</TABLE>
For example, if the Gross Profit in the month of February, 1997 was
$2,000,000, the Additional Compensation for such month would be $9,750
(determined by deducting from the Gross Profit of $2,000,000, the Minimum Gross
Profit of $1,250,000 applicable to such month, and applying the above
percentages to such $750,000 excess, i.e., 1/2% to the first $100,000, 1% to the
second $100,000 and 1 1/2% to the remaining $550,000.
(iv) The maximum Additional Compensation for years commencing in
1996 shall be as follows:
<TABLE>
<CAPTION>
Maximum Additional
Year Compensation
---- ------------------
<S> <C>
1996 $ 75,000
1997 $ 85,000
1998 $105,000
</TABLE>
C. Employee shall be paid Additional Compensation on a quarterly
basis, and subject to the usual deductions, in the same manner as is provided in
the 1995 Plan.
D. For purposes of determining the Additional Compensation in each
month, the Gross Profit actually achieved in such month shall be adjusted as
follows:
(i) In each Month in which the Minimum Gross Profit is not
achieved ("Deficient Month"), the deficiency shall be offset against the amount
by which the Gross Profit actually achieved in each subsequent month exceeds the
applicable Minimum Gross Profit for such
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<PAGE>
subsequent month, until the deficiency arising from the Deficient Month is fully
offset.
(ii) In each Month in which, in connection with enforcement
of any fire or building and safety law, environmental or toxics control law,
wage and hour law or other employee compensation or benefit law, occupational
safety or health law, or other law regulating production or other operations,
Details shall be assessed a fine, penalty or other charge by any governmental
agency, or is ordered to pay additional compensation to any employee, or is
ordered to pay any amount to a third party, or shall expend fees or costs for
legal or other services to defend against any such action or proceeding by any
governmental agency, the aggregate amount of such expenses shall reduce the
Gross Profit actually achieved for such Month, and in the event that such
adjustment creates or adds to a Deficient Month, the provisions of the preceding
clause (ii) above relating to offsets in subsequent Months shall also be
applicable. In the event that the Board of Directors had been apprised by any
officer of the need to appropriate funds in order to prevent the imposition of
such fine, penalty or other charge, or additional compensation, or amount
ordered to be paid to a third party, in a writing delivered to the Board members
in sufficient time to hold a board meeting, appropriate funds and effect
compliance with such law, and the Board shall fail to do so, then the adjustment
to Gross Profit in this clause (ii) shall not apply in such circumstance.
E. For purposes of determining Additional Compensation in any
month, the amount thereof otherwise payable shall be further reduced by the
following percentages:
(i) In any month in which engineering errors shall
necessitate materials, whether partially or fully processed, to be scrapped, a
percentage equal to one thousandth of the cost of such scrap (labor and
materials expended as determined by Details). For example, if such scrap is
$34,000, the percentage reduction shall be 34%.
(ii) In any month in which engineering errors cause returns
by customers of products shipped, a percentage equal to one thousandth of the
dollar amount of such returns (as determined by Details) in excess of the
following allowances:
-4-
<PAGE>
<TABLE>
<CAPTION>
INVOICED PRICE OF
SHIPMENTS DURING MONTH ALLOWANCE
RETURN PRODUCT WAS SHIPPED
<S> <C>
Up to $4,000,000 $5,000
$4,000,000 to $4,999,999 $6,000
$5,000,000 to $6,999,999 $7,000
$7,000,000 to $8,999,999 $8,000
$9,000,000 to $10,999,999 $9,000
$11,000,000 and over $10,000
</TABLE>
For example, if customers return products invoiced at a total of $34,000 in a
month in which $7,400,000 is shipped, the percentage reduction shall be 26%
(34,000 less allowance of 8,000, divided by 1,000).
F. In addition to the foregoing, the Board of Directors, may, in
its sole and exclusive discretion, grant an additional bonus to Employee.
4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee
shall:
A. Devote his full employment energies, interest, abilities, time
and attention to the performance of his obligations hereunder, and shall not,
without the written consent of the Chairman and/or Chief Executive Officer of
Details, render any service of any kind to a third party for compensation.
B. Not engage in any activity which conflict with or interferes
with the performance of his duties hereunder, whether or not for compensation.
C. Provide his exclusive loyalty to Details, with a view toward
maintaining the highest quality standards, improving profitability through cost
controls, increasing revenues consistent with holding margins, assuring
compliance with applicable laws, sustaining employee morale, and assuring
equipment is maintained in its best operating condition.
5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction
of the Board of Directors and the approval of the Chairman and/or Chief
Executive Officer, employee shall:
A. Implement and oversee engineering
-5-
<PAGE>
functions, including, without limitation, coordination of recruiting, training
and continuing education of engineering personnel, coordinating all engineering
activities, implementation and maintenance of quality assurance standards,
interfacing with subordinate managers and personnel, customers and with the Vice
President, Sales, and the President, to assure customer requirements are
satisfied.
B. Coordinate accurate and complete reporting of all material
information engineering functions of Details with the President, including
without limitation, all information necessary for planning relating to projected
requirements for capital equipment expenditures and personnel requirements.
C. Maintain controls over engineering operations to assure
continuous fiscal integrity and profitability.
D. Maintain continuous compliance with applicable laws and
regulations relating assigned requirements.
E. Implement policies to continuously discover and correct
deficiencies as required from time to time to assure full compliance with law,
first quality effort and results by subordinate personnel and representatives,
and proper internal reporting and communications.
F. Represent and continuously promote the interests of Details in
all customers communications, and with all subordinate personnel.
G. Implement policies to maintain proper morale of personnel,
adequacy of staffing, proper budgeting for current engineering and operations
activities.
H. Coordinate with subordinate executives, managers and
supervisors to assure smooth implementation of corporate plans and objectives.
I. Perform such other reasonable tasks and functions as directed
by the Chairman and Chief Executive Officer of Details.
-6-
<PAGE>
6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT.
A. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now
possesses and will obtain "Confidential Information", which is all information
disclosed or obtained in connection with employment with Details, (i) which has
been created, discovered, developed or otherwise become known to Details, its
customers, or suppliers, and/or in which proprietary rights have been assigned
or otherwise provided to Details, and (ii) which has commercial value in the
businesses in which Details and its customers and suppliers are engaged.
Employee agrees that all Confidential Information is a valuable property and
asset of Details, and Details shall be the sole owner of all patents,
trademarks, copyrights, trade secrets, and other proprietary rights arising
therefrom. Employee shall at all times, during and after employment maintain the
confidentiality of Confidential Information, and not use or disclose same other
than (a) for a purpose connected with Employee's obligations to Details under
this agreement, or (b) with the written consent of the Chairman and Chief
Executive Officer of Details.
(i) The following are examples of Confidential
Information, but not an exclusive listing: information relating to trade
secrets, processes, customer lists, structures, formulas, data, know-how,
techniques, marking plans, manufacturing methods, strategies, forecasts,
products, equipment utilization, software and financial data.
(ii) Notwithstanding the foregoing, Confidential
Information does not include information (a) generally available to the public,
(b) contained in an issued patent, or (c) generally known to persons in the
printed circuit board business.
B. INVENTION AND PROPRIETARY RIGHTS ASSIGNMENT. Employees
hereby irrevocable grants and assigns to Details for its sole use and benefit
all Proprietary Rights, being trade or service marks, designs, logos,
inventions, trade secrets, improvements, technical information and suggestions
regarding Details business and operations, which Employee may have heretofor
developed or acquired during his employment with Details, or which may hereafter
be developed or acquired during the term hereof, together with all applications,
trademark, patents, copyrights (including future copyrights pursuant to
-7-
<PAGE>
Section 37 of the Copyright Act of 1986 and any amendment or successor provision
thereto) related thereto and to any improvements thereon. To carry out these
obligations, Employee shall during the term hereof and at any time thereafter:
(i) Assure that Details has received prompt and full
disclosures of all such Proprietary Rights.
(ii) Execute and deliver on demand such applications,
assignments, descriptions and other instruments (prepared at Details' expense)
relating to Proprietary Rights as Details shall reasonably request to enable
proper documentation and registrations of its right hereunder.
(iii) Assist Details, at Details expense, in connection with
preparing and prosecuting applications relating to Proprietary Rights, and in
connection with otherwise securing and/or defending its Proprietary Rights,
including by way of litigation.
7. EXCLUSIVE EMPLOYMENT WITH DETAILS. During the term, Employee
shall not be employed by, or seek any employment with (except after September
30, 1998; if anticipating leaving Details on expiration of this agreement), any
person (including, without limitation, any individual, corporation, business
association, partnership or other entity) other than Details.
A. EMPLOYEE ACKNOWLEDGEMENTS. Employee hereby expressly
acknowledges and agrees that he has received training and experience at Details
which has enabled him to become a special uniquely talented engineer manager in
the printed circuit board business, possessing special capabilities and
knowledge relating to specific customer requirements in coordination with
Details' high speed turn around, high margin, superior quality product and high
volume output operation. Employee further acknowledges (i) the quick turn-around
printed circuit board production business is a small fraction of the electronic
component business, and even of the overall printed circuit board production
portion thereof, (ii) that a material portion of the consideration being
committed to by Details hereunder for the term hereof relates to the value of
Employee's exclusive employment with Details and nonemployment with others, and
(iii) the loss of such talents to another printed circuit
-8-
<PAGE>
Employee shall be given written notice of the nature of such breach and the
requirements for cure thereof, and Employee shall immediately cure same, or if
it cannot immediately be cured, shall immediately commence and diligently pursue
to completion such cure, which may require reimbursement of losses arising from
such breach to Details. Should such cure not be so effected, or should such
breach recur thereafter, Employee shall be discharged.
B. INCAPACITY. The inability to perform the obligations of employee
under this agreement due to death, injury, disease, mental illness or other
disability, which shall continue for a period of 90 days, or which, in the
aggregate shall involve 120 days in the preceding twelve month period.
C. DISHONESTY. (i) As determined by the Board in good faith based
upon substantial evidence, any of the following whether or not actual criminal
prosecution or conviction arises therefrom: (a) perpetration of, or attempt to
perpetrate, any fraud, embezzlement or theft with respect to Details, or any of
its shareholders, directors, personnel, vendors or customers, or (b)
perpetration of any conduct involving moral turpitude, or (ii) conviction of any
misdemeanor where imprisonment results, or (iii) conviction of any felony, or of
any misdemeanor originally charged as a felony, whether or not imprisonment
results.
D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors,
and customers of Details, any conduct involving (i) unlawful discrimination
based on age, gender, race national origin, or religion; and/or (ii) unlawful
sexual harassment.
9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits
generally available to Details full time personnel, such as participation in
heath care plans and similar benefit plans, including vacation and sick pay
entitlements for salaried employees, vehicle use or allowances, and
reimbursement of reasonable expenses incurred in the discharge of Employee's
obligations hereunder.
-9-
<PAGE>
compensation under this agreement shall cease, and (ii) Employee shall return
all property of Details within 24 hours following such termination, including
without limitation all Confidential Information and Proprietary Rights.
A. BREACH. Any failure or refusal to comply in good faith with the
obligations of employee under this agreement. In the event such breach is, in
the sole determination of the Board of Directors, of a type which is not
irreparable and which has not diminished the reputation of Details or the
morale of its employees, Employee shall be given written notice of the nature
of such breach and the requirements for cure thereof, and Employee shall
immediately cure same, or it cannot immediately be cured, shall immediately
commence and diligently pursue to completion such cure, which may require
reimbursement of losses arising from such breach to Details. Should such cure
not be so effected, or should such breach recur thereafter, Employee shall be
discharged.
B. INCAPACITY. The inability to perform the obligations of employee
under this agreement due to death, injury, disease, mental illness or other
disability, which shall continue for a period of 90 days, or which, in the
aggregate shall involve 120 days in the preceding twelve month period.
C. DISHONESTY. (i) As determined by the Board in good faith based
upon substantial evidence, any of the following whether or not actual criminal
prosecution or conviction arises therefrom: (a) perpetration of, or attempt to
perpetrate, any fraud, embezzlement or theft with respect to Details, or any of
its shareholders, directors, personnel, vendors or customers, or (b)
perpetration of any conduct involving moral turpitude, or (ii) conviction of
any misdemeanor where imprisonment results, or (iii) conviction of any felony,
or of any misdemeanor originally charged as a felony, whether or not
imprisonment results.
D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors,
and customers of Details, any conduct involving (i) unlawful discrimination
based on age, gender, race, national origin, or religion; and/or (ii) unlawful
sexual harassment.
-10-
<PAGE>
9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits
generally available to Details full time personnel, such as participation in
health care plans and similar benefit plans, including vacation and sick pay
entitlements for salaried employees, vehicle use or allowances, and
reimbursement of reasonable expenses incurred in the discharge of Employee's
obligations hereunder.
10. INUREMENT. This agreement shall be binding upon and inure to the
benefit of the parties, and their successors, assigns and personal
representatives.
11. ASSIGNMENT. Employee may not assign this agreement or any interest
therein. Details may assign this agreement to any entity which shall assume all
of the obligations of Details hereunder, provided that either (i) Details shall
own a majority of the voting securities of such entity, or (ii) such entity has
purchased a majority of the assets of Details.
12. NOTICES. Any notices required or permitted under this agreement shall
be in writing and shall be deemed delivered to (i) Employee when (a) personally
handed to Employee, whether at Details or elsewhere, or (b) two days following
depositing same in the United States Mail, postage prepaid, certified mail
return receipt requested, addressed to Employee at Employee's home address as
from time to time contained in the personnel records of Details, or (ii)
Details, when (a) personally handed to the Chairman and/or Chief Executive
Officer, or (b) two days following depositing same in the United States Mail,
postage prepaid, certified mail return receipt requested, addressed to the
Chairman and/or Chief Executive Officer of Details, at the then applicable
address for the administrative offices of Details.
13. INTEGRATION. This agreement, together with the 1995 Plan, contain the
entire understanding of the parties relating to the subject matter hereof, and
shall supersede all other written and oral prior and contemporaneous promises
and agreements.
14. APPLICABLE LAW AND INTERPRETATION. This agreement is made in the State
of California, and California law shall govern its interpretation. The
provisions of this agreement where negotiated by the parties and/or their
representatives and shall be
-11-
<PAGE>
construed in accordance with their fair meaning and intent, and not against
either party generally as drafter.
15. ENFORCEMENT. Should legal action between the parties be necessary or
appropriate to enforce any of the provisions hereof, the prevailing party shall
be entitled to recover reasonable attorneys fees, whether or not such action
proceeds to a final judgement.
16. SEVERABILITY. If any of the provisions of this agreement, as applied
to a particular party or circumstance, shall be found by a court with proper
jurisdiction to be void or unenforceable, such finding shall not affect the
provision in any other application, or the validity or enforceability of other
provisions hereof.
17. AMENDMENTS. Any amendment to this agreement must be in writing and
signed by each of the parties to be valid, and any purported amendment not
meeting the requirements of this section shall be without force or effect.
IN WITNESS WHEREOF, this agreement is executed as of the day and year
first above written.
EMPLOYEE: DETAILS, INC.
/s/ Terry L. Wright by /s/ James I. Swenson CEO
- ----------------------- -------------------------
TERRY L. WRIGHT JAMES I. SWENSON,
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
-12-
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN
This Amendment No. 1 to the Employment Agreement and Incentive
Compensation Plan is made as of October 28, 1997, between Details, Inc., a
California corporation ("Details"), and Terry Wright ("Employee") with respect
to the following recitals of facts:
RECITALS
A. Employee is presently an employee of Details.
B. Details and Employee entered into an Employment Agreement and
Incentive Compensation Plan on September 1, 1997 (the "Agreement") which
provided the terms of employment and a plan of compensation for Employee.
Capitalized terms used herein shall have the meanings set forth in the
Agreement, unless otherwise provided herein.
C. On October 28, 1997, Details entered into an Amended and Restated
Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which
it will exchange its capital stock for certain consideration on the closing date
(the "Closing Date"). Employee is a stockholder and optionholder of Details and
will derive substantial personal economic benefit from the consummation of the
transaction contemplated by the Recapitalization Agreement.
D. The Recapitalization Agreement contemplates that the parties hereto
execute this Agreement.
E. Details and Employee desire by this amendment to provide for the
continued employment and to extend the term of the employment of the Employee on
the terms contained in the Agreement as amended hereby.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms
and conditions set forth in the Agreement as amended hereby (the
"Amended Agreement"), Details hereby offers to Employee and
Employee hereby accepts continued employment with Details as
Vice President-Engineering. In the event of a conflict between
any provision of this Amended Agreement and the Agreement, the
provisions of the Amended Agreement shall control.
<PAGE>
2. TERM. This Amended Agreement shall cover the term commencing on the Closing
Date and ending three calendar years from the Closing Date (the "Expiration
Date").
3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be
$140,000, $155,000 and $170,000, respectively. The Base Salary for each year
on or after January 1, 2000 covered by the Amended Agreement will be
established by Details at a level that is at least as high as the Base
Salary for 1999.
The Additional Compensation shall be calculated according to the table set
forth on Schedule 1 hereto and shall be based on the following EBITDA
targets ("Target EBITDA") (rather that Gross Profit or any other measuring
device or indicator).
<TABLE>
<CAPTION>
Target
Fiscal Year EBITDA
----------- ------
(In Millions)
<S> <C>
1997 $ 33,396
1998 $ 37,571
1999 $ 42,267
</TABLE>
For purposes of this Agreement, EBITDA is defined in accordance with the
definition of Consolidated EBITDA in the Senior Credit Agreement dated
October 27, 1997.
After the preparation and finalization of the financial statements
reflecting the first six months of each fiscal year ("Six Month
Financials"), Details shall pay the Employee an advance on the Additional
Compensation, if any, payable to the Employee for such fiscal year (the
"Advance").
The Advance shall equal seventy-five percent (75%) of fifty percent (50%) of
the Target Additional Compensation (i.e., the Additional Compensation that
Details expects to pay Employee at fiscal year end based on Detail's good
faith estimate of Details' EBITDA for such fiscal year).
If the Additional Compensation for the fiscal year is less than the amount
of the Advance paid to the Employee in such fiscal year, then the amount of
Additional Compensation to which the Employee would otherwise be entitled in
subsequent periods shall first be applied to eliminate such short shortfall.
4. NONCOMPETITION. The parties hereby reaffirm the section of the Agreement
entitled "Noncompetition" (the "Noncompetition Section"). The
-2-
<PAGE>
Employee further agrees that the restrictions contained in the
Noncompetition Section on his activities during and after his employment
are necessary to protect the goodwill, confidential information and other
legitimate interests of Details and its Affiliates.
Section 7(b) of the Agreement is hereby amended by deleting the reference
therein to "December 31, 1998" and substituting therefor a reference to
"the Expiration Date."
5. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the
Agreement entitled "Discharge for Cause." The parties hereto further agree
that the following causes shall constitute the only causes for which the
Employee may be discharged.
a. BREACH. Any failure or refusal to comply in good faith with the
obligations of the Employee under the Amended Agreement, which failure
shall, in the sole determination of the Board of Directors, constitute
gross neglect by the Employee or result from the willful misconduct of the
Employee.
b. DISHONESTY. As determined by the Board of Directors based upon
substantial evidence, any of the following whether or not actual criminal
prosecution or conviction arises therefrom: (a) perpetration of, or attempt
to perpetrate, any fraud, embezzlement or theft with respect to Details, or
any of its subsidiaries, shareholders, directors, personnel, vendors or
customers, or (b) conviction of any felony, or of any misdemeanor
originally charged as a felony, whether or not imprisonment results.
6. LIFE INSURANCE. Details agrees to use its reasonable efforts to procure a
term life insurance policy in the amount of one million dollars
($1,000,000) on the life of the Employee, provided that the Employee
presents typical underwriting risks for a non-smoker in good health who is
Employee's age and that the Employee cooperates in Details' efforts to
procure such policy. Details will pay the premiums for such policy for the
period beginning on the date such policy is procured and ending on the
earlier of (i) the Expiration Date or (ii) the date Employee ceases to be
an employee of Details.
7. DISABILITY. Details may terminate the Employee's employment upon notice to
the Employee in the event the Employee becomes disabled during his
employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is unable to
preform substantially all of his duties and responsibilities under the
Amended Agreement for a period of ninety (90) consecutive calendar days or
for an aggregate of one hundred eighty (180) days during any period of
three hundred sixty-five (365)
-3-
<PAGE>
consecutive calendar days. In the event of a termination pursuant to the
preceding sentence, Details shall continue to pay to the Employee the Base
Salary payable to the Employee pursuant to the Amended Agreement for a
period of up to one calendar year from the date of such disability, such
Base Salary to be payable in such installments as the Base Salary is paid
him under the terms of the Amended Agreement, provided however if the
Employee is eligible to receive disability payments under a long-term
disability plan adopted by Details, such payments of the Employee's Base
Salary shall cease.
8. STOCK AWARD. Details will award Employee 993.0454 shares of Class A-5
Common Stock on the Closing Date, which shares will be duly authorized,
fully-paid and non-assessable.
9. BONUS. In addition to any other compensation to which Employee is entitled,
on the date on which Employee ceases to be the beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of any
shares of capital stock of Details, Details will pay to Employee, whether
or not he continues to be an employee at such time, an amount equal to
$227,719.73. The provisions of this Section 9 shall survive the Expiration
Date.
10. ENFORCEMENT. In the event that any provision of this Amended Agreement
shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too
large a geographic area or too great a range of activities, such provision
shall be deemed to be modified to permit its enforcement to the maximum
extent permitted by law.
[Remainder of this page intentionally left blank]
-4-
<PAGE>
Employment Agreement
October 28, 1997
IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.
EMPLOYEE DETAILS, INC.
/s/ Terry L. Wright By /s/ Lee W. Muse, Jr.
- ------------------------- ---------------------------------
Terry L. Wright Lee W. Muse, Jr.
<PAGE>
SCHEDULE 1
----------
to Amendment No. 1
to Employment Agreement and
Incentive Compensation Plan
The Additional Compensation for each year shall be determined by the
following methodology. EBITDA of each year shall be divided by the Target
EBITDA for that year. The resulting fraction (expressed as a percentage) is the
"EBITDA Percentage". The amount of the Additional Compensation for each year is
a function of the EBITDA Percentage for that year as set forth on the table
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If the EBITDA The Additional Compensation
Percentage is: in each year shall equal:
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 1998 1999
-------------------------------------------
Below 90% -0- -0- -0-
- --------------------------------------------------------------------------------
Between 90% and below 95% $4,746 $35,000 $38,387
- --------------------------------------------------------------------------------
95% $9,492 $70,000 $76,774
- --------------------------------------------------------------------------------
100% $14,238 $105,000 $115,161
- --------------------------------------------------------------------------------
105% $17,390 $128,250 $140,661
- --------------------------------------------------------------------------------
110% $20,543 $151,500 $166,161
- --------------------------------------------------------------------------------
115% $23,695 $174,750 $191,661
- --------------------------------------------------------------------------------
120% $26,848 $198,000 $217,161
- --------------------------------------------------------------------------------
</TABLE>
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be
determined from the foregoing table by linear interpolation based upon the
actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional
Compensation will be determined from the foregoing table by linear
extrapolation.
[Terry Wright]
<PAGE>
EXHIBIT 12.1
DETAILS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA UNAUDITED
NINE MONTHS UNAUDITED NINE MONTHS PRO FORMA
ENDED PRO FORMA ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ENDED
------------------------------------ -------------- DECEMBER 31, -------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1997 1996 1996 1997 1997
---- ---- ------ ------ ------ ------ ------ ------------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before in-
come taxes.............. (195) 34 18,164 26,385 18,621 13,568 7,974 10,112 7,035 7,163 10,240
Fixed charges:
Interest expense....... 57 167 181 371 9,518 6,974 7,427 19,082 14,343 14,332 19,071
Rentals:
1/3 of all lease
rentals................ 211 239 179 207 -- -- -- -- -- -- --
---- --- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total fixed charges.... 268 406 360 578 9,518 6,974 7,427 19,082 14,343 14,332 19,071
Earnings before income
taxes and fixed charges. 73 440 18,524 26,963 28,139 20,542 15,401 29,194 21,378 21,495 29,311
Ratio of earnings to
fixed charges........... -- (1) 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x 1.5x 1.5x 1.5x 1.5x
</TABLE>
- ----
(1) Earnings were not sufficient to cover Fixed Charges by $195.
1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts,"
"Summary Historical Consolidated Financial Data," and "Selected Historical
Consolidated Financial Data," and to the use of our report dated February 14,
1997 in the Registration Statement (Form S-4) and related Prospectus of
Details, Inc. for the registration of its $100 million 10% Senior Subordinated
Notes due 2005.
/s/ McGladrey & Pullen, LLP
---------------------------
McGladrey & Pullen, LLP
Anaheim, California
November 26, 1997
<PAGE>
Exhibit 25.1
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)
---------------------
Details, Inc.
(Exact name of obligor as specified in its charter)
California 33-0779123
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1231 Simon Circle
Anaheim, California 92806
(Address of principal executive offices) (Zip Code)
--------------------
10% Senior Subordinated Notes
(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 Boston 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 Boston and The
Commonwealth of Massachusetts, on the 25th day of November, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Earl W. Dennison Jr.
----------------------------
Earl W. Dennison Jr.
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 Details, Inc.
of its 10% Senior Subordinated Notes, 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/ Earl W. Dennison Jr.
----------------------------
Earl W. Dennison Jr.
Vice President
Dated: November 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 June 30, 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
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............. 1,842,337
Interest-bearing balances...................................... 8,771,397
Securities.......................................................... 10,596,119
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary............................ 5,953,036
Loans and lease financing receivables:
Loans and leases, net of unearned income ...................... 5,769,090
Allowance for loan and lease losses ........................... 74,031
Allocated transfer risk reserve................................ 0
Loans and leases, net of unearned income and allowances........ 5,695,059
Assets held in trading accounts..................................... 916,608
Premises and fixed assets........................................... 374,999
Other real estate owned............................................. 755
Investments in unconsolidated subsidiaries.......................... 28,992
Customers' liability to this bank on acceptances outstanding........ 99,209
Intangible assets................................................... 229,412
Other assets........................................................ 1,589,526
----------
Total assets........................................................ 36,097,449
==========
LIABILITIES
Deposits:
In domestic offices............................................ 11,082,135
Noninterest-bearing....................................... 8,932,019
Interest-bearing.......................................... 2,150,116
In foreign offices and Edge subsidiary......................... 13,811,677
Noninterest-bearing....................................... 112,281
Interest-bearing.......................................... 13,699,396
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary............................ 6,785,263
Demand notes issued to the U.S. Treasury and Trading Liabilities.... 755,676
Other borrowed money................................................ 716,013
Subordinated notes and debentures................................... 0
Bank's liability on acceptances executed and outstanding............ 99,605
Other liabilities................................................... 841,566
Total liabilities................................................... 34,091,935
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus....................... 0
Common stock........................................................ 29,931
Surplus............................................................. 437,183
Undivided profits and capital reserves/Net unrealized holding
gains (losses)..................................................... 1,542,695
Cumulative foreign currency translation adjustments................. (4,295)
Total equity capital................................................ 2,005,514
----------
Total liabilities and equity capital................................ 36,097,449
</TABLE>
4
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.
<PAGE>
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
Truman S. Casner
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 168,900 942,300
<SECURITIES> 0 0
<RECEIVABLES> 9,511,000 10,148,100
<ALLOWANCES> 300,000 400,000
<INVENTORY> 1,237,800 2,413,700
<CURRENT-ASSETS> 12,472,700 14,551,000
<PP&E> 12,846,900 14,931,000
<DEPRECIATION> 2,047,100 1,828,800
<TOTAL-ASSETS> 27,502,500 31,685,800
<CURRENT-LIABILITIES> 15,986,300 20,443,100
<BONDS> 78,350,300 70,229,200
0 0
13,531,900 13,531,900
<COMMON> 5,300,500 5,300,500
<OTHER-SE> 42,106,000 83,350,000
<TOTAL-LIABILITY-AND-EQUITY> 27,502,500 31,685,800
<SALES> 67,515,000 55,420,800
<TOTAL-REVENUES> 67,515,000 55,420,800
<CGS> 30,504,800 27,018,700
<TOTAL-COSTS> 30,504,800 27,018,700
<OTHER-EXPENSES> 8,973,900 13,056,500
<LOSS-PROVISION> 27,100 100,000
<INTEREST-EXPENSE> 9,517,800 7,427,000
<INCOME-PRETAX> 18,620,800 7,974,100
<INCOME-TAX> 6,265,000 3,400,000
<INCOME-CONTINUING> 28,036,300 15,345,600
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,355,800 4,574,000
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
