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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-41211
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DETAILS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 3672 33-0779123
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
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. [_]
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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
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 ("Details"), 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.
Details 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
Registration Rights Agreement (as defined herein), the Exchange Offer will
remain open for 30 days (unless extended) after the date hereof. 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, Details
may not redeem the Exchange Notes prior to November 15, 2001. On or after such
date, Details 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, Details 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, Details 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) Details 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 Details
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 Details 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 Details, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined) of
Details and will be effectively subordinated to all obligations of the
subsidiaries of Details. The Exchange Notes will rank pari passu with all
senior subordinated indebtedness of Details and will rank senior to all
subordinated indebtedness of Details. On December 31, 1997, the aggregate
principal amount of Details' outstanding Senior Indebtedness was approximately
$111.2 million. There is currently no indebtedness of Details subordinate to
the Notes. The Indenture under which the Exchange Notes will be issued (the
"Indenture") will permit Details 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 Details contained in the Exchange and Registration Rights
Agreement dated November 18, 1997, between Details and the other signatory
thereto (the "Registration Rights Agreement"). Details 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
Details 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. 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 Original Notes where such Original
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Details 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."
Details 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.
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The date of this Prospectus is , 1998.
<PAGE>
The Exchange Offer is not being made to, nor will Details 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.
Details 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 Details 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. Details 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 Details 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
WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES" AND
SIMILAR EXPRESSIONS ARE USED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THE COMPANY WISHES TO
CAUTION READERS THAT 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 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
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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
Details 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 Details 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.
Details 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, Details 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, Details 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 Details 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 Details'
certified independent accountants and (ii) all reports that would be required
to be filed with the Commission on Form 8-K if Details were required to file
such reports. In addition, for so long as any of the Original Notes remain
outstanding, Details 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.
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Any reports or documents filed by Details 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.
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SUMMARY
Unless otherwise stated in this Prospectus or unless the context otherwise
requires, references to the "Company" means Details and its wholly-owned
subsidiaries, a direct wholly-owned subsidiary of Details Capital Corp.
("Details Capital"), a California corporation. 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 Company and contributed substantially all of its assets, subject to certain
liabilities (other than the Holdings Facility (as defined)) to the Company. On
November 19, 1997 Holdings organized Details Capital and on January , 1998,
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), the
Initial Offering (as defined) and the NTI Acquisition (as defined). Unless
otherwise specified, "year-to-date" refers to the nine months ended September
30, 1997.
THE COMPANY
The Company believes, based on industry data, that it is one of the largest
manufacturers and marketers 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 $103.0 million and $35.6 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. 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 (excluding NTI (as defined)) 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.
The Company's principal executive offices are located at 1231 Simon Circle,
Anaheim, California 92806, and its telephone number is (714) 630-4077.
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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. Based on industry data, the Company believes that
it 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 routinely completes complex orders (up to 12 layers) in
less than 24 hours and believes that its engineering expertise and ability to
produce highly complex PCBs are competitive strengths in the quick-turn market.
Leading Technological Capabilities. The Company believes that its ability to
engineer advanced PCB materials and utilize advanced technologies is a
competitive strength in the quick-turn market.
2
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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.
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),
Michael Moisan (Vice President of Operations), and James S. Marcelli (Vice
President)--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 and had a less than 1% product return rate for the nine months ended
September 30, 1997. 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 utilizing the additional production capacity
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obtained through the recent acquisition (the "NTI Acquisition") of Colorado
Springs Circuits, Inc., a Colorado corporation, d/b/a NTI ("NTI"). See "Recent
Developments." The Company recognizes OEMs' desire to continue to use the same
supplier through several stages of the product development process and thereby
reduce the number of suppliers used. Through the acquisition of NTI, the
Company intends to expand its services to the longer lead 10 to 20 day pre-
production phase of product development in addition to servicing the quick-turn
prototype phase, which the Company believes can thereby enhance the efficiency
of its customers' production process. Specifically, the Company believes that
by servicing a larger portion of its customers' production needs, it can: (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. On December 22, 1997, the
Company acquired all of the outstanding shares of common stock of NTI. See
"Recent Developments."
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.
4
<PAGE>
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 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." For a more detailed discussion of the
Transactions see also Note 10 of the Notes to the Consolidated Financial
Statements contained elsewhere in this Prospectus.
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
5
<PAGE>
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 January , 1998 Holdings contributed
substantially all of its assets, subject to certain liabilities, including the
Discount Notes, to Details Capital.
RECENT DEVELOPMENTS
On December 22, 1997, the Company acquired all of the outstanding shares of
common stock of NTI for approximately $38 million in cash. The acquisition was
funded in part through the issuance of additional equity interests in Holdings
in the aggregate amount of $10.2 million to certain existing investors in
Holdings as well as three new investors, including an existing investor in NTI.
The remainder of the purchase price was funded with cash from Holdings and a
$25 million term loan borrowing under the Company's Term Loan Facilities.
NTI manufactures complex PCBs for OEMs in the electronics industry and
focuses primarily on pre-production market opportunities with lead times of 10
to 20 days. NTI currently manufactures all of its products at two leased
facilities located in Colorado Springs, Colorado, occupying 84,000 square feet
(which also include its executive offices). NTI is operated as a wholly-owned
subsidiary of the Company and is currently headed by James S. Marcelli. Mr.
Marcelli, who has run NTI since 1991, is now a Vice President of the Company
and President of NTI. As of September 30, 1997, NTI employed approximately 325
employees, all of whom are non-union employees.
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. Details 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
Details 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
Details 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."
6
<PAGE>
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, Details 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 Details for resale pursuant
to Rule 144A or any other available exemption
under the Securities Act or (ii) a person that
is an "affiliate" of Details 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 Details that such conditions have
been met. In the event that Details' 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. Details does not
assume or indemnify Holders against such
liability, although Details 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."
All resales must be made in compliance with
applicable state securities or "blue sky" laws.
Such compliance may require that the Exchange
Notes be registered or qualified in a
particular state or that the resales be made by
or through a licensed broker-dealer, unless
exemptions from these requirements are
available. Details assumes no responsibility
with regard to compliance with such
requirements.
The Exchange Offer is not being made to, nor
will Details accept surrenders for exchange
from, Holders of Original Notes in any
jurisdiction in which the Exchange Offer or the
7
<PAGE>
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
Details 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 Details. 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 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
8
<PAGE>
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
Details, (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, Details 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) Details so
elects, Details has agreed pursuant to the
Registration Rights Agreement to register the
Original Notes issued by it on a 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........................ Details 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."
9
<PAGE>
Use of Proceeds............... There will be no cash proceeds to Details 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, Details may not
redeem the Exchange Notes prior to November 15,
2001. On or after such date, Details 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, Details may,
at its option, redeem up to 40% of the original
aggregate principal amount of the Exchange
Notes with the net proceeds of one or more
Equity Offerings (as defined), received by, or
invested in, Details 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."
Change of Control............. Upon a Change of Control (as defined), (i)
Details 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 Details 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 Details 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."
10
<PAGE>
Future Guarantees............. The Indenture will provide that any Subsidiary
Guarantor (as defined) which guarantees
Details' 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."
Ranking....................... The Exchange Notes will be unsecured and will
be subordinated in right of payment to all
existing and future Senior Indebtedness of
Details and will be effectively subordinated to
all obligations of the subsidiaries of Details.
The Exchange Notes will rank pari passu with
any future senior subordinated indebtedness of
Details and will rank senior to all other
subordinated indebtedness of Details. On
December 31, 1997, (i) the aggregate amount of
the outstanding Senior Indebtedness of Details
was approximately $111.2 million, (ii) there
was no indebtedness outstanding at the
Company's subsidiaries, and (iii) the Company
had no senior subordinated indebtedness
outstanding other than 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 Details and its
Restricted Subsidiaries, (ii) the layering of
indebtedness, (iii) the payment of dividends
on, and redemption of, capital stock of Details
and its Restricted Subsidiaries and the
redemption of certain subordinated obligations
of Details 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 Details and its Restricted
Subsidiaries may operate, and (ix)
consolidations, mergers and transfers of all or
substantially all Details' 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, the NTI Acquisition 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, the NTI
Acquisition 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(1)
------------ -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................... $ 94,500 $ 71,047 $ 78,857 $103,041
Cost of goods sold............. 53,606 40,007 46,630 60,312
-------- -------- -------- --------
Gross profit................. 40,894 31,040 32,227 42,729
Operating expenses:
General and administration... 4,064 3,080 3,281 4,337
Sales and marketing.......... 7,213 5,501 6,478 8,217
-------- -------- -------- --------
Operating income............... 29,617 22,459 22,468 30,175
Interest expense............... (21,157) (15,899) (15,888) (21,146)
Interest income................ 132 134 68 101
-------- -------- -------- --------
Income before provision for
income taxes.................. 8,592 6,694 6,648 9,130
Provision for income taxes..... 3,957 3,069 3,051 4,178
-------- -------- -------- --------
Net income..................... $ 4,635 $ 3,625 $ 3,597 $ 4,952
======== ======== ======== ========
OTHER FINANCIAL DATA:
Adjusted EBITDA (2)............ $ 34,745 $ 26,040 $ 26,566 $ 35,603
Adjusted EBITDA margin (3)..... 37% 37% 34% 35%
Depreciation amortization...... 5,128 3,581 4,098 5,428
Capital expenditures........... 10,007 8,007 4,386 6,114
Cash interest expense.......... 20,070 15,084 15,073 20,059
Ratio of adjusted EBITDA to
cash interest expense......... 1.7x 1.7x 1.8x 1.8x
Ratio of earnings to fixed
charges (4)................... 1.4x 1.4x 1.4x 1.4x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997
------------------
<S> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash....................................................... $ 405
Working capital............................................ 9,438
Total assets............................................... 94,318
Total debt................................................. 212,656
Equity (net capital deficiency)............................ (140,297)
</TABLE>
- --------
(1) See "Unaudited Pro Forma Financial Data."
(2) "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.
(3) Represents adjusted EBITDA as a percentage of net sales.
(4) 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.
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<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, the Initial Offering and the NTI
Acquisition, the Company is highly leveraged. As of December 31, 1997, the
Company's indebtedness was approximately $211.2 million, of which $111.2
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 a pro forma basis after
giving effect to the Transactions, the Initial Offering and the NTI
Acquisition, 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 1.4 to 1.0 in both periods. On the same pro forma basis, the
Company had a stockholder's deficit as of September 30, 1997 of approximately
$140.3 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 "--Restrictions Imposed by the Terms
of the Company's Indebtedness," "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."
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<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. However, subject to compliance with debt incurrence tests and
the other restrictions in the Senior Credit Facilities and the Indenture, the
Company and its subsidiaries may incur additional indebtedness in an
unrestricted amount (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." 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 December 31,1997 there was outstanding
approximately $111.2 million of Senior Indebtedness, $105.2 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."
LIMITATIONS ON ABILITY TO REPAY 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."
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<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
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<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
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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 50.3% 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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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".
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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 (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
and (iv) the capitalization of Details as adjusted to give effect to the NTI
Acquisition. 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
AS ADJUSTED FOR THE TRANSACTIONS FOR THE NTI
ACTUAL FOR THE TRANSACTIONS AND THE OFFERING ACQUISITION
--------- -------------------- -------------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash.................... $ 942 $ 3,891 $ 4,992 $ 405
Debt:
Senior Credit
Facilities(1)........ -- 91,400 81,100 106,100
Existing Indebtedness. 87,410 6,556 6,556 6,556
Senior Subordinated
Facility............. -- 85,000 -- --
Notes................. -- -- 100,000 100,000
Holdings Facility(2).. -- 51,580 -- (5) --
--------- --------- --------- ---------
Total debt.......... 87,410 234,536 187,656 212,656
Temporary equity(3)..... 83,350 -- -- --
Total stockholder's eq-
uity (deficit)(4)...... (148,527) (196,222) -- --
Contributed capital
(deficit)(4)(5)........ -- -- (150,497) (140,297)
--------- --------- --------- ---------
Total capitalization.... $ 23,175 $ 42,205 $ 42,151 $ 72,764
========= ========= ========= =========
</TABLE>
- --------
(1) The Company's $30 million Revolving Credit Facility was undrawn at
December 31, 1997.
(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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UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet as of September
30, 1997 gives effect to the Transactions, the Initial Offering and the NTI
Acquisition 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, the Initial Offering and the NTI Acquisition 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, the
Initial Offering and the NTI Acquisition 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.
** The unaudited pro forma consolidated balance sheet continues on page 26.
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DETAILS INC. NTI COMBINED
SEPTEMBER 30, HISTORICAL SEPTEMBER 30,
1997 SEPTEMBER 29, ACQUISITION 1997
PRO FORMA* 1997 COMBINED ADJUSTMENTS PRO FORMA
------------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................... $ 4,992 $ 1,409 $ 6,401 $(5,996)(k) $ 405
Trade receivables, net. 10,148 4,667 14,815 -- 14,815
Inventories............ 2,414 2,172 4,586 200 (l) 4,786
Other.................. 1,047 541 1,588 -- 1,588
--------- ------- --------- ------- ---------
Total current assets... 18,601 8,789 27,390 (5,796) 21,594
Property and equipment,
net.................... 14,931 9,184 24,115 -- 24,115
Other assets............ 662 28 690 -- 690
Deferred tax assets..... 13,802 175 13,977 -- 13,977
Debt issue costs, net... 7,500 -- 7,500 7,500
Goodwill................ -- -- -- 26,442 (l) 26,442
--------- ------- --------- ------- ---------
Total assets............ $ 55,496 $18,176 $ 73,672 $20,646 $ 94,318
========= ======= ========= ======= =========
LIABILITIES AND EQUITY
Current liabilities:
Current portion long-
term debt............. $ 365 $ 2,960 $ 3,325 $(2,960)(k) $ 365
Accounts payable....... 3,505 2,056 5,561 -- 5,561
Accrued expenses....... 2,989 875 3,864 -- 3,864
Accrued bonuses........ 2,366 -- 2,366 -- 2,366
--------- ------- --------- ------- ---------
Total current liabili-
ties.................. 9,225 5,891 15,116 (2,960) 12,156
Deferred tax liability.. -- 691 691 -- 691
Other long-term liabili-
ties................... 9,477 6,529 16,006 (6,529)(k) 9,477
Long-term capital
leases................. 6,191 -- 6,191 -- 6,191
Senior Credit Facili-
ties................... 81,100 -- 81,100 25,000 (k) 106,100
Notes................... 100,000 -- 100,000 -- 100,000
Holdings Facility....... -- -- -- -- --
Temporary equity........ -- -- -- -- --
Stockholders' equity
(deficit):
Common stock........... -- -- -- -- --
Convertible preferred
stock................. -- -- -- -- --
Class A Common, Class L
Common................ -- -- -- -- --
Additional paid in cap-
ital.................. -- -- -- -- --
Receivables from stock-
holders............... -- -- -- -- --
Retained earnings (def-
icit)................. -- -- -- -- --
--------- ------- --------- ------- ---------
Total stockholders' eq-
uity (deficit)........ -- -- -- -- --
Contributed capital
(deficit)/NTI equity... (150,497) 5,065 (145,432) (5,065)(m) (140,297)
10,200 (k)
--------- ------- --------- ------- ---------
Total liabilities and
equity $ 55,496 $18,176 $ 73,672 $20,646 $ 94,318
========= ======= ========= ======= =========
</TABLE>
- --------
* Continued from unaudited pro forma consolidated balanced sheet on page 25.
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(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(I); (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>
(I) The estimated fair market value per share of approximately $11,810 was
determined based upon the aggregate merger consideration paid in
connection with the Recapitalization divided by the total number of
shares of common stock and common stock equivalents outstanding
immediately prior to the Recapitalization (equal to $11,308 per share
and hereafter defined as "Per Share Merger Consideration") plus the
total deferred purchase obligation (see footnote (d)) divided by the
total number of shares of common stock and common stock equivalents
outstanding immediately prior to the Recapitalization (equal to $502
per share).
(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)(II).................................................. 60,895
Common stock and common stock equivalents(III)................... 26,605
--------
Total Sources.................................................. $319,080
========
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
USES OF CASH:
Payment of deferred financing fees............................... 11,600
Payment of existing indebtedness(IV)............................. 96,604
Continuing equity interest(III).................................. 26,605
Redemption of stock and distribution to shareholders(V).......... 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) Reflects the issuance of approximately 154,234 shares of CLass L
Common and 1,247,896 shares of Class A Common at an estimated fair
market value per share of approximately $364.09 and $5.00,
respectively. The per share fair market value of the Class A Common
and Class L Common was determined based upon the per share issuance
price paid by Bain Capital and other outside investors in connection
with the Recapitalization (hereafter defined as the "Class L and A
Common Issuance Price").
(III) As part of the Recapitalization certain common stock and common stock
options were exchanged at their carryover basis of $5,867 and $4,689,
respectively, for Class L Common and Class A Common and options to
purchase Class L Common and Class A Common. This exchange can be
summarized as follows:
<TABLE>
<CAPTION>
FAIR MARKET TOTAL FAIR MARKET
SHARES VALUE PER SHARE VALUE
------- --------------- -----------------
<S> <C> <C> <C>
CONSIDERATION GIVEN
Common stock(1)................ 1,938 $11,308(1) $21,916
Common stock options(2)........ 514 9,128(2) 4,689
-------
Total fair market value...... $26,605
=======
CONSIDERATION RECEIVED
Class L Common(3).............. 54,175 364(3) 19,725
Class A Common(3).............. 438,325 5(3) 2,191
Class L Common options(4)...... 14,357 294(4) 4,220
Class A Common options(4) ..... 116,158 4(4) 469
-------
Total fair market value...... $26,605
=======
</TABLE>
(1) The estimated fair market value of common stock is determined based
upon the Per Share Merger Consideration.
(2) The estimated fair market value of common stock options is
determined based upon the Per Share Merger Consideration of $11,308
less the option exercise price of $2,179.
(3) The estimated fair market value of Class L Common and Class A
Common is determined based upon the Class L and A Common Issuance
Price.
(4) The estimated fair market value of options to acquire Class L
Common and Class A Common was determined based upon the Class L and
A Common Issuance Price less the exercise price of the Class L
Common and Class A Common of $70.15 and $.96, respectively.
(IV) 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).
(V) In connection with the Recapitalization, the Company redeemed
approximately 16,296 shares of common stock for approximately $11,308
per share. The value ascribed to each share redeemed was determined
based upon the Per Share Merger Consideration.
28
<PAGE>
(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) Reflects compensation expense of approximately $4,947 (recorded net of the
estimated tax benefit of $2,028 assuming a 41% effective tax rate) related
to the vesting of 514 options with an exercise price of approximately
$2,179 per share and an estimated fair market value per share of
approximately $11,810 (see note (a) for discussion of fair market value of
options). Additionally, reflects the exchange of these 514 options for the
following; (i) approximately 14,357 options to acquire Class L Common
(estimated fair market value per share of $293.94); (ii) approximately
116,158 options to acquire Class A Common (estimated fair market value per
share of $4.04) and (iii) the right to receive a pro rata portion of the
deferred obligation (see note (d)) of up to $258.
(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>
Redemption of stock and distribution to shareholders (see note (c)
above)........................................................... $(184,271)
Estimated fees and expenses of Recapitalization................... (3,400)
Deferred purchase obligation...................................... (9,477)
Retire common stock and APIC(I)................................... 16,404
Retire 6,601 shares of convertible preferred stock................ 13,532
Retire temporary equity........................................... 83,350
---------
$ (83,862)
=========
</TABLE>
(I) Represents 2,758 shares of common stock with a carrying value of $5,301
and 1,437 shares of common stock issued as a result of options that
were exercised prior to the Recapitalization (carrying value of
$16,970, as discussed in Note (a) above), less 1,938 shares of common
stock converted into Class L Common and Class A Common at their
historical carrying value ($5,867) (see note (c) (III).
(h) Represents the Company's issuance of 112,508 shares of restricted Class A
Common (valued at $5 per share which equals the Class L and A Common
Issuance Price) to management in exchange for a recourse note.
29
<PAGE>
(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:
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).
(k) Reflects the draw down of debt and the issuance of common stock and the
uses therefrom to finance the NTI Acquisition as if the NTI Acquisition
had occurred on September 30, 1997:
<TABLE>
<S> <C>
SOURCES
Cash.............................................................. $ 5,996
Senior Credit Facility............................................ 25,000
Equity Contribution............................................... 10,200
-------
Total........................................................... $41,196
=======
USES
Purchase price consideration...................................... $31,164
Pay down of NTI debt.............................................. 9,489
Fees and expenses................................................. 543
-------
Total........................................................... $41,196
=======
</TABLE>
(l) Reflects the preliminary allocation of the estimated total acquisition
cost incurred in connection with the purchase of NTI to the estimated fair
value of tangible and intangible assets acquired and liabilities assumed
as if the NTI Acquisition occurred on September 30, 1997. The preliminary
allocation of the total acquisition cost represents management's best
estimate based upon available information. The final cost allocation will
be based upon appraisals and other studies, which are not yet completed.
The preliminary allocation is as follows:
<TABLE>
<S> <C>
PURCHASE PRICE
Purchase price consideration...................................... $31,164
Acquisition fees and expenses..................................... 543
-------
Total........................................................... $31,707
=======
ALLOCATED AS FOLLOWS
Historical book value of NTI...................................... $ 5,065
Estimated step-up of inventory.................................... 200
Goodwill.......................................................... 26,442
-------
Total........................................................... $31,707
=======
</TABLE>
(m) Represents the elimination of NTI's historical net equity balances in
connection with purchase accounting.
30
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------
NTI
STATEMENT OF ADJUSTED
HISTORICAL OPERATIONS PRO FORMA PRO FORMA
TWELVE TWELVE TWELVE TWELVE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER TRANSACTIONS NTI SEPTEMBER SUPPLEMENTAL SEPTEMBER
30, 1997 29, 1997(A) COMBINED AND OFFERING ACQUISITION 30, 1997 ADJUSTMENTS(G) 30, 1997
---------- ------------ -------- ------------ ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $73,850 $29,191 $103,041 $ -- $ -- $103,041 $ -- $103,041
Cost of goods sold..... 35,625 24,687 60,312 -- -- 60,312 -- 60,312
------- ------- -------- ------- ------- -------- ------- --------
Gross profit........... 38,225 4,504 42,729 -- -- 42,729 -- 42,729
Operating expenses:
Compensation to CEO... 1,030 -- 1,030 (1,030)(b) -- -- -- --
General and
administration....... 2,177 1,102 3,279 -- 1,058 (e) 4,337 -- 4,337
Sales and marketing... 6,824 1,393 8,217 -- -- 8,217 -- 8,217
Stock compensation and
related bonuses...... 5,283 -- 5,283 -- -- 5,283 (5,283)(h) --
------- ------- -------- ------- ------- -------- ------- --------
Operating income....... 22,911 2,009 24,920 1,030 (1,058) 24,892 5,283 30,175
Interest expense....... (9,971) (769) (10,740) (9,100)(c) (1,306)(f) (21,146) -- (21,146)
Other income........... 87 14 101 -- -- 101 -- 101
------- ------- -------- ------- ------- -------- ------- --------
Income before income
taxes................. 13,027 1,254 14,281 (8,070) (2,364) 3,847 5,283 9,130
Provision for (benefit
from) income taxes.... 5,395 368 5,763 (3,362)(d) (389)(d) 2,012 2,166 (d) 4,178
------- ------- -------- ------- ------- -------- ------- --------
Net income............. $ 7,632 $ 886 $ 8,518 $(4,708) $(1,975) $ 1,835 $ 3,117 $ 4,952
======= ======= ======== ======= ======= ======== ======= ========
OTHER DATA:
Adjusted EBITDA (i).... $25,292 $ 3,998 $ 29,290 $ 1,030 $ -- $ 30,320 $ 5,283 $ 35,603
Adjusted EBITDA margin. 34% 14% 28% -- -- 29% -- 35%
Depreciation and
amortization.......... 2,381 1,989 4,370 -- 1,058 5,428 -- 5,428
Capital expenditures... 4,213 1,901 6,114 -- -- 6,114 -- 6,114
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
31
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------
NTI ADJUSTED
HISTORICAL STATEMENT OF PRO FORMA PRO FORMA
TWELVE MONTHS OPERATIONS TWELVE MONTHS TWELVE MONTHS
ENDED TWELVE MONTHS ENDED ENDED
DECEMBER 31, ENDED TRANSACTIONS NTI DECEMBER 31, SUPPLEMENTAL DECEMBER 31,
1996 APRIL 1, 1997 COMBINED AND OFFERING ACQUISITION 1996 ADJUSTMENTS(G) 1996
------------- ------------- -------- ------------ ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $67,515 $26,985 $ 94,500 $ -- $ -- $94,500 $ -- $94,500
Cost of goods
sold............ 30,505 23,101 53,606 -- -- 53,606 -- 53,606
------- ------- -------- ------- ------- -------- ----- --------
Gross profit..... 37,010 3,884 40,894 -- -- 40,894 -- 40,894
Operating
expenses:
Compensation
to CEO......... 1,055 -- 1,055 (1,055)(b) -- -- -- --
General and
administration. 1,929 1,077 3,006 -- 1,058 (e) 4,064 -- 4,064
Sales and
marketing...... 5,989 1,224 7,213 -- -- 7,213 -- 7,213
------- ------- -------- ------- ------- -------- ----- --------
Operating income. 28,037 1,583 29,620 1,055 (1,058) 29,617 -- 29,617
Interest expense. (9,518) (618) (10,136) (9,564)(c) (1,457)(f) (21,157) -- (21,157)
Other income..... 102 30 132 -- -- 132 -- 132
------- ------- -------- ------- ------- -------- ----- --------
Income before
income taxes.... 18,621 995 19,616 (8,509) (2,515) 8,592 -- 8,592
Provision for
(benefit from)
income taxes.... 6,265 240 6,505 (2,119)(d) (429)(d) 3,957 -- 3,957
------- ------- -------- ------- ------- -------- ----- --------
Net income....... $12,356 $ 755 $ 13,111 $(6,390) $(2,086) $ 4,635 $ -- $ 4,635
======= ======= ======== ======= ======= ======== ===== ========
OTHER DATA:
Adjusted
EBITDA (i)...... $30,084 $ 3,606 $ 33,690 $ 1,055 $ -- $ 34,745 $ -- $ 34,745
Adjusted EBITDA
margin.......... 45% 13% 36% -- -- 37% -- 37%
Depreciation and
amortization.... 2,047 2,023 4,070 -- 1,058 5,128 -- 5,128
Capital
expenditures.... 3,666 6,341 10,007 -- -- 10,007 -- 10,007
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
32
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------
NTI
STATEMENT OF ADJUSTED
HISTORICAL OPERATIONS PRO FORMA PRO FORMA
NINE MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, TRANSACTIONS NTI SEPTEMBER 30, SUPPLEMENTAL SEPTEMBER 30,
1996 1996 COMBINED AND OFFERINGS ACQUISITION 1996 ADJUSTMENTS(G) 1996
------------- ------------- -------- ------------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $49,086 $21,961 $71,047 $ -- $ -- $ 71,047 $ -- $ 71,047
Cost of goods
sold............ 21,899 18,108 40,007 -- -- 40,007 -- 40,007
------- ------- ------- ------- ------- -------- ----- --------
Gross profit..... 27,187 3,853 31,040 -- -- 31,040 -- 31,040
Operating
expenses:
Compensation
to CEO......... 836 -- 836 (836)(b) -- -- -- --
General and
administration. 1,377 910 2,287 -- 793 (e) 3,080 -- 3,080
Sales and
marketing...... 4,503 998 5,501 -- -- 5,501 -- 5,501
------- ------- ------- ------- ------- -------- ----- --------
Operating income. 20,471 1,945 22,416 836 (793) 22,459 -- 22,459
Interest expense. (6,974) (376) (7,350) (7,369)(c) (1,180)(f) (15,899) -- (15,899)
Other income..... 71 63 134 -- -- 134 -- 134
------- ------- ------- ------- ------- -------- ----- --------
Income before
provision for
income taxes.... 13,568 1,632 15,200 (6,533) (1,973) 6,694 -- 6,694
Provision for
(benefit from)
income taxes.... 4,270 512 4,782 (1,386)(d) (327)(d) 3,069 -- 3,069
------- ------- ------- ------- ------- -------- ----- --------
Net income....... $ 9,298 $ 1,120 $10,418 $(5,147) $(1,646) $ 3,625 $ -- $ 3,625
======= ======= ======= ======= ======= ======== ===== ========
OTHER DATA:
Adjusted EBITDA
(i)............. $21,966 $ 3,238 $25,204 $ 836 $ -- $ 26,040 $ -- $ 26,040
Adjusted EBITDA
margin.......... 45% 15% 35% -- -- 37% -- 37%
Depreciation and
amortization.... 1,495 1,293 2,788 -- 793 3,581 -- 3,581
Capital
expenditures.... 2,720 5,287 8,007 -- -- 8,007 -- 8,007
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
33
<PAGE>
DETAILS, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------
NTI
STATEMENT OF ADJUSTED
HISTORICAL OPERATIONS PRO FORMA PRO FORMA
NINE MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 29, TRANSACTIONS NTI SEPTEMBER 30, SUPPLEMENTAL SEPTEMBER 30,
1997 1997 COMBINED AND OFFERING ACQUISITION 1997 ADJUSTMENTS(G) 1997
------------- ------------- -------- ------------ ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $55,421 $23,436 $78,857 $ -- $ -- $ 78,857 $ -- $ 78,857
Cost of goods
sold............ 27,019 19,611 46,630 -- -- 46,630 -- 46,630
------- ------- ------- ------- ------- -------- ------- --------
Gross profit..... 28,402 3,825 32,227 -- -- 32,227 -- 32,227
Operating
expenses:
Compensation
to CEO......... 811 -- 811 (811)(b) -- -- -- --
General and
administration. 1,625 863 2,488 -- 793 (e) 3,281 -- 3,281
Sales and
marketing...... 5,338 1,140 6,478 -- -- 6,478 -- 6,478
Stock
compensation
and related
bonuses........ 5,283 -- 5,283 -- -- 5,283 (5,283)(h) --
------- ------- ------- ------- ------- -------- ------- --------
Operating income. 15,345 1,822 17,167 811 (793) 17,185 5,283 22,468
Interest expense. (7,427) (598) (8,025) (6,905)(c) (958)(f) (15,888) -- (15,888)
Other income..... 56 12 68 -- -- 68 -- 68
------- ------- ------- ------- ------- -------- ------- --------
Income before
income taxes.... 7,974 1,236 9,210 (6,094) (1,751) 1,365 5,283 6,648
Provision for
(benefit from)
income taxes.... 3,400 366 3,766 (2,629)(d) (252)(d) 885 2,166 (d) 3,051
------- ------- ------- ------- ------- -------- ------- --------
Net income....... $ 4,574 $ 870 $ 5,444 $(3,465) $(1,499) $ 480 $ 3,117 $ 3,597
======= ======= ======= ======= ======= ======== ======= ========
OTHER DATA:
Adjusted EBITDA
(i)............. $17,174 $ 3,298 $20,472 $ 811 $ -- $ 21,283 $ 5,283 $ 26,566
Adjusted EBITDA
margin.......... 31% 14% 26% -- -- 27% -- 34%
Depreciation and
amortization.... 1,829 1,476 3,305 -- 793 4,098 -- 4,098
Capital
expenditures.... 3,267 1,119 4,386 -- -- 4,386 -- 4,386
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
34
<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 April 1, 1997 represents
the summation of the pro forma year ended December 31, 1996 and pro forma
six months ended September 29, 1997 information, less the pro forma six
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 Details
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
expense............ 17,984 17,995 13,528 13,517
Amortization of
deferred 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, (ii) the direct tax effects of the pro forma
transactions and offering adjustments described herein at an estimated 41%
effective tax rate; and (iii) the direct tax effects of the pro forma NTI
Acquisition adjustments described herein at an estimated 41% effective tax
rate plus the income tax effect of the non-deductibility of the NTI
goodwill for income tax purposes.
(e) Represents the adjustment to reflect ongoing goodwill amortization
resulting from the NTI acquisition. The acquisition will result in
goodwill of approximately $26,442, which is to be amortized over a twenty-
five year period.
35
<PAGE>
(f) The increase to pro forma interest expense as a result of the Company's
draw down on its acquisition line under the Senior Credit Facility in
connection with the NTI acquisition 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 NTI
historical interest
expense................ $ (769) $ (618) $ (376) $ (598)
Senior Credit Facility
Acquisition Facility--
5.8% LIBOR plus 2.5%. 2,075 2,075 1,556 1,556
------ ------ ------ ------
Net increase in
interest........... $1,306 $1,457 $1,180 $ 958
====== ====== ====== ======
</TABLE>
An increase or decrease in the assumed weighted average interest rate on
the Acquisition Facility of 0.125% would change pro forma interest expense
by $31, $31, $23 and $23 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.
(g) Supplemental adjustments represent those adjustments which management
believes are appropriate to reflect the elimination of certain expenses
not expected to recur after the Recapitalization.
(h) Reflects the supplemental adjustment for the exclusion of the charge
recorded for stock options vested under the Company's 1996 Stock Option
Plan.
(i) "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.
36
<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
DATA:
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
administration........ 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
operating activities.. 298 395 18,094 26,141 12,158 10,882 11,506
Cash flow (used in)
investing 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
deficiency) (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.
37
<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 believes, based on industry data, that it is one of the largest
domestic manufacturers and marketers 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>
38
<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 in proportion to revenue 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. On a pro forma basis, after giving effect to the Transactions, the
Initial Offering and the NTI Acquisition, the Company anticipates that
interest expense will increase to approximately $1.8 million per month
beginning in the fourth quarter of 1997.
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.
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.
39
<PAGE>
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
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.
40
<PAGE>
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.
Prior to January 1996, the Company was wholly-owned by James Swenson. In
January 1996, the Company declared a dividend of $2.7 million payable to James
Swenson. On January 31, 1996, the Company redeemed 8,162 shares of its common
stock held by James Swenson for $105 million. This represented approximately
60% of the then outstanding stock of the Company. The Company funded this
redemption through the issuance of $95 million of debt and the sale of 6,671
shares of convertible
41
<PAGE>
preferred stock and 2,509 shares of common stock. Total proceeds from the sale
of stock were $20 million.
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. On December
22, 1997, the Company incurred additional debt of $25 million under the Term
Loan Facilities in connection with the NTI Acquisition. As of December 31,
1997, the Company had borrowings of approximately $211.2 million and up to $30
million available for borrowing under the Revolving Credit Facility. The
Company's estimated minimum principal payment obligations under the Senior
Credit Facilities are $3.5 million and $7.0 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 January , 1998, 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
42
<PAGE>
Company's operations. However, management does not believe that Year 2000
changes will have a material impact on the operating results or financial
condition of the Company.
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.
RECENT DEVELOPMENTS
On December 22, 1997, the Company acquired all of the outstanding shares of
common stock of NTI for approximately $38 million in cash. The acquisition was
funded in part through the issuance of additional equity interests in Holdings
in the aggregate amount of $10.2 million to certain existing investors in
Holdings as well as three new investors, including an existing investor in
NTI. The remainder of the purchase price was funded with cash from Holdings
and a $25 million term loan borrowing under the Company's Term Loan
Facilities.
NTI manufactures complex PCBs for OEMs in the electronics industry and
focuses primarily on pre-production market opportunities with lead times of 10
to 20 days. NTI currently manufactures all of its products at two leased
facilities located in Colorado Springs, Colorado, occupying 84,000 square feet
(which also include its executive offices). NTI is operated as a wholly-owned
subsidiary of the Company and is currently headed by James S. Marcelli. Mr.
Marcelli, who has run NTI since 1991, is now a Vice President of the Company
and President of NTI. As of September 30, 1997, NTI employed approximately 325
employees, all of whom are non-union employees.
The NTI Acquisition has been accounted for under the purchase method of
accounting. As a result, the total acquisition cost has been allocated to the
estimated fair value of tangible and intangible assets acquired and
liabilities assumed. Based upon management's preliminary estimate of the fair
value of the assets acquired and liabilities assumed, the Company has recorded
approximately $26 million in goodwill, which will be amortized over a period
of twenty-five years.
43
<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>
44
<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.
45
<PAGE>
BUSINESS
GENERAL
The Company believes, based on industry data, that it is one of the largest
manufacturers and marketers 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 $103.0
million and $35.6 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. 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 (excluding NTI) 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. Based on industry data, the Company believes that
it 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 routinely completes complex orders (up to 12
layers) in less than 24 hours and believes that its engineering expertise and
ability to produce highly complex PCBs are competitive strengths in the quick-
turn market.
Leading Technological Capabilities. The Company believes that its ability to
engineer advanced PCB materials and utilize advanced technologies is a
competitive strength in the quick-turn market. 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 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.
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
46
<PAGE>
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),
Michael Moisan (Vice President of Operations), and James S. Marcelli (Vice
President)--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 and had a less than 1% product return rate for the nine months
ended September 30, 1997. 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 utilizing the additional production capacity obtained
through the recent NTI Acquisition. See "Recent Developments." The Company
recognizes OEMs' desire to continue to use the same supplier through several
stages of the product development process and thereby reduce the number of
supplier's used. Through the acquisition of NTI, the Company intends to expand
its services to the longer lead 10 to 20 day pre-production phase of product
development in addition to servicing the quick-turn prototype phase, which the
Company believes can thereby enhance the efficiency of its customers'
production process. Specifically, the Company believes that by servicing a
larger portion of its customers' production needs, it can: (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%
47
<PAGE>
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. In furtherance of this
strategy, on December 22, 1997, the Company acquired all of the outstanding
shares of common stock of NTI. See "Recent Developments."
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. This cooperative approach 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.
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 100
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
48
<PAGE>
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. These certifications require that the Company meet certain
standards related to management, product design, production and quality
control, among others.
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
and the NTI facilities in Colorado Springs, Colorado. 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 100 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. 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.
49
<PAGE>
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.
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.
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<PAGE>
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." On December 22, 1997 the Company acquired NTI, which
has two leased facilities in Colorado Springs, Colorado occupying 84,000
square feet, and leases a storage facility in Colorado Springs. See "Recent
Developments."
EMPLOYEES
As of January 15, 1998, the Company had approximately 767 employees
(including NTI 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 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.
51
<PAGE>
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.
52
<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 January 15, 1998.
<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
James S. Marcelli................ 50 Vice President of Details
Edward W. Conard................. 41 Director of Holdings, Details Capital and
Details
Stephen M. Zide.................. 37 Vice President and Director of Holdings,
Details Capital and Details
Prescott Ashe.................... 30 Director of Holdings, Details Capital and
Details
Christopher Behrens.............. 36 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. From 1986
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.
James S. Marcelli joined Details and has been Vice President of Details
since 1997 and has been President of NTI since 1991.
53
<PAGE>
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.
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.
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.
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.
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 $1.2 million in connection
with the termination of his employment agreement.
(4) Reflects certain life insurance benefits paid by Holdings on behalf of Mr.
Swenson.
54
<PAGE>
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase common stock of Holdings made to the Named Executive Officers during
the fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
-------------------------------------- ---------------------
NUMBER OF % OF TOTAL EXERCISE
OPTIONS OPTIONS TO PRICE EXPIRATION
NAME GRANTED (1)(2)(3) EMPLOYEES ($/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 customary
confidentiality provisions and a non-compete clause effective for the duration
of the term of
55
<PAGE>
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
56
<PAGE>
authorized 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.
57
<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.
58
<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 January 15, 1998, the outstanding equity
securities of Holdings consisted of 2,081,753.1 shares of Class A Common and
233,593.7 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 January 15, 1998
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)............. 1,065,497.2 50.0% 131,690.7 53.1%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Chase Manhattan Capital, L.P.(2)... 386,912.0 18.1 47,820.6 19.3
380 Madison Avenue
12th Floor
New York, New York 10017
DIRECTORS AND EXECUTIVE OFFICERS:
James I. Swenson(3)................ -- -- -- --
Bruce D. McMaster(4)............... 204,589.1 9.6 18,741.7 7.6
Joseph P. Gisch(5)................. 29,382.7 1.4 2,554.9 1.0
Lee W. Muse(6)..................... 146,329.0 6.9 12,963.5 5.3
Terry L. Wright(7)................. 38,790.3 1.8 3,016.6 1.2
Christopher Behrens(8)............. 386,912.0 18.1 47,820.6 19.3
Edward Conard (9).................. 1,065,497.2 50.0 131,690.7 53.1
Stephen M. Zide(10)................ 230,595.8 10.8 28,493.1 11.5
Prescott Ashe(10).................. 230,595.8 10.8 28,493.1 11.5
All Directors and executive
officers as a group
(10 persons)(11).................. 463,114.5 21.7 41,602.5 16.8
</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").
59
<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 48,205.1
shares, which are subject to vesting. The shares of Class L Common
included in the table include 4,203.8 shares that can be acquired upon
the exercise of outstanding options.
(5) The shares of Class A Common included in the table include 8,034.2
shares, which are subject to vesting. The shares of Class L Common
included in the table include 599.3 shares that can be acquired upon the
exercise of outstanding options.
(6) The shares of Class A Common included in the table include 37,492.8
shares, which are subject to vesting. The shares of Class L Common
included in the table include 3,498.0 shares that can be acquired upon
the exercise of outstanding options.
(7) The shares of Class A Common included in the table include 13,390.3
shares, which are subject to vesting. The shares of Class L Common
included in the table include 879.4 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.
60
<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
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with the Recapitalization, Bain received a transaction fee of approximately
$3.1 million. In connection with the NTI Acquisition, Bain received a
transaction fee of approximately $380,000. 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."
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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
was borrowed in connection with the NTI Acquisition; (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: (i) a maximum debt to equity ratio that
is established at 6.25 to 1.0 for the period through December 30, 1998 and
diminishes each year to a ratio of 2.75 to 1.0 through December 31, 2003 and
thereafter; (ii) a minimum interest to EBITDA ratio that is established at
1.60 to 1.0 for the period through December 30, 1998, after which it increases
each year to a ratio of 2.75 to 1.0 for the period through December 31, 2002
and is maintained at 2.0 to 1.0 for the period through December 31, 2003 and
thereafter; (iii) a minimum fixed charges to EBITDA ratio of 1.05 to 1.0; and
(iv) a minimum EBITDA that is established at $30 million for fiscal 1997 and
increases each year to $45 million for fiscal 2002 and thereafter. 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. Pursuant to the terms of the Senior
Credit Facilities, the Company is required to compute financial ratios and
certify to other covenants on a quarterly basis. 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
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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 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.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes are to be issued under an indenture dated November 18,
1997, (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):
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>
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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 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
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December 31, 1997, the outstanding Senior Indebtedness of the Company was
approximately $111.2 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 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
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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 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
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(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) and Rule 13e-4 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.
Neither the Company nor the Trustee can waive the Holders' right to have the
Notes redeemed at the Holder's election upon a Change in Control.
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 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.
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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 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
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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 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
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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 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.
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(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 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
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(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 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
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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 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).
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(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.
(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.
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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 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
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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 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
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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 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
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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.
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.
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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, (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.
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"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.
"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
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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 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
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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 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
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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.
"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
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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.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holdings" means Details Holdings 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
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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 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
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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").
"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.
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"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;
(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;
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(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, 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.
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"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.
"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
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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 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
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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.
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
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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 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.
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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. 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, Details 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, Details 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 for Exchange Notes that are identical in all material respects to
the Original Notes (except that the Exchange Notes will not contain terms with
respect to transfer restrictions) and that would be registered under the
Securities Act. The Company will keep the Exchange Offer open for 30 days
(unless extended) after the date hereof.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, Details 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) Details so elects, then Details 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.
Details 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, Details
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, Details 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 Details 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"), Details 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
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
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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 Details (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 Details, 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 by
such broker-dealer 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.
See "Plan of Distribution."
Holders of the Original Notes will be required to make certain
representations to Details (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."
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,
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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 Details or any affiliate of Details was the owner of such
securities (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to Details (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 Details 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, Details will
accept any and all Original Notes validly tendered and not withdrawn prior to
the applicable Expiration Date. Details 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) Details has
fixed the close of business on , 1998 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.
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. Details 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.
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Details 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. Details 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 Details 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, Details 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.
Details 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 Details 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 Details may choose to make public
announcement of any delay, extension, termination or amendment of its Exchange
Offer, Details 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
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
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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
Details 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 DETAILS. 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
Details, as applicable, of their authority to so act must be submitted with
the Letter of Transmittal designated for such Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by Details 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. Details 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 Details will
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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 Details shall determine. Although Details intends to
notify holders of defects or irregularities with respect to tenders of
Original Notes issued by it, neither Details, 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) for
such holder's own account, for investment and not with a view to or for sale
in connection with any distribution of the Exchange Notes, (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, where such Original Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must deliver a prospectus in connection with any resale of such
Exchange Notes, see "Plan of Distribution," 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 Details except as otherwise disclosed to Details 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
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.
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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 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, Details has agreed
to seek
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a no-action letter or other favorable decision from the Commission allowing
the Company to consummate the Exchange Offer.
If Details determines that the Exchange Offer is not permitted by applicable
Federal law, it may terminate the Exchange Offer. In connection therewith
Detail 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, Details will disclose
such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Original Notes, and Details 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: (617) 664-5371
(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 Details. 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
Details and its affiliates.
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 Details 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.
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Details 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, Details 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 Details to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" of Details 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 Details that such
conditions have been met. In the event that Details' 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.
Details does not assume or indemnify holders against such liability.
All resales must be made in compliance with applicable state securities or
"blue sky" laws. Such compliance may require that the Exchange Notes be
registered or qualified in a particular state or that the resales be made by
or through a licensed broker-dealer, unless exemptions from these requirements
are available. Details assumes no responsibility with regard to compliance
with such requirements.
Each affiliate of Details 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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<PAGE>
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. 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 Original
Notes where such Original Notes were acquired as a result of market-making
activities or other trading activities. Details 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 , 1998, all dealers effecting
transactions in the Exchange Discount Notes may be required to deliver a
prospectus.
Details 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 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.
For a period of 90 days after the Expiration Date Details 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. Details has agreed to pay all expenses incident to the 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.
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 Details Holdings Corp. formerly
Details Inc. as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 included in this Prospectus, have been
audited by McGladrey & Pullen, LLP, independent auditors, as stated in their
report appearing herein.
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The financial statements of Colorado Springs Circuits, Inc. as of April 1,
1997 and 1996 and for the years then ended, included in this Prospectus have
been audited by Stockman Kast Ryan & Scruggs, P.C., independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The statements of income and retained earnings and of cash flows of Colorado
Springs Circuits, Inc. for the year ended March 31, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
On December 16, 1997, the Company notified McGladrey & Pullen, LLP that it
would be dismissed as the Company's independent accountant effective December
31, 1997. On January 1, 1998, the Company notified Price Waterhouse LLP that
it would be engaged as the Company's new principal independent accountant to
audit the Company's financial statements. The Company and its Board of
Directors selected Price Waterhouse LLP based primarily on the fact that Price
Waterhouse LLP typically serves as independent accountant for portfolio
companies of certain of Holdings' shareholders. The Company's former
accountants, McGladrey & Pullen, LLP, were considered for the engagement but
were not selected.
In connection with the audits of the two fiscal years ended December
31,1996, there were no disagreements with McGladrey & Pullen, LLP on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference in their opinion to the
subject matter of the disagreement. The audit report of McGladrey & Pullen,
LLP on the consolidated financial statements of the Company as of and for the
years ended December 31, 1996 and 1995, did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. A letter from McGladrey & Pullen, LLP
to that effect is attached as Exhibit 16.1 to the Registration Statement of
which this Prospectus is a part.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC. AND SUBSIDIARIES
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
September 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
COLORADO SPRINGS CIRCUITS, INC.
Independent Auditors' Reports............................................ F-19
Balance Sheets as of April 1, 1997 and 1996.............................. F-21
Statements of Income and Retained Earnings for the Years Ended April 1,
1997 and 1996 and March 31, 1995........................................ F-22
Statements of Cash Flows for the Years Ended April 1, 1997 and 1996 and
March 31, 1995.......................................................... F-23
Notes to Financial Statements............................................ F-24
Interim Balance Sheet as of September 29, 1997 (unaudited)............... F-29
Interim Statements of Income and Retained Earnings for the Six Months
Ended September 29, 1997 and September 30, 1996 (unaudited)............. F-30
Interim Statements of Cash Flows for the Six Months Ended September 29,
1997 and September 30, 1996 (unaudited)................................. F-31
Notes to Interim Financial Statements (unaudited)........................ F-32
</TABLE>
F-1
<PAGE>
[This page intentionally left blank]
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of DirectorsDetails Holdings Corp., formerly Details,
Inc.Anaheim, California
We have audited the accompanying consolidated balance sheets of Details
Holdings Corp., formerly 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
Holdings Corp., formerly 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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. (Holdings) 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 HOLDINGS CORP., FORMERLY 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.
Temporary Stockholder's equity:
The Company has common stock and warrants to purchase common stock
outstanding which contain the right for the holder to put the instrument back
to the Company for cash. The Company records the fair value of these
instruments as temporary stockholders' equity with a corresponding charge to
accumulated deficit for any changes in the fair value of these instruments.
Fair value is estimated by management.
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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 HOLDINGS CORP., FORMERLY 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 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. DIA had no operations and was formed solely for
the purpose of effecting the Recapitalization.
F-16
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Recapitalization, Holdings accelerated the vesting of all
outstanding options (totalling 1,950 shares) to purchase shares of its common
stock (the "Old Common") making all such options immediately exercisable.
Certain members of management then exercised options to purchase 1,374.4
shares of Old Common.
Immediately prior to the Recapitalization, DIA was capitalized with a $62.4
million equity investment, summarized as follows: (i) investment funds
associated with Bain Capital, Inc. (the "Bain Capital Funds") purchased
925,775.9 shares of a DIA's class A common stock ("DIA Class A") and 114,421.7
shares of DIA's class L common stock ("DIA Class L"), (ii) an affiliate of
Chase Manhattan Capital, L.P. ("CMC") purchased 224,120.0 shares of DIA Class
A and 27,700.2 shares of DIA Class L and (iii) certain other investors (the
"Other Investors") purchased an aggregate of 98,000.0 shares of DIA Class A
and 12,112.4 shares of DIA Class L Common. The purchase paid for each share of
DIA Class A and DIA Class L was $5.00 and $364.09, respectively (the Class A
and L Issuance Price).
On October 28, 1997, the Recapitalization was consummated. In connection
with the Recapitalization:
(i) new classes of Holdings' common stock were created: Class A Common
Stock (the "Class A Common") and Class L Common Stock (the "Class L
Common");
(ii) DIA merged with and into Holdings, with Holdings surviving the
merger;
(iii) each share of DIA Class A was converted into the right to receive
one share of Class A Common and each share of DIA Class L was converted
into the right to receive one share of Class L Common;
(iv) the value of each share of Old Common was established at
approximately $11,810 per share (which includes the right to contingent
payments of up to approximately $502 per share which right was retained by
all holders of Old Common and options to purchase Old Common);
(v) the holders of 16,295.6 shares of Old Common and Old Common
Equivalents, received approximately $184.3 million in cash, based on a
valuation of approximately $11,308 per share (the Per Share Merger
Consideration).
(vi) management retained 1,005.7 shares of Old Common, and options to
purchase 513.6 shares of Old Common; based upon the Per Share Merger
Consideration and the Class A and L Issuance Price, management's retained
shares and options were converted into 227,445.9 shares of Class A Common
and 28,111.3 shares of Class L Common and options to purchase 116,158.0
shares of Class A Common and 14,356.6 shares of Class L Common
(collectively, the "Management Rollover Equity");
(vii) CMC retained 685.4 shares of Old Common, and another stockholder
retained 247.1 shares of Old Common, based upon the Per Share Merger
Consideration and the Class A and L Issuance Price, CMC's retained shares
were converted into 155,000.0 shares of Class A Common and 19,157.3 shares
of Class L Common and the other stockholder's retained shares were
converted into 55,880.0 shares of Class A Common and 6,906.5 shares of
Class L Common (collectively, the "Existing Owner Rollover"); and
(viii) certain members of management received: (i) an aggregate of
10,374.5 shares of Class A Common as compensation for services rendered to
Holdings and its subsidiaries at a valuation of $5.00 per share of Class A
Common; and (ii) options to purchase an aggregate of 112,508.1
F-17
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares of restricted Class A Common at a price of $5.00 per share granted
under the 1997 Stock Option Plan, and options to acquire 112,508.1 shares
of Class A Common at an exercise price of $61.17 per share granted under
the 1997 Stock Option Plan.
After giving effect to the Recapitalization and related transactions, the
Bain Capital Funds owned approximately 46.0% of the fully diluted equity of
Holdings, CMC and its affiliates owned approximately 18.8% of the fully
diluted equity of Holdings, the other Existing Owner Rollover stockholder
owned approximately 2.8% of the fully diluted equity of Holdings, the Other
Investors owned approximately 4.9% of the fully diluted equity of Holdings,
and members of management owned (or had options to acquire) approximately
27.5% of the fully diluted equity of Holdings.
Financing for the Recapitalization consisted of a $62.4 million equity
investment and debt financing totalling $231.4 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.
NTI ACQUISITION
On December 22, 1997, Details, Inc. acquired all of the outstanding shares
of common stock of Colorado Springs Circuits, Inc. (NTI) for approximately $38
million in cash. The acquisition was funded in part through the issuance of
additional equity interests in Holdings in the aggregate amount of $10.2
million to certain existing investors in Holdings as well as three new
investors, including an existing investor in NTI. The remainder of the
purchase price was funded with cash from Holdings and a $25 million term loan
borrowing under the Details, Inc. Term Loan Facilities.
The NTI Acquisition has been accounted for under the purchase method of
accounting. As a result, the total acquisition cost has been allocated to the
estimated fair value of tangible and intangible assets acquired and
liabilities assumed. Based upon management's preliminary estimate of the fair
value of the assets acquired and liabilities assumed, Details, Inc. has
recorded approximately $26 million in goodwill, which will be amortized over a
period of twenty five years.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Colorado Springs Circuits, Inc.
We have audited the accompanying balance sheets of Colorado Springs
Circuits, Inc. as of April 1, 1997 and 1996, and the statements of income and
retained earnings and of cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Colorado Springs Circuits, Inc. as of
April 1, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Stockman Kast Ryan & Scruggs, P.C.
Colorado Springs, Colorado
May 9, 1997 (December 22, 1997 as to the matter discussed in Note 10 to the
financial statements)
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Colorado Springs Circuits, Inc.
Colorado Springs, Colorado
We have audited the accompanying statements of income and retained earnings
and of cash flows of Colorado Springs Circuits, Inc. for the year ended March
31, 1995. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of Colorado Springs Circuits, Inc.'s operations and its
cash flows for the year ended March 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Colorado Springs, Colorado
June 2, 1995
F-20
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
BALANCE SHEETS
APRIL 1, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 4)................. $ 431,732 $ 982,207
Trade receivables, less allowance for doubtful ac-
counts of $82,000 and $114,000 for 1997 and 1996,
respectively (Note 4)............................. 4,232,025 3,499,828
Inventories (Notes 2 and 4)........................ 2,033,933 2,118,770
Deferred income taxes (Note 6)..................... 109,000 151,000
Prepaid expenses and other current assets.......... 311,711 65,793
------------ ------------
Total current assets............................. 7,118,401 6,817,598
Property and Equipment--Net (Notes 3 and 4).......... 9,725,642 5,425,327
Deferred Income Taxes (Note 6)....................... 243,000 109,000
Other Assets......................................... 20,165 227,104
------------ ------------
Total............................................ $ 17,107,208 $ 12,579,029
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................... $ 2,441,608 $ 1,644,866
Accrued payroll.................................... 256,798 418,451
Income taxes payable (Note 6)...................... 40,144 539,000
Other accrued liabilities.......................... 449,417 596,428
Current portion of note payable to bank (Note 4)... 1,240,000 125,926
Current portion of note payable to NTI (Note 4).... 420,000 420,000
Borrowings under bank line of credit (Note 4)...... 500,000
------------ ------------
Total current liabilities........................ 4,847,967 4,244,671
------------ ------------
Long-Term Debt (Note 4)
Note payable to bank............................... 4,443,333 1,003,240
Note payable to NTI................................ 2,914,967 3,334,967
------------ ------------
Total long-term debt............................. 7,358,300 4,338,207
------------ ------------
Deferred Income Taxes (Note 6)....................... 556,000 406,000
------------ ------------
Commitments (Note 5)
Stockholders' Equity
Common stock:
Class A--no par value, 3,000,000 shares autho-
rized, 1,000,000 shares issued and outstanding... 539,829 539,829
Class B--no par value, 2,000,000 shares autho-
rized, no shares outstanding
Retained earnings................................. 3,805,112 3,050,322
------------ ------------
Total stockholders' equity....................... 4,344,941 3,590,151
------------ ------------
Total............................................ $ 17,107,208 $ 12,579,029
============ ============
</TABLE>
See notes to financial statements.
F-21
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED APRIL 1, 1997 AND 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales............................... $26,984,726 $28,082,524 $21,943,818
Cost of Goods Sold (Note 5)............. 23,100,569 23,057,183 17,710,399
----------- ----------- -----------
Gross Margin........................ 3,884,157 5,025,341 4,233,419
----------- ----------- -----------
Operating Expenses
Sales and marketing................... 1,224,524 1,385,196 1,140,270
General and administrative (Note 5)... 1,076,603 1,106,688 1,221,644
----------- ----------- -----------
Total operating expenses............ 2,301,127 2,491,884 2,361,914
----------- ----------- -----------
Income from Operations.................. 1,583,030 2,533,457 1,871,505
----------- ----------- -----------
Other Income (Expense)
Interest expense (Note 4)............. (617,668) (595,612) (492,340)
Gain on sale of equipment............. 29,572 100,025
----------- ----------- -----------
Other income (expense)--net......... (588,096) (495,587) (492,340)
----------- ----------- -----------
Income Before Income Tax Provision...... 994,934 2,037,870 1,379,165
Income Tax Provision (Note 6)........... 240,144 772,470 368,815
----------- ----------- -----------
Net Income.......................... 754,790 1,265,400 1,010,350
Retained Earnings, Beginning of year.... 3,050,322 1,784,922 774,572
----------- ----------- -----------
Retained Earnings, End of year.......... $ 3,805,112 $ 3,050,322 $ 1,784,922
=========== =========== ===========
Net Income Per Common Share............. $ 0.75 $ 1.27 $ 1.01
=========== =========== ===========
Weighted Average Common Shares Outstand-
ing.................................... 1,000,000 1,000,000 1,000,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 1, 1997 AND 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Operating Activities
Net income............................. $ 754,790 $1,265,400 $ 1,010,350
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 2,023,461 1,910,479 1,716,845
Gain on sale of equipment............ (29,572) (100,025) (2,500)
Deferred income taxes................ 58,000 (27,000) (90,000)
Changes in operating assets and lia-
bilities:
Accounts receivable................ (732,197) (712,438) (489,207)
Inventories........................ 84,837 187,167 (1,123,151)
Prepaid expenses and other current
assets............................ (245,918) 1,244 1,845
Other assets....................... 206,939 (218,804) 32,043
Accounts payable and accrued lia-
bilities.......................... 488,078 (405,934) 1,473,807
Income taxes payable............... (498,856) 80,000 249,000
----------- ---------- -----------
Net cash provided by operating
activities...................... 2,109,562 1,980,089 2,779,032
----------- ---------- -----------
Investing Activities
Purchases of property and equipment.... (6,341,156) (931,701) (3,048,546)
Proceeds from sales of equipment....... 46,952 100,025 2,500
----------- ---------- -----------
Net cash used in investing activ-
ities........................... (6,294,204) (831,676) (3,046,046)
----------- ---------- -----------
Financing Activities
Net repayments under line of credit.... (500,000) (100,770) (399,230)
Repayment of note to bank.............. (1,645,833) (416,667) (354,167)
Repayment of note to NTI............... (420,000) (420,000) (280,000)
Proceeds from issuance of note to bank. 6,200,000 400,000 1,250,000
----------- ---------- -----------
Net cash provided by (used in)
financing activities............ 3,634,167 (537,437) 216,603
----------- ---------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents............................. (550,475) 610,976 (50,411)
Cash and Cash Equivalents, Beginning of
year.................................... 982,207 371,231 421,642
----------- ---------- -----------
Cash and Cash Equivalents, End of year... $ 431,732 $ 982,207 $ 371,231
=========== ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (Note 4)........ $ 654,566 $ 577,919 $ 479,876
Cash paid for income taxes............. 681,000 719,470 209,815
</TABLE>
See notes to financial statements.
F-23
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--Colorado Springs Circuits, Inc. (the "Company"), a
Colorado corporation, manufactures printed circuit boards (PCB) primarily for
computer, electronics, medical and telecommunications industries. NTI, a
California corporation, owns 79.9% of the Class A voting common stock of the
Company. Two trusts, which are also the stockholders of NTI, each own 0.1% of
the Company's stock. The remaining 19.9% of the Company's stock is owned by the
president of the Company. The Company uses the name NTI in conducting its
business and is commonly referred to as NTI.
Fiscal Year--The Company's fiscal year end is determined by the Board of
Directors based on the Company's production periods.
Revenue Recognition--Sales are recognized by the Company when the products
are shipped.
Inventories--The Company's inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
Property and Equipment--Property and equipment are stated at cost and
depreciated using the straight-line method over estimated useful lives of five
years. Leasehold improvements are amortized over the term of the related lease
agreements. The Company reviews its long-lived assets annually to determine
potential impairment. In performing the review, the Company estimates the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment is recognized.
Income Taxes--Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities
using current tax rates. Changes in tax rates are recognized in the period of
the enactment date.
Net Income Per Common Share--Net income per common share is based upon the
net income and weighted average common shares outstanding for each year. The
adoption of Statement of Financial Accounting Standards No. 128 for fiscal year
1998 will not have an impact on the Company's net income per common share.
Statement of Cash Flows--For the purposes of the statement of cash flows, the
Company considers all highly liquid investments maturing within three months of
acquisition to be cash equivalents.
Use of Estimates--The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
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.
F-24
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
2. INVENTORIES
Inventories at April 1, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials.......................................... $ 201,965 $ 188,843
Work in process........................................ 1,721,097 1,816,097
Finished goods......................................... 110,871 113,830
---------- ----------
Total................................................ $2,033,933 $2,118,770
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at April 1, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Shop machinery and equipment........................ $16,663,898 $11,670,690
Leasehold improvements.............................. 2,834,666 2,117,722
Office furniture and equipment...................... 1,503,443 1,027,337
Vehicles............................................ 37,525 37,525
----------- -----------
Total............................................. 21,039,532 14,853,274
Accumulated depreciation and amortization........... 11,313,890 9,427,947
----------- -----------
Property and equipment--net....................... $ 9,725,642 $ 5,425,327
=========== ===========
</TABLE>
4. LONG-TERM DEBT
The Company has a note payable to a bank with total outstanding principal
balances as of April 1, 1997 and 1996 of $5,683,333 and $1,129,166,
respectively, with interest at the bank's prime rate plus 1%. Monthly principal
payments of $103,333 plus interest are required on the note until its maturity
date of October 15, 2001.
The Company also has a $2,500,000 revolving bank line of credit under which
the Company had outstanding borrowings of $500,000 as of April 1, 1996. No
borrowings were outstanding as of April 1, 1997. Borrowings bear interest at
the bank's prime rate (8.5% at April 1, 1997) plus 1%. The line of credit
matures on June 30, 1997.
Under the terms of the borrowing agreements, the Company is required to
comply with certain restrictive financial covenants relating to the maintenance
of certain net worth levels and financial ratios as well as limitations with
respect to incurring further indebtedness. Borrowings under the agreements are
collateralized by cash and cash equivalents, trade receivables, inventories and
property and equipment, and are guaranteed by NTI, its stockholders and the
president of the Company.
F-25
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) [/R]
The note payable to NTI is due in monthly installments of $35,000 plus
interest through April 30, 1999, at which time all remaining principal and
interest is due. The note is subordinated to all outstanding bank borrowings.
Interest accrues at the bank's prime rate plus 1%. The Company recorded
interest expense related to this note of $330,728, $394,986 and $359,585 for
the years ended April 1, 1997 and 1996 and March 31, 1995, respectively.
Future maturities of principal under the terms of existing debt agreements
are as follows as of April 1, 1997:
<TABLE>
<S> <C>
Fiscal year ending:
1998............................................................ $1,660,000
1999............................................................ 1,660,000
2000............................................................ 3,734,967
2001............................................................ 1,240,000
2002............................................................ 723,333
----------
Total......................................................... $9,018,300
==========
</TABLE>
The carrying values of the Company's debt are considered reasonable estimates
of the fair values.
5. COMMITMENTS
The Company leases certain facilities from the stockholders of NTI and
certain equipment from a bank under noncancelable operating leases. Future
minimum annual lease payments under these noncancelable operating leases are as
follows as of April 1, 1997:
<TABLE>
<S> <C>
Fiscal year ending:
1998............................................................ $ 735,084
1999............................................................ 735,084
2000............................................................ 735,084
2001............................................................ 660,324
2002............................................................ 510,804
Thereafter...................................................... 1,149,309
----------
Total......................................................... $4,525,689
==========
</TABLE>
Total rent expense charged to operations for the years ended April 1, 1997
and 1996 and March 31, 1995 was $724,794, $544,440 and $468,740, respectively,
including $500,517, $469,681 and $468,740, respectively, under the lease
agreements with the stockholders of NTI. The lease agreements with the
stockholders of NTI include renewal options and provide for rent escalations
based on increases in the consumer price index. Rent expense is allocated to
cost of goods sold and general and administrative expense in the accompanying
statements of income and retained earnings.
In the event that the Company sells substantially all of its assets or merges
with another entity whereby the other entity becomes the surviving company, or
should the stockholders of the Company sell more than fifty percent of the
outstanding shares of the Company to a third party, the Company is committed
under agreements to pay bonuses to certain individuals based on percentages of
the net consideration received. See Note 10.
6. INCOME TAXES
For the years ended April 1, 1996 and March 31, 1995, the Company's
operations were included in the consolidated federal and state income tax
returns of NTI. Under NTI's tax allocation method, a tax provision was
allocated to the Company based upon a calculation of income taxes as if the
F-26
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company filed separate income tax returns. As of April 1, 1996, the Company has
a liability to NTI of $539,000 for income taxes which have been allocated to
the Company. For the year ended April 1, 1997, due to a change in ownership of
the Company's common stock, the Company has filed federal and state income tax
returns separate from NTI and has recorded income taxes payable of $40,144 to
the applicable taxing authorities.
The tax effects of temporary differences that give rise to significant
portions of deferred taxes at April 1, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Income tax credit carryforwards..................... $ 325,000 $ 169,000
Allowance for doubtful accounts and various
non-deductible accrued liabilities................. 109,000 151,000
--------- ---------
Total deferred income tax assets.................. 434,000 320,000
Deferred income tax liabilities--excess tax depreci-
ation.............................................. (638,000) (466,000)
--------- ---------
Net deferred income tax liability................. $(204,000) $(146,000)
========= =========
</TABLE>
The deferred income tax assets and liabilities are recorded in the
accompanying balance sheets as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets--current.................... $ 109,000 $ 151,000
Deferred income tax assets--noncurrent................. 243,000 109,000
Deferred income tax liabilities--noncurrent............ (556,000) (406,000)
--------- ---------
Net deferred income tax liability.................... $(204,000) $(146,000)
========= =========
</TABLE>
The income tax provision for the years ended April 1, 1997 and 1996 and March
31, 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current provision............................... $182,144 $799,470 $458,815
Deferred provision (benefit).................... 58,000 (27,000) (90,000)
-------- -------- --------
Income tax provision--net..................... $240,144 $772,470 $368,815
======== ======== ========
</TABLE>
The following summary reconciles income taxes computed at the federal
statutory rate with the income tax provision for the years ended April 1, 1997
and 1996 and March 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Federal income tax expense at statutory
rate....................................... $ 338,278 $692,876 $ 468,916
Tax effects of:
State income taxes, net of federal deduc-
tion..................................... 32,833 67,250 45,512
State tax credits generated............... (173,074) (42,974) (153,984)
Other..................................... 42,107 55,318 8,371
--------- -------- ---------
Income tax provision--net............... $ 240,144 $772,470 $ 368,815
========= ======== =========
</TABLE>
The Company's state tax credit carryforwards expire from 1998 through 2009.
F-27
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) [/R]
7. MAJOR CUSTOMERS
Sales to the Company's largest customer accounted for approximately 11% of
total sales for the year ended April 1, 1997. Sales to the Company's two
largest customers accounted for approximately 12% each of total sales for the
year ended April 1, 1996 and approximately 13% and 12%, respectively, of total
sales for the year ended March 31, 1995.
8. EMPLOYEE BENEFIT PLAN
The Company has a qualified employee retirement savings plan covering
substantially all employees. The plan permits voluntary salary reduction
contributions by employees which are matched by the Company subject to
limitations as specified in the plan. The Company's matching contributions vest
over a period of six years. The Company made contributions to the plan
totalling $46,604, $42,716 and $39,706, respectively, for the years ended April
1, 1997 and 1996 and March 31, 1995.
9. CONCENTRATIONS OF CREDIT RISK
Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
temporary cash investments and trade receivables. Although the Company
maintains cash deposits in excess of federal insured limits, such deposits are
placed with high quality financial institutions. Concentrations of credit risk
with respect to accounts receivable are limited due to a large number of
customers in diverse industries and generally short payment terms. Due to these
factors, no additional credit risk beyond amounts provided as an allowance for
doubtful accounts is believed to be inherent in the Company's accounts
receivable.
10. SUBSEQUENT EVENT
On December 22, 1997, the Company's stockholders sold all of their Class A
voting common stock of the Company to Details, Inc. for a purchase price of
approximately $38,000,000. As a result of the sale of the common stock, the
Company is committed to pay the bonuses of approximately $3,280,000 to certain
individuals as discussed in Note 5.
F-28
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
BALANCE SHEET
SEPTEMBER 29, 1997
<TABLE>
<CAPTION>
SEPTEMBER 29,
1997
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 4)............................. $ 1,409,334
Trade receivables, less allowance for doubtful accounts of
$93,750 and $82,000 at September 29 and April 1, respectively
(Note 4)...................................................... 4,666,794
Inventories (Notes 2 and 4).................................... 2,172,185
Deferred income taxes.......................................... 186,575
Prepaid expenses and other current assets...................... 353,486
-----------
Total current assets......................................... 8,788,374
Property and Equipment--Net (Notes 3 and 4)...................... 9,183,479
Deferred Income Taxes............................................ 175,128
Other Assets..................................................... 28,162
-----------
Total........................................................ $18,175,143
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................... $ 2,055,782
Accrued payroll................................................ 233,721
Income taxes payable........................................... 33,174
Other accrued liabilities...................................... 607,742
Current portion of note payable to bank (Note 4)............... 1,240,000
Current portion of note payable to NTI (Note 4)................ 420,000
Borrowings under bank line of credit (Note 4).................. 1,300,000
-----------
Total current liabilities.................................... 5,890,419
-----------
Long-Term Debt (Note 4)
Note payable to bank........................................... 3,823,333
Note payable to NTI............................................ 2,704,967
-----------
Total long-term debt......................................... 6,528,300
-----------
Deferred Income Taxes............................................ 691,371
-----------
Stockholders' Equity
Common stock:
Class A--no par value, 3,000,000 shares authorized, 1,000,000
shares issued and outstanding................................ 539,829
Class B--no par value, 2,000,000 shares authorized, no shares
outstanding..................................................
Retained earnings.............................................. 4,525,224
-----------
Total stockholders' equity................................... 5,065,053
-----------
Total........................................................ $18,175,143
===========
</TABLE>
See notes to financial statements.
F-29
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net Sales........................................... $15,891,626 $13,685,592
Cost of Goods Sold.................................. 13,123,516 11,537,465
----------- -----------
Gross Margin........................................ 2,768,110 2,148,127
----------- -----------
Operating Expenses
Sales and marketing............................... 775,254 606,823
General and administrative........................ 567,909 542,786
----------- -----------
Total operating expenses........................ 1,343,163 1,149,609
----------- -----------
Income From Operations.............................. 1,424,947 998,518
----------- -----------
Other Income (Expense)
Interest expense (Note 4)......................... (401,739) (249,873)
Gain on sale of equipment......................... 11,743 27,608
----------- -----------
Other income (expense)--net..................... (389,996) (222,265)
----------- -----------
Income Before Income Tax Provision.................. 1,034,951 776,253
Income Tax Provision................................ 314,839 187,284
----------- -----------
Net Income.......................................... 720,112 588,969
Retained Earnings, Beginning of period.............. 3,805,112 3,050,322
----------- -----------
Retained Earnings, End of period.................... $ 4,525,224 $ 3,639,291
=========== ===========
Net Income Per Common Share......................... $ 0.72 $ 0.59
=========== ===========
Weighted Average Common Shares Outstanding.......... 1,000,000 1,000,000
=========== ===========
</TABLE>
See notes to financial statements.
F-30
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating Activities
Net income....................................... $ 720,112 $ 588,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 832,423 867,374
Gain on sale of equipment...................... (11,743) (27,608)
Deferred income taxes.......................... 125,668 (11,883)
Changes in operating assets and liabilities:
Accounts receivable.......................... (434,769) 811,022
Inventories.................................. (138,252) 282,793
Prepaid expenses and other current assets.... (41,775) 46,107
Other assets................................. (7,997) 223,204
Accounts payable and accrued liabilities..... (250,578) 476,169
Income taxes payable......................... (6,970) (481,833)
---------- -----------
Net cash provided by operating activities.. 786,119 2,774,314
---------- -----------
Investing Activities
Purchases of property and equipment.............. (296,237) (4,736,554)
Proceeds from sales of equipment................. 17,720 33,000
---------- -----------
Net cash used in investing activities...... (278,517) (4,703,554)
---------- -----------
Financing Activities
Net borrowings (repayments) under line of credit. 1,300,000 (500,000)
Repayment of note to bank........................ (620,000) (34,731)
Repayment of note to NTI......................... (210,000) (210,000)
Proceeds from issuance of note to bank........... 2,000,000
---------- -----------
Net cash provided by financing activities.. 470,000 1,255,269
---------- -----------
Net Increase (Decrease) In Cash and Cash Equiva-
lents............................................. 977,602 (673,971)
Cash and Cash Equivalents, Beginning of period..... 431,732 982,207
---------- -----------
Cash and Cash Equivalents, End of period........... $1,409,334 $ 308,236
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest........................... $ 406,186 $ 276,794
Cash paid for income taxes....................... 120,000 681,000
</TABLE>
See notes to financial statements.
F-31
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The financial statements of Colorado Springs Circuits, Inc. (the Company)
for the six months ended September 29, 1997 and September 30, 1996 are
unaudited. In management's opinion, the financial statements reflect all
adjustments necessary for a fair presentation of the results for these
periods, all adjustments being of a normal and recurring nature. The Company's
interim financial statements may not be indicative of the Company's operations
for the related fiscal years. The interim financial statements should be read
in conjunction with the financial statements and the notes thereto for the
years ended April 1, 1997 and 1996 and March 31, 1995. The Company uses the
name NTI in conducting its business and is commonly referred to as NTI.
2. INVENTORIES
Inventories at September 29, 1997 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29,
1997
-------------
<S> <C>
Raw materials.................................................. $ 243,376
Work in process................................................ 1,884,368
Finished goods................................................. 44,441
----------
Total........................................................ $2,172,185
==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at September 29, 1997 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29,
1997
-------------
<S> <C>
Shop machinery and equipment................................... $16,406,934
Leasehold improvements......................................... 2,857,287
Office furniture and equipment................................. 1,476,513
Vehicles....................................................... 37,525
-----------
Total........................................................ 20,778,259
Accumulated depreciation and amortization...................... 11,594,780
-----------
Property and equipment--net.................................. $ 9,183,479
===========
</TABLE>
Effective April 2, 1997, the Company changed the estimated useful lives of
shop machinery and equipment from five years to seven years. This change had
the effect of increasing net income for the six months ended September 29,
1997 by approximately $300,000 ($0.30 per common share).
4. LONG-TERM DEBT
The Company has a note payable to a bank with a total outstanding principal
balance as of September 29, 1997 of $5,063,333 with interest at the bank's
prime rate plus 1%. Monthly principal payments of $103,333 plus interest are
required on the note until its maturity date of October 15, 2001.
The Company also has a $2,500,000 revolving bank line of credit under which
the Company had outstanding borrowings of $1,300,000 as of September 29, 1997.
Borrowings bear interest at the bank's prime rate (8.5% at September 29, 1997)
plus 1%. The line of credit matures on June 30, 1998.
F-32
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The note payable to NTI, which owns 79.9% of the Company's outstanding common
stock, is due in monthly installments of $35,000 plus interest through April
30, 1999, at which time all remaining principal and interest is due. The note
is subordinated to all outstanding bank borrowings. Interest accrues at the
bank's prime rate plus 1%. The Company recorded interest expense related to
this note of $150,034 and $169,796 for the six months ended September 29, 1997
and September 30, 1996, respectively.
Under the terms of the borrowing agreements, the Company is required to
comply with certain restrictive financial covenants relating to the maintenance
of certain net worth levels and financial ratios as well as limitations with
respect to incurring further indebtedness. Borrowings under the agreements are
collateralized by cash and cash equivalents, trade receivables, inventories and
property and equipment, and are guaranteed by NTI, its stockholders and the
president of the Company.
5. SUBSEQUENT EVENT
On December 22, 1997, the Company's stockholders sold all of their shares of
Class A voting common stock of the Company to Details, Inc. for a purchase
price of approximately $38,000,000. As a result of the sale of the common
stock, the Company is committed to pay bonuses of approximately $3,280,000 to
certain individuals.
F-33
<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............................ 37
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 38
The Industry............................................................... 44
Business................................................................... 46
Management................................................................. 53
Principal Stockholders..................................................... 59
Certain Relationships and Related Transactions............................. 61
Description of Senior Credit Facilities.................................... 63
Description of Exchange Notes.............................................. 65
Certain Federal Income Tax Consequences.................................... 93
The Exchange Offer......................................................... 97
Plan of Distribution....................................................... 106
Legal Matters.............................................................. 106
Independent Auditors....................................................... 106
Index to Financial Statements.............................................. F-1
</TABLE>
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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.
10.14 NTI Stock Purchase Agreement dated December 19, 1997+
10.15 Marcelli Employment Agreement dated December 19, 1997
10.16 NTI Real Property Lease Agreement dated as of June 15, 1994.
10.17 NTI Real Property Lease Agreement dated as of June 15, 1994.
10.18 NTI Real Property Lease Agreement dated as of June 15, 1994.
12.1 Statement regarding computation of ratio of earnings to fixed
charges.
16.1 Letter of McGladrey & Pullen LLP re: change of accountant
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).
23.4 Consent of Stockman Kast Ryan & Scruggs, P.C.
23.5 Consent of Deloitte & Touche LLP
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 Form of Exchange Agent Agreement.
</TABLE>
- --------
* Previously filed.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
(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
II-2
<PAGE>
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 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) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) That, every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To 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.
(4) That for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contained a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents file subsequent to the effective date of
the registration statement through the date of responding to the request.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the city of Anaheim, state of California, on the 16th day of January, 1998.
DETAILS, INC.
/s/ Bruce D. McMaster
By: _________________________________
NAME: BRUCE D. MCMASTER
TITLE: PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
President (principal
/s/ Bruce D. McMaster executive officer) January 16,
- ------------------------------------- 1998
BRUCE D. MCMASTER
Vice President and
/s/ Joseph P. Gisch Chief Financial January 16,
- ------------------------------------- Officer (principal 1998
JOSEPH P. GISCH financial and
accounting officer)
/s/ Stephen M. Zide Vice President and
- ------------------------------------- Director January 16,
STEPHEN M. ZIDE 1998
Director
* January 16,
- ------------------------------------- 1998
EDWARD CONARD
Director
* January 16,
- ------------------------------------- 1998
PRESCOTT ASHE
Director
* January 16,
- ------------------------------------- 1998
CHRISTOPHER BEHRENS
/s/ Stephen M. Zide attorney-in-fact January 16,
1998
*by: ___________________________
STEPHEN M. ZIDE
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.
10.14 NTI Stock Purchase Agreement dated December 19, 1997+
10.15 Marcelli Employment Agreement dated December 19, 1997
10.16 NTI Real Property Lease Agreement dated as of June 15, 1994.
10.17 NTI Real Property Lease Agreement dated as of June 15, 1994.
10.18 NTI Real Property Lease Agreements dated as of June 15,
1994.
12.1 Statement regarding computation of ratio of earnings to
fixed charges.
16.1 Letter of mcGladrey & Pullen LLP re: change of accountant
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).
23.4 Consent of Stockman Kast Ryan & Scruggs, P.C.
23.5 Consent of Deloitte & Touche LLP
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
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 Form of Exchange Agent Agreement.
</TABLE>
- --------
* Previously filed.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of the 28th
day of October 1997 by and between Details, Inc., a California corporation
(together with each of its direct and indirect subsidiaries becoming party
hereto by executing a counterpart signature page hereof, the "Company"), and
Bain Capital Partners V, L.P., a Delaware limited partnership ("Bain").
Whereas, DI Acquisition Corp., a California corporation ("DIA"), the
Company and the Company's stockholders are party to that certain Amended
and Restated Recapitalization Agreement dated as of October 4, 1997 (the
"Recapitalization Agreement") pursuant to which the Company will be
recapitalized by means of a merger of DIA with and into the Company (the
"Recapitalization");
Whereas, Bain is providing advisory and other services to the Company
in connection with the debt financing (the "Financing") being provided for
the Recapitalization;
Whereas, certain funds (the "Bain Funds") affiliated with Bain are
providing equity financing (the "Equity Investments") to DIA in connection
with the Recapitalization; and
Whereas, subject to the terms and conditions of this Agreement, the
Company desires to retain Bain to provide certain management and advisory
services to the Company, and Bain desires to provide such services;
Now, therefore, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Services. Bain hereby agrees that, during the term of this Agreement (the
"Term"), to the extent requested by the Company, it will:
a. provide the Company with advice in connection with the negotiation and
consummation of agreements, contracts, documents and instruments
necessary to provide the Company with financing from banks or other
financial institutions or other entities on terms and conditions
satisfactory to the Company; and
<PAGE>
b. provide the Company with financial, managerial and operational advice
in connection with its day-to-day operations, including, without
limitation:
i. advice with respect to the investment of funds; and
ii. advice with respect to the development and implementation of
strategies for improving the operating, marketing and financial
performance of the Company; and
c. subject to Section 11 below
i. identify to the Company any potential business combinations or
other strategic actions which it believes, in its sole judgment,
the Company might wish to consider pursuing; and
ii. from time to time notify the Company if it becomes aware of
acquisition opportunities which it believes, in its sole
judgment, are particularly well-suited for the Company;
provided, however, that nothing in this Agreement is intended or shall
be construed to require Bain to provide information regarding any
acquisition opportunity or other transaction or matter with respect to
which (A) Bain may have an interest in pursuing, directly or
indirectly, for itself or any of its affiliates, associated investment
funds or portfolio companies, or clients or (B) Bain has, or believes
it may have, any obligation of confidentiality or loyalty to any
person or entity other than the Company which obligation would be
inconsistent with, or could be compromised by, disclosure of
information to (or cooperation with) the Company.
2. Payment of Fees. The Company hereby agrees to:
a. pay to Bain (or an affiliate of Bain designated by it) a fee in the
amount of $3.1 million in connection with the structuring of the
Financing for the Recapitalization, together with reimbursement of
Bain's expenses incurred on behalf of DIA and/or the Company through
the Effective Date in connection with the Recapitalization, such fees
and expenses being payable by the Company at the closing of the
Recapitalization or, if the Recapitalization is not consummated,
promptly after the time the Company has abandoned the
Recapitalization;
b. during the Term, pay to Bain (or an affiliate of Bain designated by
it) a management fee in an in exchange for the services provided to
the Company by Bain, as more fully described in Section 1 of this
Agreement, at Bain's
-2-
<PAGE>
customary rates for such services, such fee being payable by the
Company quarterly in arrears; and
c. during the Term, allow Bain to participate in the negotiation and
consummation of senior financing for any acquisition transactions by,
or recapitalization or refinancing transaction of, the Company or any
of its direct or indirect subsidiaries, and pay (or cause one or more
of its subsidiaries to pay) to Bain (or an affiliate of Bain
designated by it) a fee in connection therewith equal to one percent
(1%) of the gross value of such transaction (including all liabilities
assumed, retained or otherwise included in such transaction), such fee
to be due and payable for the foregoing services at the closing of
such transaction, whether or not any such senior financing is actually
committed or drawn upon (it being understood and agreed that no such
fee shall be due and payable in connection with the placement of
permanent financing to replace any bridge financing incurred by the
Company in connection with the consummation of the Recapitalization).
Payments made pursuant to Section 2(a) and 2(c) shall be paid by wire
transfer of immediately available federal funds to the account specified on
Schedule 1 hereto, or to such other account(s) as Bain may specify to the
Company in writing prior to such payment. If services shall have been
performed hereunder during any period for, or on behalf of, one or more
direct or indirect subsidiaries of Details, Inc., the Board of Directors of
Details, Inc. shall make a good faith allocation of the fees paid or
payable in respect of such period among Details, Inc. and such
subsidiaries.
3. Term. This Agreement shall continue in full force and effect, unless and
until terminated by mutual consent of the parties, for so long as Bain (or
any successor or permitted assign, as the case may be) continues to carry
on the business of providing services of the type described in Section 1
above; provided, however, that either party may terminate this Agreement
following a material breach of the terms of this Agreement by the other
party hereto and a failure to cure such breach within 30 days following
written notice thereof; and provided further that if the parties agree to
terminate this Agreement in connection with a transaction or a series of
related transactions involving the sale or other disposition of all or
substantially all of the assets or capital stock of the Company, the
original term of this Agreement shall be deemed to have been twelve years;
and provided further that each of (a) the obligations of the Company under
Section 4 below, (b) any and all accrued and unpaid obligations of the
Company owed under Section 2 above and (c) the provisions of Section 7
shall survive any termination of this Agreement to the maximum extent
permitted under applicable law.
4. Expenses; Indemnification.
-3-
<PAGE>
a. Expenses. The Company agrees to pay (or cause one or more of its
subsidiaries to pay) on demand all expenses incurred by Bain, the Bain
Funds and Bain Capital, Inc. (or any of them) in connection with this
Agreement, the Recapitalization and such other transactions and all
operations hereunder or in respect of the Equity Investments or
otherwise incurred in connection with the Recapitalization or the
Company, including but not limited to (i) the fees and disbursements
of: (A) Ropes & Gray, special counsel to Bain Capital, Inc. and the
Bain Funds, (B) Price Waterhouse LLP, accountant to Bain Capital, Inc.
and the Bain Funds, and (C) any other consultants or advisors retained
by Bain, Bain Capital, Inc., the Bain Funds or either of the parties
identified in clauses (A) and (B) arising in connection therewith
(including but not limited to the preparation, negotiation and
execution of this Agreement and any other agreement executed in
connection herewith or in connection with the Recapitalization, the
Financing or the consummation of the other transactions contemplated
hereby (and any and all amendments, modifications, restructurings and
waivers, and exercises and preservations of rights and remedies
hereunder or thereunder) and the operations of the Company and any of
its subsidiaries), and (ii) any out-of-pocket expenses incurred by
Bain in connection with the provision of services hereunder or the
attendance at any meeting of the board of directors (or any committee
thereof) of the Company or any of its affiliates.
b. Indemnity. In consideration of the execution and delivery of this
Agreement by Bain and the provision of the Equity Investments by the
Bain Funds, the Company hereby agrees to indemnify, exonerate and hold
each of Bain, Bain Capital, Inc. and each Bain Fund, and each of their
respective partners, shareholders, affiliates, directors, officers,
fiduciaries, employees and agents and each of the partners,
shareholders, affiliates, directors, officers, fiduciaries, employees
and agents of each of the foregoing (collectively, the "Indemnitees")
free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities and damages, and expenses in
connection therewith, including without limitation reasonable
attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result
of, or arising out of, or relating to the Recapitalization, the
execution, delivery, performance, enforcement or existence of this
Agreement or the transactions contemplated hereby (including but not
limited to any indemnification obligations assumed or incurred by any
Indemnitee to or on behalf of Seller, or any of its accountants or
other representatives, agents or affiliates) except for any such
Indemnified Liabilities arising on account of such Indemnitee's gross
negligence or willful misconduct, and if and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Company
hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. None of the Indemnitees shall be
liable to the Company or any
-4-
<PAGE>
of its affiliates for any act or omission suffered or taken by such
Indemnitee that does not constitute gross negligence or willful
misconduct.
5. Assignment, etc. Except as provided below, neither party shall have the
right to assign this Agreement. Bain acknowledges that its services under
this Agreement are unique. Accordingly, any purported assignment by Bain
(other than as provided below) shall be void. Notwithstanding the
foregoing, (a) Bain may assign all or part of its rights and obligations
hereunder to any affiliate of Bain which provides services similar to those
called for by this Agreement, in which event Bain shall be released of all
of its rights and obligations hereunder, and (b) the provisions hereof for
the benefit of the Bain Funds shall inure to the benefit of their
successors and assigns.
6. Amendments and Waivers. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and
executed by each of Bain and Details, Inc. No waiver on any one occasion
shall extend to or effect or be construed as a waiver of any right or
remedy on any future occasion. No course of dealing of any person nor any
delay or omission in exercising any right or remedy shall constitute an
amendment of this Agreement or a waiver of any right or remedy of any party
hereto.
7. Miscellaneous.
a. Effectiveness. This Agreement shall become effective at the Effective
Time (as defined in the Recapitalization Agreement).
b. Subsidiaries. Each person or other entity who shall become a direct
or indirect subsidiary of the Company after the date hereof shall
become a party hereto and agree to be bound by the terms hereof by
executing a counterpart signature page of this Agreement. Each such
subsidiary shall thereafter be liable for the payment of the fees and
expenses of Bain to the extent set forth in Section 2 hereof.
c. Choice of Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without giving effect to any choice or conflict of law
provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
d. Consent to Jurisdiction. Each of the parties agrees that all actions,
suits or proceedings arising out of or based upon this Agreement or
the subject matter hereof shall be brought and maintained exclusively
in the federal and state courts of The Commonwealth of Massachusetts.
Each of the parties hereto by execution hereof (i) hereby irrevocably
submits to the jurisdiction of the federal
-5-
<PAGE>
and state courts in The Commonwealth of Massachusetts for the purpose
of any action, suit or proceeding arising out of or based upon this
Agreement or the subject matter hereof and (ii) hereby waives to the
extent not prohibited by applicable law, and agrees not to assert, by
way of motion, as a defense or otherwise, in any such action, suit or
proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that it is immune from
extraterritorial injunctive relief or other injunctive relief, that
its property is exempt or immune from attachment or execution, that
any such action, suit or proceeding may not be brought or maintained
in one of the above-named courts, that any such action, suit or
proceeding brought or maintained in one of the above-named courts
should be dismissed on grounds of forum non conveniens, should be
----- --- ----------
transferred to any court other than one of the above-named courts,
should be stayed by virtue of the pendency of any other action, suit
or proceeding in any court other than one of the above-named courts,
or that this Agreement or the subject matter hereof may not be
enforced in or by any of the above-named courts. Each of the parties
hereto hereby consents to service of process in any such suit, action
or proceeding in any manner permitted by the laws of The Commonwealth
of Massachusetts, agrees that service of process by registered or
certified mail, return receipt requested, at the address specified in
or pursuant to Section 9 is reasonably calculated to give actual
notice and waives and agrees not to assert by way of motion, as a
defense or otherwise, in any such action, suit or proceeding any claim
that service of process made in accordance with Section 9 does not
constitute good and sufficient service of process. The provisions of
this Section 7(b) shall not restrict the ability of any party to
enforce in any court any judgment obtained in a federal or state court
of The Commonwealth of Massachusetts.
e. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY
ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER IN CONTRACT OR TORT OR OTHERWISE. Each of the parties hereto
acknowledges that it has been informed by each other party that the
provisions of this Section 7(c) constitute a material inducement upon
which such party is relying and will rely in entering into this
Agreement and the transactions contemplated hereby. Any of the
parties hereto may file an original counterpart or a copy of this
Agreement with any court as written evidence of the consent of each of
the parties hereto to the waiver of its right to trial by jury.
-6-
<PAGE>
8. Merger/Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes any
prior communication or agreement with respect thereto.
9. Notice. All notices, demands, and communications of any kind which any
party may require or desire to serve upon any other party under this
Agreement shall be in writing and shall be served upon such other party and
such other party's copied persons as specified below by personal delivery
to the address set forth for it below or to such other address as such
party shall have specified by notice to each other party or by mailing a
copy thereof by certified or registered mail, or by Federal Express or any
other reputable overnight courier service, postage prepaid, with return
receipt requested, addressed to such party and copied persons at such
addresses. In the case of service by personal delivery, it shall be deemed
complete on the first business day after the date of actual delivery to
such address. In case of service by mail or by overnight courier, it shall
be deemed complete, whether or not received, on the third day after the
date of mailing as shown by the registered or certified mail receipt or
courier service receipt. Notwithstanding the foregoing, notice to any
party or copied person of change of address shall be deemed complete only
upon actual receipt by an officer or agent of such party or copied person.
If to the Company, to it at:
1231 Simon Circle
Anaheim, CA 92806
Attention: Secretary
With a copy to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: Ed Conard
David Dominik
If to Bain, to it at:
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Ed Conard
David Dominik
-7-
<PAGE>
With a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Alfred O. Rose
10. Severability. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then
such unenforceable provision shall be deemed eliminated from this Agreement
for the purpose of such proceedings to the extent necessary to permit the
remaining provisions to be enforced. To the full extent, however, that the
provisions of any applicable law may be waived, they are hereby waived to
the end that this Agreement be deemed to be valid and binding agreement
enforceable in accordance with its terms, and in the event that any
provision hereof shall be found to be invalid or unenforceable, such
provision shall be construed by limiting it so as to be valid and
enforceable to the maximum extent consistent with and possible under
applicable law.
11. Disclaimer, Limitation of Liability and Freedom to Pursue Opportunities.
a. Disclaimer. Bain makes no representations or warranties, express or
implied, in respect of the services to be provided by it hereunder.
b. Standard of Care. In no event shall Bain be liable to the Company or
any of its affiliates for any act, alleged act, omission or alleged
omission on the part of Bain that does not constitute gross negligence
or willful misconduct.
c. Freedom to Pursue Opportunities, Etc. In anticipation that the
Company and Bain (or one or more affiliates, associated investment
funds or portfolio companies, or clients of Bain) may engage in the
same or similar activities or lines of business and have an interest
in the same areas of corporate opportunities, and in recognition of
the benefits to be derived by the Company from the services to be
provided under this Agreement and in recognition of the difficulties
which may confront any advisor who desires and endeavors fully to
satisfy such advisor's duties in determining the full scope of such
duties in any particular situation, the provisions of this clause (c)
are set forth to regulate, define and guide the conduct of certain
affairs of the Company as they may involve Bain (or one or more
affiliates, associated investment funds or portfolio companies, or
clients of Bain). Except as Bain may otherwise agree in writing after
the date hereof:
i. Bain (and its affiliates, associated investment funds, portfolio
companies and clients) shall have the right to, and shall have no
duty (contractual or
-8-
<PAGE>
otherwise) not to, directly or indirectly: (A) engage in the same
or similar business activities or lines of business as the
Company, including those competing with the Company, and (B) do
business with any client or customer of the Company;
ii. Neither Bain nor any officer, director, employee, partner,
affiliate or associated investment fund, portfolio company or
client thereof shall be liable to the Company or its affiliates
for breach of any duty (contractual or otherwise) by reason of
any such activities of or of such person's participation therein;
and
iii. In the event that Bain acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for
both the Company and Bain or any other person, neither Bain nor
any officer, director, employee, partner, affiliate or associated
investment fund, portfolio company or client thereof shall have
any duty (contractual or otherwise) to communicate or present
such corporate opportunity to the Company and, notwithstanding
any provision of this Agreement to the contrary, no such person
or entity shall be liable to the Company or its affiliates for
breach of any duty (contractual or otherwise) by reason of the
fact that Bain (or one or more affiliates, associated investment
funds or portfolio companies, or clients of Bain) directly or
indirectly pursues or acquires such opportunity for itself,
directs such opportunity to another person, or does not present
such opportunity to the Company.
d. Limitation of Liability. In no event will either party hereto be
liable to the other for any indirect, special, incidental or
consequential damages, including lost profits or savings, whether or
not such damages are foreseeable, or for any third party claims
(whether based in contract, tort or otherwise), relating to the
services to be provided by Bain hereunder.
12. Counterparts. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
[Remainder of this page intentionally left blank]
-9-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
THE COMPANY: DETAILS, INC.
By /s/ Lee W. Muse
----------------------------------------
Title:
BAIN: BAIN CAPITAL PARTNERS V, L.P.
By Bain Capital Investors V, Inc.,
its general partner
By /s/ David Dominik
------------------------------------
Title:
<PAGE>
Schedule 1 to
Management Agreement
--------------------
Wire Transfer Instructions for
Bain Capital Partners V, L.P.
Citibank N.A.
ABA # 021 000 089
For Brown Brothers Harriman
Account # 09250276
To Further Credit:
Bain Capital Partners V, L.P.
Acct. #810512-4
<PAGE>
Management Agreement
October 28, 1997
In accordance with Section 7(b) of the Management Agreement, dated as of
October 28, 1997, between Details Holdings Corp. (f/k/a Details, Inc.) and Bain
Capital Partners V, L.P. (as the same has been, and may be, amended, restated,
supplemented or otherwise modified from time to time, the "Management
Agreement"), the undersigned hereby agrees that as of the date set forth below,
it is a party to the Management Agreement and is bound by the terms and
provisions thereof as if it were an original party thereto.
DETAILS, INC.
By
-----------------------------------
Title:
Dated as of November 3, 1997
<PAGE>
Management Agreement
October 28, 1997
In accordance with Section 7(b) of the Management Agreement, dated as of
October 28, 1997, between Details Holdings Corp. (f/k/a Details, Inc.) and Bain
Capital Partners V, L.P. (as the same has been, and may be, amended, restated,
supplemented or otherwise modified from time to time, the "Management
Agreement"), the undersigned hereby agrees that as of the date set forth below,
it is a party to the Management Agreement and is bound by the terms and
provisions thereof as if it were an original party thereto.
DETAILS CAPITAL CORP.
By
----------------------------------------
Title:
Dated as of November __, 1997
<PAGE>
EXECUTION COPY
================================================================================
AMENDED AND RESTATED RECAPITALIZATION AGREEMENT
DATED AS OF OCTOBER 4, 1997
BY AND AMONG
DI ACQUISITION CORP.
AND
THE STOCKHOLDERS LISTED ON
SCHEDULE 1 HERETO
AND
DETAILS, INC.
================================================================================
<PAGE>
SCHEDULES AND ANNEXES
---------------------
<TABLE>
<S> <C> <C>
I - Securities
II - Security Ownership
1.3(a) - Terms of Class A and Class L Common Stock
1.5(a) - Aggregate Merger Consideration Calculation
1.11 - Executive Bonuses
2 - Documents
3.1(b) - Consents
3.1(c) - Equity Investments
3.1(e) - Financial Statements
3.1(f) - Undisclosed Liabilities
3.1(g) - Changes
3.1(h) - Contracts, Agreements, and Purchase Orders
3.1(i) - Litigation and Claims
3.1(j) - Real Property
3.1(1) - Intellectual Property
3.1(m) - ERISA Matters
3.1(n) - Transactions with Affiliates
3.1(o) - Insurance Policies
3.1(p) - Taxes
3.1(q) - Compliance with Laws
3.1(r) - Environmental Matters
3.1(s) - Customers and Suppliers
3.1(t) - Blank Accounts
4.2 - Contracts to be Terminated At Closing
4.7 - Terms of Shareholders' Agreement
</TABLE>
EXHIBITS
--------
EXHIBIT A-1 - Forms of Opinions of O'Sullivan Graev & Karabell, LLP
EXHIBIT A-2 - Form of Opinion of Special California Counsel
EXHIBIT B - Form of Opinion of Counsel for MergerCo
<PAGE>
DEFINITIONS
-----------
The following capitalized terms, which may be used in more than one Section
or other location of this Agreement, are defined in the following Sections or
other locations:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Aggregate Merger Consideration.............................. 1.5(a)
Agreement................................................... Preamble
Acquisition Proposal........................................ 4.6
Affiliate................................................... 3.1(n)
Applicable Merger Consideration ............................ 1.6(a)
Audited Balance Sheet....................................... 3.1(e)
Audited Financial Statements................................ 3.1(e)
Bain........................................................ 1.5(e)
By-Laws..................................................... 3.1(a)
California Corporations Code................................ Preamble
Cash Shares................................................. Preamble
Certificate ................................................ 1.6(a)
Charter..................................................... 3.1(a)
Class A Common Stock........................................ 1.5(d)
Class L Common Stock........................................ 1.5(d)
Closing..................................................... Article II
Closing Date................................................ Article II
Code........................................................ 3.1(m)
Common Stock................................................ Preamble
Common Stock Unit(s) ....................................... 1.5(e)
Company..................................................... Caption
Competitive Business ....................................... 4.10
Confidentiality Agreement................................... 8.3(a)
Contract(s)................................................. 3.1(h)
Document(s)................................................. 3.1(b)
Effective Time.............................................. 1.2
Employee Option Plan ....................................... 1.5(c)
Employee Plan............................................... 3.1(m)(ii)
Encumbrances................................................ 3.1(k)
Environmental Laws.......................................... 3.1(r)(i)
Environmental Permits....................................... 3.1(r)(i)
Equity Commitment........................................... 3.3(c)(ii)
ERISA ...................................................... 3.1(m)
ERISA Affiliate............................................. 3.1(m)
Escrow Agent................................................ 1.11(a)
Executive Bonuses........................................... 1.11(a)
Executive Option Exercise................................... 1.11(a)
Executives.................................................. 1.11(a)
Financial Statements........................................ 3.1(e)
Financing Letters........................................... 3.3(c)(i)
GAAP........................................................ 3.1(e)
Governmental Authority...................................... 3.1(b)
Hazardous substance......................................... 3.1(r)(iv)
HSR Act..................................................... 4.5(b)
Indebtedness................................................ 3.1(h)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Indemnified Party......................................... 6.7
Intellectual Property..................................... 3.1(k)
Intellectual Property Licenses............................ 3.1(k)
Interim Balance Sheet..................................... 3.1(e)
Interim Financial Statements ............................. 3.1(e)
Laws...................................................... 3.1(g)(i)
Leased Real Property...................................... 3.1(j)(i)(A)
Leases.................................................... 3.1(j)(i)(B)
Listed Intellectual Property.............................. 3.1(1)
Loss(es).................................................. 6.2(a)
Management Members........................................ 4.10
Management Stock Option................................... 1.5(c)
Material Adverse Effect................................... 3.1(a)
Material Contract(s)...................................... 3.1(h)
Material Intellectual Property............................ 3.1(1)
Merger.................................................... Preamble
MergerCo.................................................. Caption
Minimal Amount............................................ 6.4
Options................................................... Preamble
Ordinary Course of Business............................... 3.1(f)
Ownership Percentage...................................... 1.11(a)
Per Share Merger Consideration............................ 1.5(a)
Performance Option Plan................................... 1.11(a)
Permits .................................................. 3.1(q)(ii)
Permitted Encumbrances.................................... 3.1(k)
Person.................................................... 3.1(b)
Preferred Stock........................................... Preamble
Pro Rata Share............................................ 1.11(b)
Retained Share(s)......................................... Preamble
Returns................................................... 3.1(p)(i)
Securities................................................ Preamble
Shares.................................................... Preamble
Shareholders' Agreement................................... 4.7
Company Transaction Expenses.............................. 1.5(a)
Stockholder(s)............................................ Caption
Stockholder Indemnitees................................... 6.1(a)
Surviving Corporation..................................... 1.1
Surviving Corporation Indemnitees......................... 6.1(b)
Tax Savings............................................... 1.11(a)
Tax(es)................................................... 3.1(p)
Termination Date.......................................... 7.1(u)
Warrants.................................................. 3.1(d)
</TABLE>
<PAGE>
AMENDED AND RESTATED
RECAPITALIZATION AGREEMENT dated as of
October 4, 1997 (this "Agreement"), among
DI ACQUISITION CORP., a California
corporation ("MergerCo"), each of the
persons or entities identified on Annex I
(each, a "Stockholder" and collectively,
the "Stockholders"), and DETAILS, INC., a
California corporation (the "Company").
The Stockholders are the only stockholders of the Company, with each
Stockholder (a) owning that number of shares of the Common Stock, no par value
(the "Common Stock"), and/or Series A Preferred Stock, no par value (the
"Preferred Stock"), as is set forth opposite each such Stockholder's name on
Annex I, and/or (b) holding stock options and/or warrants (collectively, the
- -------
"Options") to purchase that number of shares of Common Stock as is set forth
opposite each such Stockholder's name on Annex I. The shares of Common Stock and
-------
Preferred Stock owned or to be owned by the Stockholders are collectively
referred to herein as the "Securities" or the "Shares."
The Boards of Directors of the Company and MergerCo have each determined
that it is advisable to effect a recapitalization of the Company by means of a
merger of MergerCo with and into the Company (the "Merger") upon the terms and
subject to the conditions set forth herein;
In furtherance of the Merger, the Boards of Directors of the Company and
MergerCo have each approved the merger of MergerCo with and into the Company in
accordance with the applicable provisions of the General Corporation Law of the
State of California (the "California Corporations Code"); and
Immediately prior to the Effective Time, each outstanding share of
Preferred Stock shall be converted into one share of Common Stock;
In the Merger, all Shares for which an election to retain such Shares has
been made (the "Retained Shares") as provided in Section 1.5(f) shall be
converted into the right to receive the Common Stock Units, as described in
Section 1.5(e) and all Shares for which no election has been made to retain such
Shares (the "Cash Shares") shall be entitled to receive a cash payment equal to
the Per Share Merger Consideration.
NOW, THEREFORE, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows:
<PAGE>
ARTICLE I
THE MERGER
1.1. The Merger.
----------
At the Effective Time (as defined in Section 1.2 below): MergerCo shall
merge with and into the Company; the corporate existence of the Company shall
continue; and the separate corporate existence of MergerCo shall cease. The
corporate identity, existence, name, purposes, franchises, powers, rights and
immunities of the Company shall continue unaffected and unimpaired by the
Merger, and the corporate identity, existence, purposes, franchises, powers,
rights and immunities of MergerCo shall be merged into the Company which shall
be fully vested therewith. The Company shall be subject to and shall assume all
of the debts and liabilities of MergerCo as if the Company had itself incurred
them, and all rights of creditors and all liens upon the property of each of the
Company and MergerCo shall be preserved unimpaired, provided that such liens, if
any, upon the property of MergerCo shall be limited to the property affected
thereby immediately prior to the Effective Time. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2. Effective Time.
--------------
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in Article V, the parties hereto shall cause the Merger to
be consummated by filing an Agreement of Merger with an officer's certificate of
each of the Company and MergerCo as required by Section 1103 of the California
Corporations Code in the office of the California Secretary of State (the record
time of such filing being the "Effective Time").
1.3. Articles of Incorporation By-Laws.
---------------------------------
(a) Articles of Incorporation. Upon such Merger, the Articles of
-------------------------
Incorporation of the Surviving Corporation shall be amended and restated to
provide for, among other things, the Class A Common Stock and Class L Common
Stock described on Schedule 1.3(a) and shall be the Articles of Incorporation of
---------------
the Surviving Corporation.
(b) By-Laws. The By-Laws of MergerCo, as in effect immediately prior to the
-------
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the California Corporations Code, the
Articles of Incorporation of the Surviving Corporation and such By-Laws.
-2-
<PAGE>
1.4. Directors and Officers.
----------------------
The directors of MergerCo immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation, and the officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
1.5. Effect on Common Stock.
----------------------
At the Effective Time, by virtue of the Merger and without any action on
the part of the Company, MergerCo or the holders of any of the following
securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
------------------------
prior to the Effective Time (other than the Retained Shares) shall be converted
into the right to receive the Per Share Merger Consideration (as defined below).
The "Aggregate Merger Consideration" will be calculated in accordance with
Schedule 1.5(a) and shall be equal to $311,974,901.56 million less (i) all
----
Indebtedness of the Company at the close of business on October 24, 1997
(including any prepayment penalties payable in respect thereof), less (ii) in
----
the event the bridge loan is taken down $1.5 million, plus (iii) the amount of
----
cash and cash equivalents of the Company at the close of business on October
24, 1997, plus (iv) the exercise price of all Performance Options outstanding
----
immediately prior to the Effective Time, plus (v) the exercise price of all
----
Employee Stock Options outstanding immediately prior to the Effective Time or
canceled pursuant to Section 1.5(c), less (vi) the amount of the Company
----
Transaction Expenses. The additions and deductions to the "Aggregate Merger
Consideration" shall not be duplicative. The "Per Share Merger Consideration"
will be equal to (a) the Aggregate Merger Consideration divided by (b) the
number of shares of Common Stock outstanding immediately prior to the Effective
Time (including the number of shares issuable upon exercise of the warrants
pursuant to Section 1.5(d)) plus the number of Shares subject to Performance
Options outstanding at the Effective Time and the number of Shares subject to
Employee Stock Options outstanding immediately prior to the Effective Time or
canceled pursuant to Section 1.5(c). The "Company Transaction Expenses" shall
mean the expenses incurred in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereby on
behalf of the Stockholders and the Company. The Company shall provide to
MergerCo on or prior to the Closing Date a schedule setting forth the Company
Transaction Expenses.
(b) Cancellation. Each Share held in the treasury of the Company
------------
and each Share owned by any direct or indirect wholly
-3-
<PAGE>
owned subsidiary of the Company immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Stock Rights. As soon as practicable following the date hereof but in
------------
no event later than the Effective Time, the Company (or, if appropriate, the
Board of Directors of the Company or any committee administering the Employee
Option Plan (as defined below)) shall take action, including by adopting
resolutions or taking any other actions, subject to and contingent upon
receiving approval by the Stockholders in accordance with Section 280G(b) (5) of
the Code, to (i) accelerate as of the Effective Time the options to purchase
Shares (each an "Employee Stock Option") outstanding immediately prior to the
---------------------
Effective Time heretofore granted to certain employees of the Company (each a
"Manager") under the 1996 Employee Stock Option Plan (the "Employee Option
---------------
Plan") set forth opposite such Manager's name on Annex II hereto under the
- ---- --------
heading "Accelerated Options" and (ii) to cancel as of the Effective Time, the
Employee Stock Options which are outstanding immediately prior to the Effective
Time set forth opposite each Manager's name on Annex II under the heading
--------
"Canceled Options", whether or not such Employee Stock Options to be canceled
are then exercisable. In exchange for each canceled Employee Stock Option, a
Manager shall be entitled to receive an amount in cash, payable at the time of
such cancellation, equal to the product of (x) the number of Shares subject to
such Employee Stock Option immediately prior to the Effective Time and (y) the
excess of the Per Share Merger Consideration over the per Share exercise price
of such Employee Stock Option net of all applicable withholding taxes.
(d) Warrants. As soon as practicable following the date hereof but prior
--------
to the Effective Time, each Stockholder holding a warrant shall exercise such
warrant for the number of shares of Common Stock set forth opposite such
Stockholder's name on Annex II under the heading "Warrant Shares".
--------
(e) Capital Stock of MergerCo. Each share of class A common stock, no par
-------------------------
value, of MergerCo issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of class A common stock, no par value, of the Surviving
Corporation having the terms set forth in Schedule 1.3(a) (the "Class A Common
---------------
Stock") and each share of class L common stock, no par value, of MergerCo
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of class L common stock, no par value, of the Surviving
Corporation having the terms set forth on Schedule 1.3(a) (the "Class
---------------
L Common Stock"). A "Common Stock Unit" will consist of one share of class L
Common Stock and a number of
-4-
<PAGE>
shares of Class A Common Stock equal to the number of shares of class A common
stock of MergerCo. purchased by affiliates of Bain Capital, Inc. ("Bain")
divided by the number of shares of class L common stock of Merger Co. purchased
by affiliates of Bain (other than any class A common stock or class L common
stock purchased in connection with the debt financing contemplated by the
Financing Letters).
(f) Retained Shares. Each Retained Share shall be converted into and
---------------
exchanged for a number of validly issued, fully paid and nonassessable shares
constituting Common Stock Units as shall equal the Per Share Merger
Consideration divided by the price paid by affiliates of Bain which are parties
to the Equity Commitment for a Common Stock Unit. Each Stockholder, by executing
this Agreement, irrevocably elects to retain a number of Shares calculated by
dividing the dollar amount set forth opposite such Stockholders name on Annex II
--------
under the heading "Retained Amount" by the Per Share Merger Consideration.
1.6. Exchange of Certificates.
------------------------
At the Closing, each Stockholder shall deliver certificates which
immediately prior to the Effective Time represented outstanding Shares of the
Company (each, a "Certificate"). Upon surrender of a Certificate for
cancellation to the Surviving Corporation at the Closing, the Certificate so
surrendered shall forthwith be canceled and the holder of such Certificate shall
be entitled to receive in exchange therefor (A) an amount of cash for each Cash
Share equal to the Per Share Merger Consideration, and (B) for each Retained
Share, the Common Stock Units due in respect thereof calculated in accordance
with Section 1.5(f). In the event of a transfer of ownership of shares of
Company Stock which is not registered in the transfer records of the Company as
of the Effective Time, the Applicable Merger Consideration may be paid in
accordance with this Article I to a transferee if the Certificate evidencing
such Shares is presented to the Surviving Corporation, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
1.6(a) and by evidence that any applicable stock transfer taxes have been paid.
Anything herein to the contrary notwithstanding, no interest or dividends shall
accrue or be payable or paid on any portion of the Applicable Merger
Consideration payable to any person hereunder. At and after the Effective Time,
each holder of a Certificate to be canceled pursuant to this Section 1.6 shall
cease to have any rights as a stockholder of the Company, except for the right
to surrender Certificates in the manner prescribed by this Section 1.6 in
exchange for payment of the Applicable Merger Consideration. All required cash
payments to the Stockholders shall be paid by wire transfer of immediately
available funds at the Closing to the accounts specified by the Stockholders not
later than two days prior to the Closing Date.
-5-
<PAGE>
1.7. Stock Transfer Books.
--------------------
At the Effective Time, the stock transfer books of the Company shall be
closed, and there shall be no further registration of transfers of Shares
thereafter on the records of the Company.
1.8. No Further Ownership Rights in Company Stock.
--------------------------------------------
The Applicable Merger Consideration delivered upon the surrender of each
Certificate in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Shares. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
1.9. Lost, Stolen or Destroyed Certificates.
--------------------------------------
In the event any Certificates shall have been lost, stolen or destroyed,
the Surviving Corporation shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof and delivery of bond in such sum as the Surviving Corporation may
reasonably direct as indemnity against any claim that may be made against the
Surviving Corporation with respect to the Certificates alleged to have been
lost, stolen or destroyed, such Applicable Merger Consideration as may be
required pursuant to Section 1.6.
1.10. Further Action.
--------------
If, at any time after the Effective Time, any further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and MergerCo,
the officers and directors of the Company and MergerCo immediately prior to the
Effective Time are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action.
1.11. Additional Merger Consideration.
-------------------------------
(a) Prior to the Effective Time, any options granted under the Company's
1996 Performance Option Plan (the "Performance Option Plan") which have not
heretofore vested shall, subject to and contingent upon receiving approval by
the Stockholders in accordance with Section 280G(b) (5) (B) of the Code, be
accelerated by the Company and vest in full. Each holder (each an "Executive"
and collectively, the "Executives") of the options granted under the Performance
Option Plan shall
-6-
<PAGE>
exercise (the "Executive Option Exercise") the options granted under the
Performance Option Plan to purchase the number of Shares set forth opposite his
name on Annex II under the heading "Purchased Option Shares" prior to the
--------
Effective Time. Immediately prior to the Effective Time, the Company, subject to
and contingent upon receiving approval by the Stockholders in accordance with
Section 280G(b) (5) of the Code, shall pay to each of the Executives the bonus
set forth on Schedule 1.11 opposite such Executive's name (the "Executive
-------------
Bonuses"), net of all applicable withholding taxes. The Aggregate Merger
Consideration (including the amount of Indebtedness and cash and cash
equivalents) shall be determined after giving effect to the payment of the
Executive Bonuses as though such payment had occurred on the close of business
on October 24, 1997. The Company shall promptly file amended Tax Returns for
1996 and Tax Returns and refund claims for 1997 reflecting the compensation
expenses associated with the Executive Option Exercise (and the disposition of
the Shares received upon such exercise), the cancellation, for cash, of certain
Employee Stock Options, pursuant to Section 1.5(c) and the Executive Bonuses
(the "Executive Deductions"). The Aggregate Merger Consideration includes $1.1
million of consideration ("Tax Payment") that relates to the tax savings
realized by the Company when it elected not to make estimated tax payments in
anticipation of a reduction of its 1997 taxable income as a result of Tax
Savings (as defined below). On December 15, 1997, the Company shall pay $1.0
million ("December Payment") to an escrow agent selected by mutual agreement of
the MergerCo and a majority of the Stockholders (the "Escrow Agent") reflecting
an additional tax savings that will result from the Company's election not to
make a fourth quarter estimated tax payment in anticipation of a reduction of
its 1997 taxable income as a result of Tax Savings. Neither the Tax Payment nor
the December Payment shall be treated as a Tax Savings for purposes of this
Agreement it being understood that the Tax Savings allocated pursuant to clause
(i) below shall be Tax Savings in lieu thereof. When, as and if the Company
realizes any Tax Savings (as defined below), it shall allocate such Tax Savings
as follows:
(i) All Tax Savings realized from time to time shall be retained by
the Company (rather than paid to the Escrow Agent) until $2.1 million of
Tax Savings have been allocated pursuant to this clause (i) and such Tax
Savings shall have either (a) not been reversed or (b) if reversed, the
Company shall have received payments from the Stockholders pursuant to
Section 6.1(d) equal to the amounts so reversed; then
(ii) All Tax Savings realized from time to time shall be paid by the
Company to the Escrow Agent until the earlier of (a) such time as $7.9
million of Tax Savings have been allocated pursuant to this clause (ii) and
have not been reversed or (b) March 31, 1999; then
-7-
<PAGE>
(iii) All Tax Savings shall be paid by the Company to the
Stockholders, pro rata based on their respective Ownership Percentages (as
defined below), until such time as $7.9 million of Tax Savings have been
allocated pursuant to clause (ii) and this clause (iii) and have not been
reversed
Any reversal of Tax Savings will be allocated first to reverse
allocations of Tax Savings made pursuant to clauses (ii) and (iii), and then to
reverse allocations made pursuant to clause (i)
Each date on which the Company files a tax return or a request for a
refund of taxes previously paid by it is referred to herein as a "Measurement
Date." On or promptly after each Measurement Date, the Company will determine
the amount of any Tax Savings for the tax period to which such tax return or
request for refund relates by performing two hypothetical calculations of its
income tax liability. The first calculation (the "Without Calculation") will be
done without giving effect to all Executive Deductions. The second calculation
(the "With Calculation") will give effect to all Executive Deductions that have
been incurred, have not been disallowed and have not previously given rise to
Tax Savings.
If the Company would have been required to pay a tax for the relevant
period pursuant to the Without Calculation (a "Without Tax") and would have been
entitled to receive a tax refund for the relevant period pursuant to the With
Calculation (a "With Tax Refund"), then the Company will be deemed to have
realized a Tax Savings (x) on the date it files such tax return equal to such
Without Tax and (y) on the date it receives the requested refund (or would have
received such refund, had it not elected to apply such refund against any tax
liability) equal to such With Tax Refund.
If the Company would have been required to pay a tax for the relevant
period pursuant to the Without Calculation (a "Without Tax") and would have been
required to pay a tax for the relevant period pursuant to the With Calculation
(a "With Tax"), then the Company will be deemed to have realized a Tax Savings
on the date it files such tax return equal to the amount of such Without Tax
minus the amount of such With Tax.
If the Company would have been entitled to a tax refund for the
relevant period pursuant to the Without Calculation (a "Without Tax Refund") and
would have been entitled to receive a tax refund for the relevant period
pursuant to the With Calculation (a "With Tax Refund"), then the Company will be
deemed to have realized a Tax Savings on the date it receives the requested
refund (or would have received such refund, had it not elected to apply such
refund against any tax liability) equal to
-8-
<PAGE>
the amount of such With Tax Refund minus the amount of such Without Tax Refund.
Notwithstanding anything to the contrary herein, once a Tax Savings has
been deemed realized, such Tax Savings will not be subsequently reversed as a
result of the carryback of any losses generated in any subsequent taxable year.
Likewise, any Executive Deductions that have not given rise to any Tax Savings
shall be carried forward and properly taken into account in subsequent years,
but once such Executive Deduction generates a Tax Savings, it will not be
utilized again.
In the event any Tax Savings is disallowed, the parties to this
Agreement shall have the rights specified in Sections 6.1(d) and (e).
In the event the Company engages in any transactions out of the
ordinary course of business after the Effective Time and prior to the end of
1997 (other than transactions contemplated by the Recapitalization Agreement and
refinancing of the Company's bridge indebtedness), the net losses resulting from
such transactions will not reduce any Tax Savings that have been, or otherwise
would be, realized in 1996 or 1997, but will be taken into account in
determining any Tax Savings for any tax period after 1997.
The amounts to be held in escrow, as described above shall be released
to the Surviving Corporation to the extent necessary to satisfy any indemnity
claims under Section 6.1(d). All funds held in escrow that are not requested to
be disbursed to the Surviving Corporation prior to March 31, 1999, will be
distributed to the Stockholders, pro rata based upon their proportionate share
--- ----
of ownership of Shares on a fully-diluted basis assuming the exercise of all
options and warrants outstanding as of October 4, 1997 (the "Ownership
Percentage").
(b) As used herein, "Pro Rata" means, with respect to each Stockholder the
amount set forth opposite such Stockholders name under the heading "Pro Rata
Share" on Annex I hereto.
-------
1.12. Authorization of Merger and this Agreement; Waiver of Dissenter's Rights.
------------------------------------------------------------------------
(a) The execution and delivery of this Agreement by each Stockholder,
shall constitute the approval and adoption of the Merger, this Agreement, the
Agreement of Merger and the transactions contemplated hereby and thereby by the
stockholders of the Company, in accordance with Section 1201 of the California
Corporations Code.
(b) By the execution and delivery of this Agreement by the Stockholders,
each Stockholder electing to receive a cash payment equal to the Per Share
Merger Consideration hereby waives
-9-
<PAGE>
any dissenter's rights which such stockholder may have against the Company
pursuant to Section 1300 of the California Corporations Code.
ARTICLE II
THE CLOSING
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of O'Sullivan Graev & Karabell, LLP,
30 Rockefeller Plaza, New York, New York 10112, or at such other place as shall
be mutually agreeable to the parties hereto, on or prior to October 24, 1997 or
if, despite all commercially reasonable efforts of the parties hereto, the
conditions to the Closing set forth herein have not been satisfied by such date,
as soon as possible thereafter (the "Closing Date"). The parties recognize that
the timing of the Closing is a significant issue and shall exercise all
commercially reasonable efforts to satisfy all Closing Conditions by October 24,
1997 or as soon as possible thereafter, including (i) utilizing the bridge
financing described in the Financing Letters and (ii) requesting early
termination in the event of a filing under the HSR Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to MergerCo as follows:
(a) Organization, Good Standing, Qualification and Power. The Company is a
----------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as presently conducted. The Company has delivered to MergerCo correct and
complete copies of the Company's Charter and By-Laws (as hereinafter defined),
as in effect on the date hereof. The Company is duly qualified and in good
standing to do business in each jurisdiction where the conduct of its business
requires such qualification, except where the failure to be so qualified has not
had and could not reasonably be expected to have a material adverse effect on
the assets, properties, rights, obligations, liabilities, condition (financial
or otherwise), operations or business of the Company, taken as a whole (a
"Material Adverse Effect"). As used in this Agreement, the terms "Charter" and
"By-Laws" respectively mean, with respect to any corporation,
-10-
<PAGE>
those instruments that, among other things, (A) define its existence, as filed
or recorded with the applicable Governmental Authority (as hereinafter defined),
including such corporation's Articles or Certificate of Incorporation,
Organization or Association and (B) otherwise govern its internal affairs, in
each case as amended, supplemented, or restated.
(b) Authority. Enforceability. No Violation. Etc. The Company has all
--------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and the other agreements, instruments, certificates and documents listed on
Schedule 2 (together with this Agreement, each a "Document" and, collectively,
- ----------
the "Documents") to which it is a party, to consummate the transactions
contemplated hereby and thereby and to perform its obligations under each
Document. The execution and delivery by the Company of each of the Documents to
which it is or will be a party and the performance by the Company of its
obligations thereunder have been duly and validly authorized by all necessary
corporate action on the part of the Company. Each of the Documents to which the
Company is or will be a party is, or upon its execution and delivery will be, a
valid and binding obligation of the Company, enforceable against it in
accordance with the terms thereof, except to the extent that such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors, rights generally and to general principles
of equity. Except as set forth on Schedule 3.1(b), neither the execution or
---------------
delivery by the Company of any of the Documents to which it is or will be a
party, the consummation by the Company of the transactions contemplated hereby
and thereby nor the performance by the Company of its obligations hereunder and
by both its board of directors and stockholders thereunder will (i) conflict
with or result in a breach of any provision of the Company's Charter or By-Laws,
(ii) violate any law, statute, rule or regulation or judgment, order, writ,
injunction or decree of any Governmental Authority, in each case applicable to
the Company or its assets, properties or rights, (iii) result in the imposition
or creation of any Encumbrance upon or with respect to any of the assets,
properties or rights owned or used by the Company, or (iv) violate, conflict
with or constitute (with notice or lapse of time or both) a default or give rise
to any right of termination, cancellation or acceleration under any of the
terms, conditions or provisions of, or result in the creation of any Encumbrance
upon any of the assets or properties of the Company pursuant to the terms of,
any material note, bond, lease, mortgage, indenture, license, agreement or other
material instrument or obligation to which the Company is a party or by which it
or any of its properties or assets may be bound except any such violation,
conflict, or default which is not reasonably likely to have a Material Adverse
Effect. Except as set forth on Schedule 3.1(b), no material filing with, and no
---------------
material permit, authorization, consent or approval of, any individual,
corporation, association, partnership, joint venture or other
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<PAGE>
entity or organization of any kind or Governmental Authority (collectively, a
"Person") is necessary for the Company's execution and delivery of the
Documents, the consummation by the Company of the transactions contemplated
thereby or the Company's performance of its obligations thereunder. As used in
this Agreement, the term "Governmental Authority" means any federal, state,
local or foreign government, authority, instrumentality, department commission,
board, bureau, agency or court.
(c) Equity Investments. Except as otherwise set forth on Schedule 3.1(c),
------------------ ---------------
the Company does not have any subsidiaries and does not, directly or indirectly,
own or have the right to acquire any capital stock of, or other ownership
interest in, any Person. For purposes of Article III (other than the first
sentence of Section 3.1(d)) and Section 4.4, the term "Company" shall include
Details, Inc. and each of its majority-owned subsidiaries, taken as a whole.
(d) Capital Structure of the Company. Title to Securities. Etc. The
-----------------------------------------------------------
authorized capital stock of the Company consists of 100,000 shares of Common
Stock and 100,000 shares of Preferred Stock, of which (i) 9,631.2 shares of
Common Stock and 6,600.8 shares of Preferred Stock are validly issued and
outstanding, fully paid and nonassessable and free of preemptive rights, and are
held of record by the Stockholders in the amounts listed on Annex I, (ii) 1,809
-------
shares are reserved for issuance pursuant to options granted under the 1996
Performance Option plan (the "Performance Options"), (iii) 260 shares are
reserved for issuance pursuant to Employee Stock Options granted under the
Employee Option Plan and (iv) 565.3 shares are reserved for issuance pursuant to
the warrants (the "Warrants") described on Schedule 3.1(h), 8,162 shares of
---------------
Common Stock and no shares of Preferred Stock are held in the Company's
treasury. Except for the Performance Options, the Employee Stock Options and the
Warrants, there are no outstanding options, warrants, rights, calls, agreements,
convertible securities or other commitments or rights to purchase or acquire any
unissued stock or other securities from the Company (including securities held
in treasury) and no other securities of the Company are reserved for any
purpose. Except for any Option or agreement relating to the Securities listed on
Schedule 4.2, there are no contracts, commitments, voting trusts, proxies
- ------------
(coupled with an interest or otherwise) agreements, understandings, arrangements
or restrictions to which, directly or indirectly, the Company is a party which
relate to the Securities
(e) Financial Information. Annex A to Schedule 3.1(e) contains complete and
--------------------- --------------------------
accurate copies of (i) the audited balance sheet of the Company as of December
31, 1996 (the "Audited Balance Sheet"), and the related audited statements of
income and cash flows for the year then ended (together with the Audited Balance
Sheet, the "Audited Financial Statements"), together with the report thereon of
the Company's independent certified public
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<PAGE>
accountants, and (ii) the unaudited balance sheet of the Company as of June 30,
1997 (the "Interim Balance Sheet") and the related unaudited statements of
income and cash flows for the six-month period then ended (together with the
Interim Balance Sheet, the "Interim Financial Statements"). The Audited
Financial Statements and the Interim Financial Statements are collectively
called the "Financial Statements." Except as set forth on Schedule 3.1(e), the
---------------
Financial Statements (i) were prepared in accordance with the books and records
of the Company, (ii) fairly present, in all material respects, the financial
position of the Company at and as of the dates indicated and the results of
operations of the Company for the periods indicated (subject, in the case of the
Interim Balance Financial Statements, to normal year-end adjustments which will
not, in the aggregate, be material and to the lack of footnotes), and (iii) have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied throughout the periods covered thereby,
subject, in the case of Interim Financial Statements, to normal year-end
adjustments which will not, in the aggregate, be material and to the lack of
footnotes.
(f) Absence of Undisclosed Liabilities. The Company does not have any
----------------------------------
liabilities or obligations (accrued, absolute, contingent or otherwise) of a
type required to be reflected on a balance sheet prepared in accordance GAAP
that were not disclosed or reflected on the Interim Balance Sheet except (i)
those liabilities incurred in the ordinary course of business consistent with
past custom and practice (including with respect to quantity, frequency and
timing) ("Ordinary Course of Business") since the date of the Interim Balance
Sheet and (ii) liabilities disclosed on Schedule 3.1(f).
---------------
(g) Absence of Changes. Since the date of the Interim Balance Sheet there
------------------
has been no event or circumstance which has had or could reasonably be expected
to have a Material Adverse Effect. Further, the business of the Company has been
operated in the Ordinary Course of Business and, except as set forth on Schedule
--------
3.1(g), there has been no (i) deviation from historical methods of accounting,
- ------
including any change in accounting practices concerning slow selling inventory,
or material deviations from other practices in connection with the maintenance
of the Company's books and records, (ii) damage, destruction or loss which is
not fully covered by insurance and which has had or can reasonably be expected
to have a Material Adverse Effect on the Company, (iii) declaration or payment
of any dividend or other distribution on or with respect to the shares of
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition of any of such shares, (iv) increase in or prepayment of
compensation payable or to become payable by the Company to any of its senior
executives, or the making of any bonus payment or similar arrangement to or with
any of them, except in the Ordinary Course of Business or pursuant to any
contract identified on the Schedules, (v)
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<PAGE>
cancellation of material indebtedness due to the Company from others (other than
the write-off of accounts receivable in the Ordinary Course of Business), (vi)
material change in the manner in which the Company extends discounts or credits
to customers, (vii) material change in the manner in which the Company markets
inventory, (viii) sale, transfer or other disposition of a material portion of
the assets of the Company, except in the Ordinary Course of Business and for
fair value, or scrapping of a material portion of the assets of the Company as
obsolete, (ix) binding commitments for capital expenditures of the Company in
excess of $2,500,000 in the aggregate, or (x) change in the Company's policies
with respect to the payment of accounts payable or other current liabilities and
the collection of accounts receivable, including any acceleration or deferral of
the payment or collection thereof, as applicable.
(h) Agreements. Etc. Schedule 3.1(h) sets forth an accurate and complete
---------------- ---------------
list of each contract or agreement whether written or oral (including any and
all amendments thereto) to which the company is a party or by which the Company
is bound (each such contract or agreement, a "Material Contract," and
collectively, the "Material Contracts") and which:
(i) relates to Indebtedness (including a letter of credit or similar
arrangement issued for the account or benefit of the Company) or a guarantee
of any Indebtedness of any other Person;
(ii) relates to the purchase, maintenance or acquisition, or sale or
furnishing of materials, supplies, merchandise, machinery, equipment, parts
or any other property or services (excluding any such contract made in the
Ordinary Course Business of the Company and which is expected to be fully
performed within twelve (12) months of the date hereof or which involves
revenues or expenditures of less than $1,000,000);
(iii) is a collective bargaining agreement or contract with any labor
union;
(iv) prohibits or restricts the Company from competing with any
business, or obligates the Company to conduct any business with only certain
parties, or otherwise restrains or prevents the Company from carrying on any
lawful business in any geographic area;
(v) relates to the use and protection of confidential information and
Intellectual Property of the Company's customers and end-users;
(vi) relates to employment, compensation, severance, or consulting
between the Company and any of its respective
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<PAGE>
officers, directors, employees or consultants who are entitled to
compensation thereunder (including any profit-sharing, bonus, stock option,
pension, retirement, savings, stock purchase, stock appreciation,
hospitalization insurance or similar plan or agreement, formal or informal,
providing benefits to any current or former officers, directors, employees
or consultants);
(vii) is a purchase agreement, conditional sales agreement,
occupancy agreement, license, lease or sublease for real property, which in
the case of a license, lease or sublease has a term of more than twelve
(12) months, and involves annual payments in excess of $500,000;
(viii) is a lease, sublease or other title retention agreement or
conditional sales agreement involving payments aggregating in excess of
$1,000,000 for any machinery, equipment, vehicle or other tangible personal
property (whether the Company is a lessor or lessee);
(ix) is a contract for capital expenditures or the acquisition or
construction of fixed assets involving payments in excess of $1,000,000;
(x) is a joint venture or partnership contract or other contract
involving the sharing of profits, losses, costs or liabilities; or
(xi) is material to the assets, business, operations or financial
condition of the Company.
Except as set forth on Schedule 3.1(h), (A) all of the Material Contracts are in
---------------
full force and effect and enforceable in all material respects by the Company in
accordance with their terms except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and to general principles of
equity, (B) the Company is not in breach of or default under (and no event has
occurred which with notice or the passage of time or both would constitute a
breach or default under) any Material Contract listed, and (C) the Company has
not given nor, to the Company's knowledge, has it received from any other
Person, at any time since July 1, 1997, any notice or other communication
regarding any breach of, or default under, any Material Contract which has not
been cured or waived.
For purposes of this Agreement, "Indebtedness" of any Person means all
obligations of such Person (i) for borrowed money, (ii) evidenced by notes,
bonds, debentures or similar instruments, (iii) under capital leases (the
capitalized amount of which determined in accordance with GAAP, together with
accrued but unpaid interest thereon, shall be reflected as
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<PAGE>
Indebtedness) or (iv) in the nature of guarantees of the obligations described
in clauses (i) through (iii) above of any other Person.
(i) Litigation. Except as set forth on Schedule 3.1(1), there is
---------------
no action, suit, claim, audit, investigation or legal, administrative or
arbitration proceeding pending or, to the Company's knowledge, threatened
against the Company, whether at law or in equity, whether civil or criminal
in nature and whether before or by any Governmental Authority, excluding
workers compensation claims incurred in the Ordinary Course of Business.
Except as set forth on Schedule 3.1(1), there are no judgments, decrees,
---------------
injunctions or orders of any Governmental Authority binding upon the
Company. The Company is not in default under any such judgment, decree,
injunction or order.
(j) Real Property.
-------------
(i) The Company does not own, directly or indirectly, any real
property or improvements thereon. Set forth on Schedule 3.1(j) is:
---------------
(A) a list of all real property leased (the "Leased Real
Property") by the Company; and
(B) the date of each lease agreement and any amendments
thereto or modifications thereof (whether written or oral)
(collectively, the "Leases"), and whether there is any requirement to
obtain the consent of any Person under each Lease to the transactions
contemplated by this Agreement (including the placement of Encumbrances
on such Lease or the property subject thereto).
(ii) The Company does not own or hold and is not obligated
under or a party to any option, right of first refusal or other
contractual right to purchase, acquire, sell or dispose of any parcel
of Leased Real property or any portion thereof or interest therein
except as provided in the Master Lease Agreement dated January 1, 1996
between James I. Swenson and Susan G. Swenson, as trustees of the
Swenson Family Trust, lessor, and Details, Inc., lessee. The Company is
not a lessor, sublessor or grantor under any contract granting to
another Person any right to the possession, use, occupancy or enjoyment
of any parcel of Leased Real property.
(k) Title to Assets. properties and Rights and Related Matters.
----------------------------------------------------------
The Company has marketable title to (i) all the properties, interests in
properties and assets, real, personal or mixed, reflected as being owned on the
Interim Balance Sheet by the Company (except for those sold or otherwise
disposed of in the ordinary Course of Business since the Interim Balance Sheet
Date), and to those acquired by the Company after the Interim
-16-
<PAGE>
Balance Sheet Date and not sold or otherwise disposed of since their
acquisition, free and clear of all Encumbrances of any kind or character, except
(i) liens for current taxes not yet due and payable, (ii) Encumbrances securing
taxes, assessments, governmental charges or levies or the Encumbrances of
materialmen, carriers, landlords and like persons, all of which are not yet due
and payable, (iii) minor Encumbrances of a character which are not reasonably
expected to have a Material Adverse Effect on the Company, or (iv) Encumbrances
that will be released and discharged at or prior to the Closing ("Permitted
Encumbrances"). As used herein, the term "Encumbrances" shall mean and include
any security interests, mortgages, liens, pledges, charges, easements,
reservations, restrictions, rights of way, servitudes, options, rights of first
refusal, rights of first offer, community property interests, restrictions of
any kind and all other encumbrances, whether or not relating to the extension of
credit or the borrowing of money.
(1) Intellectual Property. Part A of Schedule 3.1(1) sets forth an accurate
--------------------- ---------------
and complete list of all material patents, pending patent applications,
trademarks, service marks, pending trademark or service mark applications and
trade names licensed to, assigned to, applied for or registered in the name of,
the Company, or which the Company uses in its business, and all material
copyright registrations or pending applications for copyright registrations of
the Company, or which the Company uses in its business, including the nature
(e.g., patent, trademark, etc.) of such intellectual property, the application
----
or registration number, the jurisdiction and the record owner (all such,
Intellectual Property which is or should have been listed on Part A of Schedule
--------
3.1(1) being referred to as the "Listed Intellectual Property"). Part B of
- ------
Schedule 3.1(1) also sets forth all material licenses (other than licenses for
- ---------------
"shrink wrapped" off-the-shelf software) to which the Company is a party and
that directly relate to the Listed Intellectual Property or any other material
intellectual property rights (including inventions, drawings, mask works, trade
secrets, customer lists, software, technical information, data, process
technology, plans, blueprints, know-how and confidential information) currently
used by the Company or necessary to permit the Company to conduct its business
as now conducted (the Listed Intellectual Property and the other intellectual
property rights are collectively called the "Material Intellectual Property").
Except as set forth on Part C of Schedule 3.1(1):
---------------
(i) no registration, patent or other governmental document relating to
the Material Intellectual Property has lapsed, expired or been abandoned or
canceled or is the subject of cancellation proceedings or otherwise held
invalid or unenforceable with respect to the Material Intellectual
Property;
-17-
<PAGE>
(ii) the Company owns or possesses adequate and enforceable licenses,
assignments, or other authorizations (free of Encumbrances other than Permitted
Encumbrances and free of any obligation to make payment to any third party for
the use thereof) to use all Material Intellectual Property;
(iii) the Company has not infringed on or misappropriated, and is not now
infringing on or misappropriating, any intellectual property right belonging to
any Person based on the operations of the Company within the last three years,
and no claim has been made or is pending or, to the knowledge of the Company,
threatened to the effect that any Material Intellectual Property is invalid,
unenforceable or infringes on or misappropriates the rights of any other Person;
(iv) to the Company's knowledge, no Person is infringing upon,
misappropriating or violating any of the Intellectual Property in any material
respect;
(v) the Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of its and its customers' trade secrets,
proprietary processes and formulae, inventions, know-how, customer lists and
other confidential and proprietary information; and
(vi) the Company has not licensed or granted rights to any third party
to use any of the Material Intellectual Property, other than customers in the
Ordinary Course of Business.
(m) Benefit Plans; ERISA Matters.
----------------------------
(i) All Employee Plans (as defined below) have been operated and
administered in all material respects in accordance with applicable law
(including ERISA and the Code);
(ii) except as set forth in Schedule 3.1(m), neither the Company nor any
---------------
of its ERISA Affiliates has maintained, currently maintains, is obligated to
make any contributions to or has any liability with respect to any Employee
Plan;
(iii) neither the Company nor any of its ERISA Affiliates, any other
"disqualified person" or "party in interest" (as defined in Section 4975 of the
Code and Section 3 of ERISA respectively) with respect to an Employee Plan has
breached the fiduciary rules of the ERISA or engaged in a prohibited transaction
which could subject the Company or its ERISA Affiliates to any tax or penalty
-18-
<PAGE>
imposed under Sections 495 of the Code or Section 502(i), (j) or (1) of
ERISA;
(iv) all reporting and disclosure obligations imposed under
ERISA and the Code have been satisfied in all material respects with
respect to each Employee Plan;
(v) each Employee Plan which is a "group health plan" within
the meaning of Section 5000 of the Code has been maintained in all respects
in compliance with Section 4980B of the Code and Title I, Subtitle B, Part
6 of ERISA and no tax payable on account of Section 4980B of the Code has
been or would reasonably be expected to be incurred;
(vi) except as set forth in Schedule 3.1(m), no benefit payable
---------------
or which may become payable by the Company or its ERISA Affiliates
pursuant to any Employee Plan shall constitute an "excess parachute
payment," within the meaning of Section 280G of the Code, which is or may
be subject to the imposition of an excise tax under Section 4999 of the
Code or which would not be deductible by reason of Section 280G of the
Code;
(vii) no Employee Plan currently maintained by the Company or
its ERISA Affiliates is or was a "multiple employer plan" (within the
meaning of Section 413 of the Code);
(viii) neither the Company nor any of its ERISA Affiliates is or
ever has been obligated to contribute to any "multi-employer plan"
(within the meaning of Section 3 of ERISA) or other plan subject to Title
IV of ERISA; and
(ix) other than as required under Section 601 et seq. of ERISA,
------
no Employee Plan provides benefits or coverage following retirement or
termination of employment.
As used in this Agreement, "Employee Plan" means any "employee benefit plan"
(as that term is defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), as well as any other plan, program or
arrangement involving direct and indirect compensation, whether covering a
sing1e individual or a group of individuals, under which the Company, or any
entity that is a member of a "controlled group of corporations" with, or is
under "common control" with, the Company as defined in Section 414(b) or (c) of
the Internal Revenue Code of 1986, as amended (the "Code) (an ERISA Affiliate"),
has or may have any present or future obligations or liability on behalf of its
employees or former employees, contractual employees or their dependents or
beneficiaries. The Company has delivered to MergerCo correct and complete copies
of all Employee Plans and related documents. MergerCo acknowledges
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<PAGE>
and agrees that the only representations and warranties of the Company herein as
to any ERISA matters are those contained in this Section 3.1(m).
(n) Transactions with Affiliates. Except as set forth in Part A of
----------------------------
Schedule 3.1(n) and except for employment arrangements entered into in the
- ---------------
Ordinary Course of Business and which are disclosed on Schedule 3.1(h), since
---------------
February 1, 1996, the Company has not purchased, acquired or leased any property
or services from, or sold, transferred or leased any property or services to, or
loaned or advanced any money to, or borrowed any money from or entered into or
been subject to any management, consulting or similar agreement with,
Affiliates. The term "Affiliate," with respect to any Person, means any
stockholder of such Person or any other Person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. Except as set forth in Part B of Schedule
--------
3.1(n), no Affiliate of the Company is indebted to the Company for money
- ------
borrowed or other loans or advances (except for advances of business expenses in
the Ordinary Course of Business).
(o) Insurance. Schedule 3.1(o) contains an accurate and complete list
--------- ---------------
and a brief description of all material insurance policies currently in effect
which are presently owned or held by the Company, insuring the products,
properties, assets, business and operations of the Company and its potential
liabilities to third, parties, copies of which have been delivered to MergerCo.
As of the date of this Agreement, all premiums due have been paid and no notice
of cancellation or termination or intent to cancel has been received by the
Company with respect to any such policy. To the knowledge of the Company, the
Company is not in material default under any such insurance policies.
(p) Taxes. Except as set forth on Schedule 3.1(p):
-----
(i) The Company has filed all material returns, declarations
of estimated tax, tax reports, information returns and statements required
to be filed by it prior to the Closing Date relating to any material Taxes
with respect to any income, assets or operations of the Company, other than
those for which extensions shall have been granted prior to the Closing
Date (collectively, the "Returns");
(ii) the Returns are true and correct in all material respects;
(iii) the Company has paid, or made adequate provision in
accordance with GAAP for the payment of all Taxes for the periods ending on
or before the Effective Time;
(iv) the Company has not waived any statute of limitations
affecting any Tax liability or agreed to any
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<PAGE>
extension of time during which a Tax assessment or deficiency assessment
may be made;
(v) except as set forth on Schedule 3.1(p), there are no
---------------
pending examinations by any taxing authority of any Returns of the Company
and the Company has not received written notice of any unresolved questions
or claims concerning its Tax liability;
(vi) the Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
shareholder, employee, creditor, independent contractor, or other third
party;
(vii) other than Encumbrances for Taxes not yet due and payable,
there are no Encumbrances on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax; and
(viii) the unpaid Taxes of the Company do not exceed the reserve
for Tax liability set forth on the Interim Balance Sheet as adjusted for
the passage of time including any Tax liability incurred in the Ordinary
Course of Business since the date of the Interim Balance Sheet established
in accordance with GAAP.
The term "Tax" or "Taxes" means, with respect to any Person, all income taxes
(including any tax on or based upon net income, gross income, or income as
specially defined, or earnings, profits, or selected items of income, earnings
or profits) and all gross receipts, sales, use, ad valorem, transfer, franchise,
license, withholding, payroll, employment or windfall profits taxes, alternative
or add-on minimum taxes, imposts or customs duties together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority on such Person. The Company is not a party to any Tax sharing
agreement. MergerCo acknowledges and agrees that the only representations and
warranties of the Company herein as to any Tax matters (other than ERISA
matters, which are covered by Section 3.1(m) above) are those contained in this
Section 3.1(p).
(q) Compliance with Laws. Except as set forth on Schedule 3.1(q):
-------------------- ---------------
(i) the Company is (and since January 31, 1996 has been) in
material compliance with all applicable laws, rules, regulations, ordinances,
decrees and orders of any Governmental Authority (other than Environmental Laws,
which are covered by Section 3.1(r)) (collectively, "Laws") and has not received
any notice of any alleged claim or threatened claim, violation of or liability
under any such
-21-
<PAGE>
Law which has not heretofore been cured or for which there no remaining
liability;
(ii) the Company has all governmental permits, licenses,
consents, approvals, franchises and other authorizations necessary for the
conduct of its business as presently conducted ("Permits");
(iii) all of the Permits are valid, binding, and in full force
and effect;
(iv) no loss or expiration of any such Permit is, pending or
reasonably foreseeable or to the knowledge of the Company threatened; and
(v) the Company is in compliance with the material terms of
such Permits.
(r) Environmental Matters.
---------------------
(i) The Company has all Permits (collectively, the
"Environmental Permits") which are required in connection with the
ownership of its assets and properties and the operation of its business
under all federal, state and local statutes, laws, codes, regulations,
ordinances, rules, principles of common law, judgments, orders, decrees,
injunctions, concessions, grants, franchises, agreements or governmental
restrictions relating to the environment, including relating to health or
safety, pollution or the generation handling, storage, transport, disposal,
discharge or release of any materials or substances into the environment
except for those failures which, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect (collectively, "Environmental
Laws");
(ii) all such Environmental Permits are in full force and
effect, and no action or proceeding is pending or to the knowledge of the
Company threatened to revoke, rescind, limit or otherwise modify any
Environmental Permit;
(iii) the Company is in compliance in all material respects with
the terms and conditions of all Environmental Permits and other
limitations, restrictions, conditions, rules and regulations, standards,
prohibitions, requirements, obligations, schedules and timetables contained
in or issued, entered or promulgated under or pursuant to any Environmental
Law applicable to it or its business;
(iv) the Leased Real Property is free of contamination from any
toxic or hazardous substance or
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<PAGE>
waste, including any petroleum or petroleum-derived substance or waste or
any asbestos containing material, as defined in any applicable
Environmental Laws (a "Hazardous Substance") except for such contamination
that could not reasonably be expected to have a Material Adverse Effect;
(v) the Company:
(A) has not discharged or released any Hazardous Substance
except for discharges or releases which, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect;
(B) is not liable or responsible for clean up costs, remedial
work or damages (including any natural resource damages) in connection with
the generation, handling, storage, transport, disposal, discharge or
release if any Hazardous Substance prior to the Closing Date;
(C) has not received any notice under any environmental Laws of
any asserted violation, proceeding, investigation or lawsuit arising out of
or related to the operation, of the business of the Company or any-claim
for clean-up costs, remedial work or damages from any Person in connection
with the generation, handling, storage, transport, disposal, discharge or
release of any Hazardous substance except for those which, in the aggregate
could not reasonably be expected to have a Material Adverse Effect;
(D) has not entered into any agreement with any person pursuant
to which the Company has assumed responsibility for, either directly or
indirectly as a guarantor or surety, or otherwise agreed to contribute to,
the remediation of any condition arising from or relating to the
generation, handling, storage, transport, disposal, discharge or release of
any Hazardous Substance; and
(E) has not filed any notice under any applicable Environmental
Law reporting any past or present generation, handling, storage, transport,
disposal, discharge or release of any Hazardous Substance.
The Company has delivered to MergerCo, correct and complete copies of all
environmental studies, reports, audits, or analyses in the Company's possession
relating to the assets and properties owned or leased by the Company, including
the Environmental Health and Safety Assessment dated August, 1997 prepared by
Pilko & Associates, Inc. MergerCo acknowledges and agrees that the only
representations and warranties of the Company herein as to any environmental
matters are those contained in this Section 3.1(r).
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<PAGE>
(s) Customers and Suppliers. Except as set forth on Schedule 3.1(s),
----------------------- ---------------
since the December 31, 1996, no significant customer (or group of customers
which in the aggregate is significant) or any distributor of the Company has
given the Company notice that such customer (or group of customers) or
distributor will cease to purchase products or services or reduce significantly
the amount of products and services purchased from the Company or materially
adversely change the price or terms at which it purchases such products and
services, and (B) no significant supplier or vendor (or group of suppliers or
vendors which in the aggregate is significant) of the Company has given the
Company notice that such supplier or vendor (or group of suppliers or vendors)
will cease to supply or restrict the amount supplied or adversely change its
price or terms to the Company of any material products or services.
(t) Banking Facilities. Schedule 3.1(t) sets forth a true, correct
------------------ ---------------
and complete list of:
(i) each bank, savings and loan or similar financial
institution in which the Company has an account or safety deposit box or
other arrangement, and any number or other identifying codes of such
accounts, safety deposit boxes or other arrangements; and
(ii) the names of all persons authorized to draw one such
account or have access to any such safety deposit facility or such other
arrangement.
(u) Labor Relations; Employees. There is no pending or, to the
--------------------------
knowledge of the Company, threatened unfair labor practices complaint against
the Company before the National Labor Relations Board or any comparable
governmental authority. There is no labor strike, dispute, slowdown or stoppage
pending or, to the knowledge of the Company, threatened against the Company. No
representation question currently exists respecting the employees of the
Company. No collective bargaining agreement is currently in force or is being
negotiated by the Company.
(v) Brokers. Other than Chase Securities Inc., no agent, broker,
-------
investment banker or other Person acting on behalf of the company or under the
authority of the Company is or will be entitled to any fee or commission
directly or indirectly from the Company in connection with any of the
transactions contemplated hereby.
(w) NO ADDITIONAL REPRESENTATIONS. THE COMPANY IS NOT MAKING ANY
-----------------------------
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER WITH
RESPECT TO THE COMPANY, INCLUDING ANY OF THE ASSETS, PROPERTIES OR RIGHTS OF THE
COMPANY, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN
THIS SECTION 3.1, AND EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION
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<PAGE>
3.1, THE CONDITION OF THE ASSETS, PROPERTIES AND RIGHTS OF THE COMPANY, SHALL BE
"AS IS" AND "WHERE IS."
3.2. Several Representations and Warranties of the Stockholders.
----------------------------------------------------------
Each Stockholder, severally as to himself or itself only and not jointly or
as to any other Stockholder or the Company, represents and warrants to MergerCo
as follows:
(a) Authority, Enforceability, No violation. Etc. Such Stockholder has the
--------------------------------------------
full and absolute power to enter into each Document to which it is or will be a
party and perform its other obligations under each such Document. The execution
and delivery by such Stockholder of each Document to which it is or will be a
party and the performance by such Stockholder of its obligations thereafter
have been duly and validly authorized by all necessary action (corporate or
otherwise) on the part of such Stockholder. Each document to which such
Stockholder is or will be a party has been, or upon its execution and delivery
will be, duly and validity executed and delivered by such Stockholder and is, or
upon its execution and delivery will be, a valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
except to the extent that such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors, rights generally and to general principles of equity. Neither the
execution or delivery by such Stockholder of any Document to which it is or will
be a party, the consummation by such Stockholder of the transactions
contemplated hereby and thereby nor the performance by such Stockholder of its
obligations thereunder will (i) conflict with or result in a breach of any
provision of such Stockholder's Charter or By-Laws, (ii) violate any material
law, statute, rule or regulation or judgment, order, writ, injunction or decree
of any Governmental Authority, in each case applicable to such Stockholder or
the Securities owned by such Stockholder, or (iii) conflict with or result in a
default or breach of any provision of any material contract or agreement to
which Stockholder is a party or by which the Securities owned by such
Stockholder may be bound and which would, have a material adverse effect on such
Stockholder's ability to perform its obligations under the Documents to which
such stockholder is or will be a party. No material filing with, and no
material permit, authorization, consent or approval of, any Person is necessary
for the consummation by the Stockholder of the transactions contemplated by the
Documents.
(b) Ownership. Such Stockholder is the lawful owner, of record and
---------
beneficially, of the Securities owned by such Stockholder (which are those
Securities listed opposite such Stockholder's name on Annex I) and has good
-------
title to such Securities, free and clear of any and all Encumbrances (except for
the Encumbrances granted by certain of the Stockholders under
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<PAGE>
the Shareholder Pledge Agreement, dated as of January 31, 1997) other than liens
for taxes not yet due and payable.
(c) Brokers. Other than Chase Securities Inc., no agent, broker,
-------
investment banker or other Person acting on behalf of such Stockholder or under
the authority of such Stockholder is or will be entitled to any fee or
commission directly or indirectly from MergerCo or the Company in connection
with any of the transactions contemplated hereby.
(d) NO ADDITIONAL REPRESENTATIONS. SUCH STOCKHOLDER IS NOT MAKING ANY
-----------------------------
REPRESENTATION OR WARRANTY, JOINT OR SEVERAL, EXPRESS OR IMPLIED, OF ANY NATURE
WHATSOEVER WITH RESPECT TO ITSELF (EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN THIS SECTION 3.2), OR WITH RESPECT TO ANY OTHER
STOCKHOLDER OR THE COMPANY (INCLUDING AS TO ANY OF THE ASSETS, PROPERTIES OR
RIGHTS OF THE COMPANY).
3.3. Representations and Warranties of MergerCo.
------------------------------------------
MergerCo hereby represents and warrants to the Company and the Stockholders
as follows:
(a) Authority, Enforceability, No Violation. Etc. MergerCo has all
--------------------------------------------
requisite corporate power and authority to execute and deliver each of the
Documents to which it is or will be a party as contemplated hereby and to
perform its obligations under each such Document. The execution and delivery by
MergerCo of each of the Documents to which it is a party and the performance by
MergerCo of its obligations thereunder have been duly and validly authorized by
all necessary action (corporate or otherwise) on the part of MergerCo. Each of
the Documents to which MergerCo is a party has been, or upon its execution and
delivery will be, duly and validly executed and delivered by MergerCo and is, or
upon its execution and delivery will be, a valid and binding obligation of
MergerCo, enforceable against it in accordance with its terms, except to the
extent that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and to general principles of equity. Neither the execution or delivery
by MergerCo of any of the Documents to which it is or will be a party, nor the
performance by MergerCo of its obligations thereunder, nor compliance by
MergerCo with any of the provisions thereof will (i) conflict with or result in
a breach of any provision of MergerCo's Charter or By-Laws, (ii) violate any
material law, statute, rule or regulation or judgment, order, writ, injunction
or decree of any Governmental Authority, in each case applicable to MergerCo or
its assets, or (iii) conflict with or result in a default or breach of any
provision of any material contract or agreement to which MergerCo is a party or
by which its assets may be bound. Except as contemplated by this Agreement, no
material filing with, and no material permit, authorization, consent or approval
-26-
<PAGE>
of, any Person is necessary for the consummation by MergerCo of the transactions
contemplated by the Documents.
(b) Brokers. Other than Bain, no agent, broker, investment banker, or
-------
other Person acting on behalf of MergerCo or under the authority of MergerCo is
or will be entitled to any fee of commission directly or indirectly from the
Stockholders (or the Company in the event the transactions contemplated hereby
do not occur) in connection with any of the transactions contemplated hereby.
(c) Financing.
---------
(i) MergerCo has delivered to the Company true and correct copies
of signed letters received by MergerCo with respect to the financing (the
"Financing Letters") required for the consummation of the transactions
-----------------
contemplated hereby. MergerCo has no knowledge of any facts or circumstances
which would prevent the financing contemplated thereunder to be obtained. A copy
of each Financing Letter is set forth in Exhibit 3.3(c).
--------------
(ii) MergerCo has delivered to the Company an equity Commitment
Letter from Bain Capital Fund V, L.P. and Bain Capital Fund V-B, L.P. (the
"Equity Commitment") to provide equity capital to MergerCo.
ARTICLE IV
COVENANTS
4.1. Waiver of Rights of First Refusal Under Shareholders' Agreement.
---------------------------------------------------------------
Each of the Stockholders party to the Shareholders' Agreement, dated as of
January 31, 1996, among the Company and the shareholders of the Company party
thereto hereby waives the application of the provisions of Section 3.4 thereof
in connection with the transactions contemplated by the Documents.
4.2. Termination of Certain Agreements.
---------------------------------
Concurrently with the Closing, each of the Contracts and option plans
listed on Schedule 4.2 shall be automatically terminated without any further
------------
action by the parties thereto or any further liability of the Company
thereunder.
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<PAGE>
4.3. Access to Information.
---------------------
From and after the date hereof until the Closing, the Company will afford
to MergerCo, its counsel and authorized representatives free and full access
upon reasonable notice and during normal business hours (but without
unreasonable interruption of the Company's business) to all of its facilities,
management and books and records relating to the Company's business (including
tax returns filed and in preparation) as MergerCo may reasonably request.
4.4. Operation of Business.
---------------------
(a) From and after the date hereof until the Closing, except as otherwise
consented to in writing by MergerCo, the Company (and in the case of clause
(iv), each Stockholder) will:
(i) conduct the business of the Company only in the Ordinary Course
of Business;
(ii) not dispose of any assets of the Company with a fair market
value of $100,000 individually or $500,000 in the aggregate, except sales
of inventories in the Ordinary Course of Business;
(iii) use commercially reasonable efforts to maintain the Company's
business, assets, properties and rights in accordance with past custom and
practice;
(iv) except as described in Article I, not reclassify, combine,
split, subdivide, or pay or declare a dividend in respect of, or redeem or
otherwise repurchase any capital stock of the Company, or issue, deliver,
pledge or encumber any additional capital stock or other securities
equivalent to or exchangeable for capital stock;
(v) not acquire or agree to acquire by merging or consolidating
with, or by purchasing any material portion of the capital stock,
partnership interests or assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof;
(vi) not pay, discharge or satisfy any material claims, liabilities
or obligations (whether absolute, accrued, contingent or otherwise), other
than the payment, discharge or satisfaction of liabilities in the Ordinary
Course of Business and payments of the Indebtedness of the Company;
(vii) not change the accounting methods or practices followed by the
Company, including any change in any
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<PAGE>
assumption underlying, or method of calculating, any bad debt,
contingency or other reserve, except as may be required by changes in
GAAP; and
(viii) not amend or modify in any way the Charter or By-Laws of
the Company.
(b) MergerCo expressly agrees and acknowledges that nothing herein shall
prohibit the Company from (i) accelerating the vesting of the Options, (ii)
paying the Executive Bonuses, (iii) permitting the cashless exercise of any
Options or Warrants, (iv) consummating the transactions contemplated by Article
I hereof or (v) paying or prepaying any Indebtedness or borrowing under existing
credit facilities.
4.5. Efforts to Consummate; Cooperation.
----------------------------------
(a) Subject to the terms and conditions of this Agreement, each party
hereto shall use commercially reasonable efforts to take or cause to be taken
all actions and do or cause to be done all things required under applicable
laws, regulations and ordinances in order to consummate the transactions
contemplated hereby, including (i) obtaining all material permits,
authorizations, consents and approvals (other than any of the stockholders'
consents under Section 280G(b) (5) referenced in this Agreement) of any
Governmental Authority which are required for or in connection with the
consummation of the transactions contemplated hereby and by the other Documents,
(ii) taking any and all reasonable actions necessary to satisfy all of the
conditions to the other party's obligations hereunder as set forth in Article V,
(iii) executing and delivering all agreements and documents required by the
terms hereof to be executed and delivered by such party on or prior to the
Closing and (iv) obtaining the financing under the Financing Letters and the
Equity Commitment if the conditions specified therein are satisfied.
(b) Each party hereto agrees to cooperate with each other in determining
whether any filings are required to be made or consents required to be obtained
in any jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings as promptly and in seeking to obtain timely any such consents,
including, without limitation, any filings required by the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the "HSR Act").
4.6. No-shop Agreement.
-----------------
From the date of this Agreement until the earlier of the Closing or the
termination of this Agreement pursuant to Section 7.1, the Stockholders
(severally but not jointly) and the Company
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<PAGE>
shall not and shall cause their respective officers, directors, employees and
other agents not to, directly or indirectly, (i) take any action to solicit or
initiate any Acquisition Proposal (as hereinafter defined), or (ii) continue,
initiate or engage in n negotiations or discussions with, enter into any
agreement with, or provide any information relating to the Company to, or afford
access to any Person (other than MergerCo and its Affiliates and
representatives) in connection with any Acquisition Proposal. The term
"Acquisition Proposal" as used herein means any offer, proposal or indication of
interest in (A) the acquisition or recapitalization (whether by merger or
otherwise) of the Company, (B) a merger, consolidation or other business
combination, or (C) the acquisition of any of the capital stock of the Company.
4.7. Shareholders' Agreement.
-----------------------
Each Stockholder holding Retained Shares agrees to execute and deliver,
on or prior to the Closing Date, a Shareholders' Agreement having the terms set
forth in Schedule 4.7 (the "Shareholders' Agreement").
------------
4.8. Indemnification. Exculpation.
----------------------------
(a) All rights to indemnification and exculpation (including the
advancement of expenses) from liabilities for acts or omissions occurring at or
prior to the Effective Time (including with respect to the transactions
contemplated by this Agreement) existing as of the date hereof in favor of the
current or former directors or officers of the Company as provided in its
Certificate of Incorporation, its By-laws and the indemnification agreements set
forth in Schedule 4.8 shall be assumed by the Surviving Corporation, without
------------
further action, as of the Effective Time and shall survive the Merger and shall
continue in full force and effect without amendment, modification or repeal in
accordance with their terms for a period of not less than six years after the
Effective Time; provided however, that if any claim's are asserted or made
-------- -------
within such period, all rights to indemnification (and to advancement of
expenses) hereunder in respect of any such claims shall continue, without
diminution, until disposition of any and all such claims. Notwithstanding the
foregoing, no Stockholder Indemnitee will be entitled to make any claim for
indemnification against the Surviving Corporation by reason of the fact that he,
she or it (or any of his, her or its officers, directors, agents or other
representatives) was a controlling person, director, officer, employee, agent or
other representative of the Company or of any of its subsidiaries or was serving
as such for another Person at the request of any the Company or any of its
shareholders, subsidiaries or other Affiliates (whether such claim is pursuant
to any statute, charter, by-law, contractual obligation or otherwise) with
respect to any action brought by the Surviving Corporation
-30-
<PAGE>
against any Stockholder (whether such action is pursuant to this Agreement,
applicable law, or otherwise).
(b) The provisions of this Section 4.8 intended to be for the benefit
of, and will be enforceable by, each indemnified party, his or her heirs and his
or her representatives.
4.9. Confidentiality.
---------------
Each Stockholder agrees that it shall keep confidential all proprietary
and confidential information regarding the Company and agrees that it will not
use such information in any way detrimental to the Company except (i) to the
extent such information presently is or hereafter becomes available to the
Stockholders from a source other than the Company, (ii) to the extent disclosure
is required by law, regulation or judicial order or (iii) required by bank
regulators or auditors.
4.10. Noncompetition.
--------------
Each of the Stockholders employed by the Company on the date hereof (but
not including Joseph P. Gisch) (the "Management Members") acknowledges that
MergerCo would not enter into this Agreement or effect the transactions
contemplated hereby from which the Management Members will derive substantial
personal economic benefit if such Management Member did not agree to the
provisions of this Section 4.10. Each of the Management Members further agrees
that these restrictions, and the restrictions contained in his employment
agreement, on his activities during and after his employment are necessary to
protect the goodwill, confidential information and other legitimate interests of
the Surviving Corporation and its Affiliates:
(a) In the event any Management Member shall refuse to work for the
Surviving Corporation or shall be discharged for cause as hereafter defined,
such Management Member shall not, at any time prior to the Expiration Date,
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 the Surviving
Corporation (collectively: "competitive business"), (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 the Surviving Corporation and any other
person, including without limitation, any customer, supplier or employee of the
Surviving Corporation, or (iv) induce any employee of the Surviving Corporation
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
-31-
<PAGE>
purposes competitive with the business of the Company. The term "Expiration
Date" shall mean the earlier of (x) the third anniversary of the Effective Time
or (y) if the employment agreement between such Management Member and the
Company is not amended or superseded prior to the Effective Time, December 31,
1998.
In addition to all remedies which may be available at law to the
Company arising from any breach of this section, each Management Member agrees
that his 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 such Management Member of any of the terms hereof will cause
the Company to suffer irreparable injury and damage. Each Management Member
hereby expressly agrees that the Company 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 such Management Member.
4.11. Special Meeting.
---------------
In order to consummate the Merger, the Board of Directors of MergerCo,
in accordance with the provisions of the California Corporations Law, at the
earliest practicable date, shall duly call, give notice of, convene and hold a
special meeting of the stockholders of MergerCo (the "Special Meeting") for the
purposes of considering, adopting and approving this Agreement, the Merger and
the transactions hereby.
4.12. Tax Returns.
-----------
From and after the Closing, the Company will provide a representative
(the "Tax Representative") selected by a majority of the Stockholders on each
Measurement Date with a copy of the With Calculation and Without Calculation and
a determination of the realization of any Tax Savings, and with any supporting
information reasonably requested by the Tax Representative. The Tax
Representative will review such calculations and will raise any disagreements
concerning such calculations that (i) could generate an indemnification
liability of the Stockholders with respect to Tax Savings or (ii) affect the
realization of any Tax Savings pursuant to this Agreement. The Company and the
Tax Representative will attempt, in good faith, to resolve any such
disagreement.
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<PAGE>
ARTICLE V
CONDITIONS OF CLOSING
5.1. General Conditions.
------------------
The respective obligations of each party to perform this Agreement is
subject to the satisfaction at or prior to the Closing Date of the following
conditions, unless waived by each party hereto:
(a) HSR Act. Any waiting period (and any extension thereof) applicable
-------
to the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(b) No Litigation or Legislation. There shall not be any statute, rule
----------------------------
or regulation that could reasonably be expected to have the effect of
preventing, delaying or making the transactions contemplated by any of the
Documents illegal or otherwise prohibited or any pending or threatened
investigation, hearing, order, decree or judgment enjoining or seeking to enjoin
the performance of any of the Documents or the transactions contemplated hereby
or thereby or involving any challenge to, or seeking damages, or other relief in
connection with such transactions.
5.2. Conditions to Obligation of MergerCo.
------------------------------------
The obligation of MergerCo to perform this Agreement is subject to the
satisfaction of the following conditions, unless waived by MergerCo:
(a) Authorization. All corporate or other action necessary to authorize
-------------
the execution, delivery and performance of this Agreement and the other
Documents by the Company and the Stockholders and the consummation of the
transactions contemplated by this Agreement and the other Documents shall have
been duly and validly taken by the company and the Stockholders and the Company
and the Stockholders shall have full power and authority to enter into and
consummate the transactions contemplated by this Agreement and the other
Documents.
(b) Performance of Obligations of the Company and Stockholders. The
----------------------------------------------------------
Company and each of the Stockholders shall have performed and complied in all
material respects with all agreements and obligations and satisfied all
conditions to be performed, complied with and satisfied by it under this
Agreement and the other Documents prior to or at the Closing and the Company
shall have supplied MergerCo with a certificate to such effect with respect to
the Company.
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<PAGE>
(c) Secretary Certificate. MergerCo shall have received a certificate,
---------------------
dated as of the Closing Date, signed by the Secretary of the Company and
certifying as to:
(i) the Charter, By-Laws, incumbency of officers executing each of
the Documents to which the Company is a party; and
(ii) resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance by the Company of each
of the Documents to which the Company is a party.
(d) Representations and Warranties.
------------------------------
(i) the representations and warranties of the Company set forth in
Section 3.1 shall be true and correct as of the date of this Agreement and
as of the Closing Date except in the case of such representations and
warranties not qualified by materiality, for those failures which in the
aggregate have not had and which could not reasonably be expected to have a
Material Adverse Effect as though made on and as of the Closing Date (other
than any representation or warranty that expressly relates to a specific
date, which representation and warranty shall be correct in all material
respects on the date so specified) and the MergerCo shall have received a
certificate of the President of the Company to such effect; and
(ii) the representations and warranties of each Stockholder set
forth in Section 3.2 shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date except in the case of such representations and warranties not
qualified by materiality, for those failures which could not reasonably be
expected to have a Material Adverse Effect.
(e) Consents. The Company shall have received all consents set forth on
--------
Schedule 3.1(b).
- ---------------
(f) Stockholder Certificates. MergerCo shall have received from each
------------------------
Stockholder the certificates representing the Securities referred to in Section
1.6.
(g) Funding. MergerCo and the Surviving Corporation shall have received
-------
debt financing substantially on the terms of the Financing Letters and Equity
Commitment.
(h) Opinions of Counsel to the Company. MergerCo shall have received an
----------------------------------
opinion dated the Closing Date from O'Sullivan Graev & Karabell, LLP, special
counsel to the Company, in a form reasonably satisfactory to MergerCo.
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<PAGE>
(i) Shareholders' Agreement. Each of the Stockholders holding Retained
-----------------------
Shares shall have executed and delivered the Shareholders' Agreement.
5.3. Conditions to Obligation of the Company and Stockholders.
--------------------------------------------------------
The obligation of the Company and Stockholders to perform this Agreement
is subject to the satisfaction of the following conditions, unless waived by the
Stockholders:
(a) Authorization. All corporate or other action necessary to authorize
-------------
the execution, delivery and performance of this Agreement and the other
Documents by MergerCo and the consummation of the transactions contemplated by
this Agreement and the other Documents shall have been duly and validly taken by
MergerCo and MergerCo shall have full power and authority to enter, into and
consummate the transactions contemplated by this Agreement and the other
Documents.
(b) Performance of Obligations of MergerCo. MergerCo shall have
--------------------------------------
performed and complied in all material respects with all agreements and
obligations and satisfied all conditions to be performed, complied with and
satisfied by it under this Agreement and the other Documents prior to or at the
Closing and shall have supplied the Company with a certificate to such effect.
(c) Payment of Aggregate Merger Consideration . MergerCo shall have made
-----------------------------------------
the payments required by Section 1.6.
(d) Secretary Certificate. The Company and the Stockholders shall have
---------------------
received a certificate dated as of the Closing Date, signed by the Secretary of
MergerCo and certifying as to:
(i) the Charter, By-Laws, incumbency of officers executing each of
the Documents to which MergerCo is a party; and
(ii) the resolutions of the Board of Directors of MergerCo
authorizing the execution, delivery and performance by MergerCo of each of
the Documents to which MergerCo is a party.
(e) Representations and Warranties. The representations and warranties
------------------------------
of MergerCo set forth in Section 3.3 shall be correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, except in the case of such representations and warranties not qualified by
materiality for those failures which have not had and could not reasonably be
expected to have a Material Adverse Effect and the Company and the Stockholders
shall have received a certificate of the president of the MergerCo to such
effect.
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<PAGE>
(f) Opinion of Counsel to MergerCo. The Company and the Stockholders
------------------------------
shall have received an opinion dated the Closing Date of Ropes & Gray, counsel
to MergerCo, reasonably acceptable to the Company.
(g) Shareholders Agreement. The Surviving Corporation and the
----------------------
stockholders of MergerCo (other than the Stockholders) shall have entered into
the Shareholders' Agreement.
ARTICLE VI
INDEMNIFICATION
6.1. Indemnification.
---------------
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify and hold harmless, to the fullest extent permitted by law, subject to
the limitations set forth in Sections 6.3, 6.5 and 6.6, the Stockholders and
their respective officers, directors, employees and agents (collectively, the
"Stockholder Indemnitees") from, against and in respect of any liability, loss,
cost, damage, deficiency, demand, claim, suit, action or cause of action, fine,
penalty, cost or expense, including the cost or expense of any and all
investigations or proceedings, settlements, compromises (including reasonable
attorney's fees and expenses) (being referred to herein as, "Losses") arising
from, related to or in connection with any of the following:
(i) any breach or default in performance by the Surviving
Corporation of any covenant or agreement of the Surviving Corporation
contained in this Agreement to be preformed after the Closing; or
(ii) any breach of any representation or warranty made by MergerCo
in this Agreement.
(b) From and after the Effective Time, each Stockholder shall, on a
several and not joint basis, indemnify and hold harmless, to the fullest extent
permitted by law and subject to the limitations set forth in Sections 6.2, 6.3,
6.4, 6.5 and 6.6 the Surviving Corporation and its officers, directors,
employees and agents (collectively, the "Surviving Corporation Indemnitees")
---------------------------------
from, against and in respect of such Stockholders' Pro Rata Share of any Losses
arising from, related to or in connection with any of the following:
(i) any breach or default in performance by the Company prior to
the Effective Time of any covenant or agreement of the Company contained
in this Agreement; or
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<PAGE>
(ii) any breach of any representation or warranty made by the
Company in this Agreement (as each such representation or warranty would
read if all qualifications as to materiality (including without
limitation in the definition of Material Adverse Effect) were deleted
therefrom); or
(iii) the amount of any expenses of the Stockholders and the
Company incurred in connection with the transactions contemplated by this
Agreement and actually paid by the Company and the Surviving Corporation
for which there was no reduction in the Aggregate Merger Consideration (it
being understood that the Surviving Corporation shall have no obligation
to pay any such expenses incurred after the Effective Time).
(c) From and after the Effective Time each Stockholder shall, on a
several and not a joint basis, indemnify and hold harmless, to the fullest
extent permitted by law, subject to the limitations set forth in Sections 6.3,
6.4, 6.5, 6.6 and the last sentence of Section 6.2(a), the Surviving Corporation
Indemnitees from, against and in respect of Losses arising from, related to or
in connection with (i) any breach or default in performance by such Stockholder
of any covenant or agreement of such Stockholder contained in this Agreement or
(ii) any breach of any representation or warranty made by such Stockholder in
this Agreement.
(d) From and after the Effective Time, each Stockholder shall, on a
several and not joint basis, indemnify and hold harmless, to the fullest extent
permitted by law, the Surviving Corporation Indemnities from, against and in
respect of such Stockholder's Ownership Percentage of any Losses arising from
the inability of the Surviving Corporation to retain the benefit of any Tax
Savings which have theretofore been realized by the Surviving Corporation or,
where realized prior to the Effective Time by the Company, and has been
previously allocated pursuant to clauses (i), (ii), or (iii) of Section 1.11(a).
It is the intention of the parties that the indemnity provided for pursuant to
this Section 6.1(d) shall be the sole and exclusive remedy of the Surviving
Corporation Indemnitees with respect to any Loss arising from, related to or in
connection with the Surviving Corporation's inability to retain the benefit of
any Tax Savings.
(e) From and after the Effective Time, each Executive shall, on a
several and not joint basis, indemnify and hold harmless, to the fullest extent
permitted by law, each of the Stockholders from, against and in respect of 50%
of any Losses arising from the failure by the Company or the Surviving
Corporation to realize or retain tax savings (as a result of the compensation
expenses related to such Executive's Executive Option Exercise (or disposition
of the Shares received on such exercise) or the payment to such Executive of his
Executive
-37-
<PAGE>
Bonus), in an amount of savings which are equal to or larger than the aggregate
amount of such Executive's Executive Bonus; provided, however, that the
-------- -------
aggregate amount of indemnification payable by such Executive hereunder shall
not exceed an amount for such Executive equal to $1,500,000 multiplied by a
fraction, the numerator of which shall be the Executive Bonus received by such
Executive and the denominator of which shall be the aggregate amount of the
Executive Bonuses.
6.2. Monetary Limitations.
--------------------
(a) Except as provided in Section 6.2(b) below, the Stockholders shall
not have any obligation to indemnify any Surviving Corporation Indemnitee
pursuant to Section 6.1(b) (ii) unless and until (and then only to the extent
that) the aggregate of all individual Losses for which indemnity is not
precluded by Section 6.4 incurred or sustained by the Surviving Corporation
Indemnitees in respect of Section 6.1(b) (ii) exceeds $4,000,000. The aggregate
liability of each Stockholder to indemnify the Surviving Corporation Indemnitees
for Losses in respect of Section 6.1(b) (ii) shall in no event exceed such
Stockholders' Pro Rata Share of $25,000,000. In addition, the aggregate
liability of any Stockholder to indemnify the surviving Corporation Indemnitees
for Losses in respect of this Article VI shall in no event exceed the cash
consideration received by such Stockholder in the transactions contemplated
hereby.
(b) Notwithstanding the foregoing, (i) the minimum dollar limitation set
forth in the first sentence of Section 6.2(a) and the provisions of Section 6.4
shall not apply to Losses arising from, related to or in connection with any
claim with respect to the representations and warranties contained in the first
sentence of Section 3.1(a) and the first three sentences of Section 3.1(b) and
(ii) the minimum dollar limitation set forth in the first sentence of Section
6.2(a) shall not apply to Losses arising from any claim with respect to the
representations and warranties contained in Section 3.1(p).
6.3. Calculation of Losses.
---------------------
The amount of any Loss as to which indemnification exists under this
Agreement shall be calculated by taking into account (i) the present value,
based on a discount rate equal to the mid-term applicable federal rate as
determined under Section 1274(d) of the Code at that time, of any Tax benefit
actually realized by the Indemnified Party in connection with or as a result of
the occurrence of such Loss and (ii) any insurance proceeds actually received by
the Indemnified Party (and not applied by the Indemnified Party against any
portion of a Loss that is not indemnified hereunder) and increased insurance
costs incurred in connection with or as a direct result of the occurrence of
such Loss. If the amount to be netted pursuant to this Section 6.3 against any
payment by the Indemnifying Party of
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<PAGE>
any amount otherwise required to be paid pursuant to this Article VI shall be
undetermined, the Indemnified Party shall repay to the Indemnifying Party,
promptly after such determination, any amount that the Indemnifying Party would
not have had to pay pursuant to this Article VI had such determination been made
at the time of such payment.
6.4. Small Claims Threshold.
----------------------
The Surviving Corporation shall not be entitled to seek indemnification
under Section 6.1(b) (ii) or Section 6.1(c) (ii) in respect of any Loss unless
the amount of such Loss incurred exceeds $50,000 (the "Minimal Amount"). If a
Loss exceeds the Minimal Amount, the Surviving Corporation Indemnitee or
Stockholder Indemnitee, as the case may be, shall be entitled to seek
indemnification, subject to the other limitations in this Section 6, for the
full amount of such Loss. Notwithstanding the foregoing, any Surviving
Corporation Indemnitee shall be entitled to seek indemnification under Section
6.1(b) (ii) or 6.1(c) (ii) in respect of an individual Loss which does not
exceed $50,000 if the claim in respect of such Loss is one of more than one
claim based on the same or related set of facts, circumstances or occurrences,
or the same or a series of related transactions giving rise to an
indemnification claim and such claims taken together involve a Loss in excess of
$50,000.
6.5. Nature and Survival; Time Limits.
--------------------------------
(a) Regardless of any investigation made at any time by or on behalf of
any party hereto or of any information any party may have in respect thereof,
all representations and warranties made herein or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing
and continue in effect until March 31, 1999, except for (i) representations and
warranties contained in the first sentence of Section 3.2(a), the first three
sentences of Section 3.2(b), the first three sentences of Section 3.3(a) and
Section 3.3(b) which shall continue in full force and effect indefinitely, (ii)
representations and warranties in Section 3.1(p) which shall survive the Closing
and continue in effect until 30 days after the running of the applicable statute
of limitations and (iii) representations and warranties contained in Sections
3.1(r) which shall survive the Closing and continue in effect until December 31,
1999. Any claim for indemnification pursuant to this Article VI as a result of
any breach of representation or warranty must be made within the period of time
during which such representation or warranty survives the Closing pursuant to
this Section 6.5(a). Any claim described in the preceding sentence made within
the applicable time period (and, to the extent of such claim, any representation
or warranty upon which such claim is based) shall survive thereafter until such
claim is finally resolved. For purposes of this Article VI (except to the extent
otherwise set forth in Section 6.7), any claim for
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<PAGE>
indemnification shall be duly made by giving written notice of such claim to the
Indemnifying Party.
(b) The covenants and agreements of the parties set forth in this
Agreement shall survive indefinitely.
6.6. Limitation on Remedies.
----------------------
After the Closing Date, the indemnification provided in this Article VI,
subject to the limitations set forth in this Agreement shall be the exclusive
remedy available to any Indemnified Party for any breach of any representation,
warranty or covenant to be performed prior to the Effective Time.
6.7. Third Party Claims.
------------------
Promptly after the receipt by any party entitled to indemnification (the
"Indemnified Party") pursuant to this Article VI of notice of the commencement
of any action against such Indemnified Party by a third party, such Indemnified
Party shall if a claim with respect thereto is to be made against any party
obligated to provide indemnification (the "Indemnifying Party") pursuant to this
Article VI, give such Indemnifying Party written notice thereof in reasonable
detail in light of the circumstances then known to such Indemnified Party. The
failure to give such notice shall not relieve any Indemnifying Party from any
obligation hereunder except where, and then solely to the extent that, such
failure actually and materially prejudices the rights of such Indemnifying
Party. Such Indemnifying Party shall have the right to defend such claim, at
such Indemnifying Party's expense and with counsel of its choice reasonably
satisfactory to the Indemnified Party, provided that the Indemnifying Party
conducts the defense of such claim actively and diligently. If the Indemnifying
Party assumes the defense of such claim, the Indemnified Party agrees to
reasonably cooperate in such defense so long as the Indemnified Party is not
materially prejudiced thereby. So long as the Indemnifying Party is conducting
the defense of such claim actively and diligently, the Indemnified Party may
retain separate co-counsel at its sole cost and expense and may participate in
the defense of such claim, and neither any Indemnifying Party nor any
Indemnified Party will consent to the entry of any judgment or enter into any
settlement with respect to such claim without the prior written consent of the
other, which consent will not be unreasonably withheld. In the event the
Indemnifying Party does not or ceases to conduct the defense of such claim
actively and diligently, (x) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, such claim in any manner it may reasonably deem to be appropriate, (y) the
Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against such claim, including attorneys'
fees and expenses, and (z) the Indemnifying Party will remain responsible for
any Losses the Indemnitee may
-40-
<PAGE>
suffer as a result of such claim to the full extent provided in this Article VI.
If the Company shall fail to diligently prosecute any proceeding or action to
recover Tax Savings or any benefit related to the Executive Option Exercise or
the Executive Bonuses, the stockholders shall be permitted to pursue the same
for and on behalf of the Company.
6.8. Actions by Stockholders.
-----------------------
Any actions required to be taken by the Stockholders pursuant to this
Article VI shall be taken with the consent of the Stockholders holding a
majority of the Shares determined in accordance with each Stockholder's Pro Rata
Share; provided, however, that any actions under Sections 6.1(d) or (e) shall be
-------- -------
taken with consent of stockholders with a majority of the financial risk in such
matters.
ARTICLE VII
TERMINATION
7.1. Right of Termination.
--------------------
This Agreement may be terminated at any time prior to the Closing by:
(i) the mutual written consent of MergerCo and the Stockholders; or
(ii) by either the Stockholders or MergerCo in writing, without
liability to the terminating party on account of such termination (except
as otherwise provided in Section 7.2), if the Closing shall not have
occurred on or before November 7, 1997 (the "Termination Date"); or
(iii) by either the Stockholders or MergerCo if (A) the conditions to
such party's obligations shall have become impossible to satisfy on or
before the Termination Date (after giving effect to any potential actions
the non-terminating party may propose to take to cure such failure of
condition after reasonable notice from the party proposing to terminate
this Agreement), provided that no party shall be entitled to terminate this
Agreement pursuant to this clause (iii) if the reason for such
impossibility is due to a breach by the party proposing to terminate this
Agreement or (B) any permanent injunction or other order of a Governmental
Authority preventing the consummation of the transactions contemplated
hereby shall have become final and non-appealable.
-41-
<PAGE>
7.2. Effect of Termination.
---------------------
Termination of this Agreement pursuant to Section 7.1 shall terminate
all obligations of the parties hereunder, except for the obligations under the
Confidentiality Agreement described in Section 8.3(a) and this Section 7.2,
provided that nothing herein shall relieve any party from liability for breach
hereof or of any other Document prior to termination.
ARTICLE VIII
MISCELLANEOUS
8.1. Interpretive Provisions; Certain Definitions.
--------------------------------------------
(a) Whenever used in this Agreement, "to the Company's knowledge" or "to
the knowledge of the Company" shall mean the actual knowledge of Bruce McMaster,
the President and Chief Operating Officer of the Company, Joseph Gisch, the Vice
President of Finance and Chief Financial Officer of the Company. The inclusion
of any information on any Schedule shall not be deemed to be an admission or
acknowledgment by the Company, in and of itself, that such information is
required to be listed on such Schedule or is material to or outside the ordinary
course of the business of the Company or any of its Subsidiaries, as applicable.
Nothing contained herein or in any of the Exhibits or Schedules hereto shall
constitute an admission of liability or an admission against the Company's
interest.
(b) The use in this Agreement of the term "including" means "including,
without limitation." The words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole, including the schedules
and exhibits, and not to any particular section, subsection, paragraph,
subparagraph or clause contained in this Agreement. All references to sections,
schedules and exhibits mean the sections of this Agreement and the schedules and
exhibits attached to this Agreement, except where otherwise stated. The title of
and the section and subsection headings in this Agreement are for convenience of
reference only and shall not govern or affect the interpretation of any of the
terms or provisions of this Agreement. The use herein of the masculine, feminine
or neuter forms shall also denote the other forms and any reference to the
singular or plural shall include the other, in each case unless the context
otherwise requires.
(c) Unless expressly provided otherwise, the measure of a period of one
month or year for purposes of this Agreement shall be that date of the following
month or year corresponding to the starting date, provided that if no
corresponding date exists, the measure shall be that date of the following month
or year
-42-
<PAGE>
corresponding to the next day following the starting date. For example, one
month following February 18th is March 18th, and one month following March 31 is
May 1.
8.2. Expenses.
--------
Except as otherwise expressly provided in this Agreement, all costs and
expenses, including all legal fees and expenses, incurred in connection with
each of the Documents and the transactions contemplated hereby and thereby shall
be paid by the parties incurring such expenses. Notwithstanding the foregoing,
MergerCo shall pay the Hart-Scott-Rodino filing fees, if such filings are
required under applicable laws (as determined jointly by counsel for MergerCo
and counsel for the Stockholders having a majority in interest of the Shares).
8.3. Entire Agreement; Amendment.
---------------------------
(a) This Agreement, the other Documents and the Exhibits and Schedules
attached hereto and thereto, and the Confidentiality Agreement (the
"Confidentiality Agreement") previously entered into between the Company and
Bain Capital, Inc. contain the entire agreement among the parties with respect
to the transactions contemplated hereby and supersede all prior agreements and
understandings among the parties with respect thereto.
(b) This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by each of the parties hereto.
8.4. Severability.
------------
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
-43-
<PAGE>
8.5. Public Announcements.
--------------------
The parties will consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
and the transactions contemplated hereby, and no party will issue any such press
release or any such public statement prior to such consultation and the
agreement of the other parties, except as may be required by law.
8.6. Notices.
-------
All notices or other communications which are required hereunder or
otherwise delivered in connection herewith shall be in writing and shall be
deemed to have been duly given if delivered personally or if sent by
nationally-recognized overnight courier, by facsimile, or by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
if to MergerCo, to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: David Dominik
Ed Conard
Facsimile: (617) 572-3274
Telephone: (617) 572-3000
in each case with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: R. Bradford Malt
Facsimile: (617) 951-7050
Telephone: (617) 951-7318
if to the Company, to:
Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention: Joseph P. Gisch
Facsimile: (714) 630-4077
Telephone: (714) 630-6933
-44-
<PAGE>
and, if to any Stockholders, to such Stockholder at
the address set forth on Annex I.
in each case with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: John J. Suydam
Facsimile: (212) 408-2420
Telephone: (212) 408-2400
or to such other address as any party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of delivery, (b) in the case of a nationally-
recognized overnight courier, day after sent, (c) in the case of facsimile
transmission, when received, and (d) in the case of f mailing, on the fifth
business day following that on which the piece of mail containing such
communication is posted.
8.7. Counterparts.
------------
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one and the same agreement.
8.8. Governing Law.
-------------
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAWS OF THE STATE OF NEW YORK 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. NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 8.8, THOSE
PROVISIONS OF THIS AGREEMENT THAT RELATE TO THE INTERNAL GOVERNANCE OF THE
COMPANY SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA.
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT,
ACTION OR PROCEEDING ARISING HEREUNDER.
-45-
<PAGE>
8.9. Consent to Jurisdiction and Service of Process.
----------------------------------------------
(a) EACH OF THE PARTIES HEREBY:
(i) IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OTHER DOCUMENTS OR THE SUBJECT MATTER HEREOF OR THEREOF AND BROUGHT BY ANY
OTHER PARTY;
(ii) WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE
OR OTHERWISE, IN ANY SUCH ACTION OR PROCEEDING, ANY CLAIM THAT (A) IT IS NOT
PERSONALLY SUBJECT OF THE JURISDICTION OR SUCH COURTS, (B) THE ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR (C) THE VENUE OF THE
ACTION OR PROCEEDING IS IMPROPER; AND
(iii) AGREES THAT, NOTWITHSTANDING ANY RIGHT OR PRIVILEGE IT MAY
POSSESS AT ANY TIME, SUCH PARTY AND ITS PROPERTY ARE AND SHALL BE GENERALLY
SUBJECT TO SUIT ON ACCOUNT OF THE OBLIGATIONS ASSUMED BY IT HEREUNDER.
(b) EACH PARTY AGREES THAT SERVICE IN PERSON OR BY CERTIFIED OR
REGISTERED U.S. MAIL TO ITS ADDRESS SET FORTH IN SECTION 8.6 SHALL CONSTITUTE
VALID IN PERSONAM SERVICE UPON SUCH PARTY AND ITS SUCCESSORS AND ASSIGNS IN ANY
--------
ACTION OR PROCEEDING WITH RESPECT TO ANY MATTER AS TO WHICH IT HAS SUBMITTED TO
JURISDICTION HEREUNDER.
(c) EACH PARTY HEREBY ACKNOWLEDGES THAT THIS IS A COMMERCIAL
TRANSACTION, THAT THE FOREGOING PROVISIONS FOR CONSENT TO JURISDICTION AND
SERVICE OF PROCESS HAVE BEEN READ, UNDERSTOOD AND VOLUNTARILY AGREED TO BY EACH
PARTY AND THAT BY AGREEING TO SUCH PROVISIONS EACH PARTY IS WAIVING IMPORTANT
LEGAL RIGHTS.
8.10. Benefits of Agreement.
---------------------
All of the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by the Stockholders
without the consent of MergerCo or by MergerCo without the consent of the
Stockholders; provided, however, that MergerCo may transfer part of its rights
-------- -------
and obligations hereunder to Persons who provide financing in connection with
the transactions contemplated by this Agreement and the other Documents;
provided further, however, that no such transfer shall relieve MergerCo of any
- -------- -------
obligations hereunder or thereunder.
-46-
<PAGE>
THE SWENSON FAMILY FOUNDATION
By:
----------------------------------------
James I. Swenson, Co-Trustee under
declaration of trust dated
--------------
By:
----------------------------------------
Susan G. Swenson, Co-Trustee under
declaration of trust dated
--------------
/s/ Bruce McMaster
-------------------------------------------
Bruce McMaster
/s/ Lee Muse
-------------------------------------------
Lee Muse
/s/ Terry Wright
-------------------------------------------
Terry Wright
/s/ Joseph P. Gisch
-------------------------------------------
Joseph P. Gisch and Kathleen M. Gisch
-------------------------------------------
Alan P. Wolen or Gloria Wolen
ATWELL & CO.
By:
----------------------------------------
Name:
Title:
PARIDIAS FINANCIAL, INC.
By:
----------------------------------------
Name:
Title:
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
THE SWENSON FAMILY FOUNDATION
By:
----------------------------------------
James I. Swenson, Co-Trustee under
declaration of trust dated
--------------
By:
----------------------------------------
Susan G. Swenson, Co-Trustee under
declaration of trust dated
--------------
/s/ Bruce McMaster
-------------------------------------------
Bruce McMaster
/s/ Lee Muse
-------------------------------------------
Lee Muse
/s/ Terry Wright
-------------------------------------------
Terry Wright
/s/ Joseph P. Gisch
-------------------------------------------
Joseph P. Gisch and Kathleen M. Gisch
-------------------------------------------
Alan P. Wolen or Gloria Wolen
ATWELL & CO.
By:
----------------------------------------
Name:
Title:
PARIDIAS FINANCIAL, INC.
By:
----------------------------------------
Name:
Title:
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
THE SWENSON FAMILY FOUNDATION
By:
----------------------------------------
James I. Swenson, Co-Trustee under
declaration of trust dated
--------------
By:
----------------------------------------
Susan G. Swenson, Co-Trustee under
declaration of trust dated
--------------
/s/ Bruce McMaster
-------------------------------------------
Bruce McMaster
/s/ Lee Muse
-------------------------------------------
Lee Muse
/s/ Terry Wright
-------------------------------------------
Terry Wright
/s/ Joseph P. Gisch
-------------------------------------------
Joseph P. Gisch and Kathleen M. Gisch
-------------------------------------------
Alan P. Wolen or Gloria Wolen
ATWELL & CO.
By:
----------------------------------------
Name:
Title:
PARIDIAS FINANCIAL, INC.
By:
----------------------------------------
Name:
Title:
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
THE SWENSON FAMILY FOUNDATION
By:
----------------------------------------
James I. Swenson, Co-Trustee under
declaration of trust dated
--------------
By:
----------------------------------------
Susan G. Swenson, Co-Trustee under
declaration of trust dated
--------------
/s/ Bruce McMaster
-------------------------------------------
Bruce McMaster
/s/ Lee Muse
-------------------------------------------
Lee Muse
/s/ Terry Wright
-------------------------------------------
Terry Wright
/s/ Joseph P. Gisch
-------------------------------------------
Joseph P. Gisch and Kathleen M. Gisch
-------------------------------------------
Alan P. Wolen or Gloria Wolen
ATWELL & CO.
By:
----------------------------------------
Name:
Title:
PARIDIAS FINANCIAL, INC.
By:
----------------------------------------
Name:
Title:
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
THE SWENSON FAMILY FOUNDATION
By: /s/ James I. Swenson
----------------------------------------
James I. Swenson, Co-Trustee under
declaration of trust dated
--------------
By: /s/ Susan G. Swenson
----------------------------------------
Susan G. Swenson, Co-Trustee under
declaration of trust dated
--------------
/s/ Bruce McMaster
-------------------------------------------
Bruce McMaster
/s/ Lee Muse
-------------------------------------------
Lee Muse
/s/ Terry Wright
-------------------------------------------
Terry Wright
/s/ Joseph P. Gisch
-------------------------------------------
Joseph P. Gisch and Kathleen M. Gisch
-------------------------------------------
Alan P. Wolen or Gloria Wolen
ATWELL & CO.
By:
----------------------------------------
Name:
Title:
PARIDIAS FINANCIAL, INC.
By:
----------------------------------------
Name:
Title:
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
THE SWENSON FAMILY FOUNDATION
By:
----------------------------------------
James I. Swenson, Co-Trustee under
declaration of trust dated
--------------
By:
----------------------------------------
Susan G. Swenson, Co-Trustee under
declaration of trust dated
--------------
/s/ Bruce McMaster
-------------------------------------------
Bruce McMaster
/s/ Lee Muse
-------------------------------------------
Lee Muse
/s/ Terry Wright
-------------------------------------------
Terry Wright
-------------------------------------------
Joseph P. Gisch and Kathleen M. Gisch
-------------------------------------------
Alan P. Wolen or Gloria Wolen
ATWELL & CO.
By:
----------------------------------------
Name:
Title:
PARIDIAS FINANCIAL, INC.
By:
----------------------------------------
Name:
Title:
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
IN WITNESS HEREUNDER, each of the parties has caused this Amended and
Restated Recapitalization Agreement to be executed on the day and year first
written above.
DI ACQUISITION CORP.
By: /s/ Prescott Ashe
-----------------------------------
Name:
Title:
DETAILS, INC.
By: /s/ Bruce McMaster
-----------------------------------
Name:
Title: President
Stockholders:
CHASE MANHATTAN CAPITAL, L.P.
By: Chase Manhattan Capital
Corporation, a general partner
By: Signature appears here
-----------------------------------
Name:
Title:
BASEBALL PARTNERS
By: /s/ Chris Behrens
-----------------------------------
Name: Chris Behrens
Title: General Partner
SWENSON FAMILY TRUST
By: /s/ James I. Swenson
-----------------------------------
James I. Swenson, Co-Trustee
under declaration of trust
dated December 15, 1983
By: /s/ Susan G. Swenson
-----------------------------------
Susan G. Swenson, Co-Trustee
under declaration of trust
dated December 15, 1983
[Amended and Restated Recapitalization Agreement Signature Page]
<PAGE>
Schedules to the Amended and Restated Recapitalization Agreement dated as of
October 4, 1997 (the "Recapitalization Agreement"), among DI Acquisition Corp.,
the Stockholders named therein and Details, Inc. Capitalized terms used herein
without definition, are used herein as defined in the Recapitalization
Agreement.
<TABLE>
<CAPTION>
List of Schedules
-----------------
<S> <C> <C>
Annex I -- Securities Ownership
Annex II -- Security Ownership
Schedule 1.3(a) -- Terms of Class A and Class L Common Stock
Schedule 1.5(a) -- Aggregate Merger Consideration Calculation
Schedule 1.11 -- Executive Bonuses
Schedule 2 -- Documents
Schedule 3.1(b) -- Consents
Schedule 3.1(c) -- Equity Investments
Schedule 3.1(e) -- Financial Statements
Schedule 3.1(f) -- Undisclosed Liabilities
Schedule 3.1(g) -- Changes
Schedule 3.1(h) -- Contracts, Agreements and Purchase Orders
Schedule 3.1(i) -- Litigation and Claims
Schedule 3.1(j) -- Leased Real Property
Schedule 3.1(l) -- Intellectual Property
Schedule 3.1(m) -- ERISA MATTERS
Schedule 3.1(n) -- Transactions with Affiliates
Schedule 3.1(o) -- Insurance Policies
Schedule 3.1(p) -- Taxes
Schedule 3.1(q) -- Compliance with Laws
Schedule 3.1(r) -- Environmental Matters
Schedule 3.1(s) -- Customers and Suppliers
Schedule 3.1(t) -- Bank Accounts
Schedule 4.2 -- Contracts to be Terminated at Closing
Schedule 4.7 -- Terms of Shareholders' Agreement
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT, dated as of December 19, 1997, among NTI,
INC., a California corporation ("NTI-CA"), THE DAVILA MARITAL TRUST, UNDER TRUST
------
DOCUMENT DATED MARCH 13, 1989, MICHAEL J. IRVIN, AS TRUSTEE, a California
irrevocable trust (the "Davila Marital Trust"), THE DAVILA SURVIVOR'S TRUST,
--------------------
UNDER TRUST DOCUMENT DATED MARCH 13, 1989, LIANE DAVILA, AS TRUSTEE, a
California revocable trust (the "Davila Survivor's Trust", and together with the
-----------------------
Davila Marital Trust, collectively, the "Trusts"; NTI-CA and the Trusts are
------
referred to herein, collectively, as the "Davila Group") and JAMES S. MARCELLI,
------------
an individual ("Marcelli") (NTI-CA, the Trusts and Marcelli are referred to
--------
herein, collectively, as "Sellers"), and DETAILS, INC., a California corporation
-------
("Purchaser").
---------
W I T N E S S E T H :
-------------------
WHEREAS, Sellers own all the issued and outstanding shares of common
stock, no par value (the "Shares"), of Colorado Springs Circuits, Inc., a
------
Colorado corporation (the "Company"); and
-------
WHEREAS, Sellers wish to sell to Purchaser, and Purchaser wishes to
purchase from Sellers, the Shares, upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, Purchaser and Sellers hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1.01. Purchase and Sale. Upon the terms and subject to the
-----------------
conditions set forth in this Agreement, Sellers agree to sell to Purchaser, and
Purchaser agrees to purchase from Sellers, the Shares.
SECTION 1.02. Purchase Price. The aggregate purchase price (the
--------------
"Purchase Price") for the Shares shall be $38,000,000 in cash, subject to
--------------
adjustment, if any, in accordance with Section 1.04. The Purchase Price shall
be payable as provided in Section 1.03(c).
SECTION 1.03. Closing. (a) Subject to the terms and conditions of
-------
this Agreement, the sale and purchase of the Shares contemplated hereby shall
take place at a closing (the "Closing") to be held at 9:00 a.m., local time, on
-------
the later of (i) December 22, 1997 and (ii) the satisfaction or waiver of all
other conditions to the obligations of the parties set forth in Article VII, at
the offices of Shearman & Sterling, 555 California Street, San Francisco,
California, or at such other time or on such other date or at such other place
as Sellers and Purchaser may mutually agree upon in writing (the day on which
the Closing takes place being the "Closing Date").
------------
<PAGE>
(b) At the Closing, Sellers shall deliver or cause to be delivered
to Purchaser (i) stock certificates evidencing the Shares duly endorsed in blank
or accompanied by stock powers duly executed in blank and (ii) the certificate
required to be delivered pursuant to Section 7.02(a).
(c) At the Closing, Purchaser shall deliver to Sellers (i) the
Purchase Price, as adjusted prior to the Closing pursuant to Section 1.04 by
wire transfer in immediately available funds, to an account or accounts
designated at least two Business Days prior to the Closing Date by Sellers in a
written notice to Purchaser and (ii) the certificate required to be delivered
pursuant to Section 7.01(a). The Purchase Price shall be distributed among
Sellers in accordance with the percentages (the "Sellers' Percentages") set
--------------------
forth on Exhibit 1.03(c).
(d) At Closing, Purchaser shall contribute to the Company and the
Company shall deliver to [Bank One] in escrow (the "Grosso/St. Andre Escrow"),
-----------------------
the Estimated Grosso/St. Andre Payments by wire transfer in immediately
available funds to an escrow account or accounts designated at least two
Business Days prior to the Closing Date by the Company in a written notice to
Purchaser.
(e) At Closing, Purchaser shall contribute $300,000 to the Company,
and the Company shall pay the Bonus Payments.
SECTION 1.04. Purchase Price Adjustment. (a) The Purchase Price
-------------------------
shall be subject to adjustment, if any, as specified in this Section 1.04.
(b) Two days prior to the anticipated Closing Date, Sellers
delivered to Purchaser Sellers' written estimate of (i) the Net Debt Obligations
of the Company (the "Estimated Net Debt Obligations") as of the Closing Date,
------------------------------
(ii) the Grosso/St. Andre Payments (the "Estimated Grosso/St. Andre Payments"),
-----------------------------------
which estimate will be based upon the Interim Net Worth and (iii) the amount
(the "Estimated Net Worth Differential") by which the Closing Net Worth will
--------------------------------
exceed or fall short of $5,065,000 (the "Net Worth Target"), a copy of which
----------------
written estimate is attached hereto as Exhibit 1.04(b). The Purchase Price
payable by Purchaser at the Closing shall be (x) reduced by the aggregate amount
of the Estimated Debt Obligations, the Estimated Grosso/St. Andre Payments and
the Bonus Payments and (y) increased (if the Estimated Net Worth Differential is
a positive number) or reduced (if the Estimated Net Worth Differential is a
negative number) by the amount of the Estimated Net Worth Differential. Subject
to Section 1.04(e), within 35 Business Days after the date of receipt by Sellers
of the Closing Balance Sheet (as hereinafter defined):
(i) If the Net Debt Obligations of the Company disclosed on the
Closing Balance Sheet are less than the Estimated Net Debt Obligations,
Purchaser shall immediately pay to Sellers, as an adjustment to the
Purchase Price, in immediately available funds, an amount equal to the
amount by which the Estimated Net Debt Obligations exceed the Net Debt
Obligations;
<PAGE>
(ii) If the Net Debt Obligations of the Company disclosed on the
Closing Balance Sheet are greater than the Estimated Net Debt Obligations,
Sellers shall immediately pay to Purchaser, as an adjustment to the
Purchase Price, in immediately available funds, an amount equal to the
amount by which the Net Debt Obligations exceed the Estimated Net Debt
Obligations;
(iii) If the Grosso/St. Andre Payments calculated on the basis of the
final Purchase Price (without any reduction for the Grosso/St. Andre
Payments) determined pursuant to the Closing Balance Sheet are less than
the amounts delivered into the Grosso/St. Andre Escrow in accordance with
Section 1.03(d), an amount equal to the difference between the Estimated
Grosso/St. Andre Payments and the Grosso/St. Andre Payments shall be
distributed from the Grosso/St. Andre Escrow to Sellers; and
(iv) If the Grosso/St. Andre Payments calculated on the basis of the
final Purchase Price (without any reduction for the Grosso/St. Andre
Payments) determined pursuant to the Closing Balance Sheet are greater than
the amounts delivered to the Grosso/St. Andre Escrow in accordance with
Section 1.03(d), Sellers shall pay into the Grosso/St. Andre Escrow an
amount equal to the difference between the Estimated Grosso/St. Andre
Payments and the Grosso/St. Andre Payments.
(c) As soon as practicable (but in no event later than 90 calendar
days following the Closing Date), Purchaser shall prepare and deliver to Sellers
an audited balance sheet for the Company (the "Closing Balance Sheet"), as of
---------------------
the Closing Date. The Closing Balance Sheet shall be accompanied by (i) the
report thereon of Price Waterhouse LLP, independent accountants of Purchaser
(the "Purchaser's Accountants"), stating that the Closing Balance Sheet fairly
-----------------------
presents the financial position of the Company as of the date thereof in
accordance with GAAP applied on a basis consistent with the preparation of the
Financial Statements, (ii) a calculation of the Closing Net Worth and (iii) a
calculation of the Working Capital. Following the delivery of the Closing
Balance Sheet to Sellers and during the period of any dispute provided for in
Section 1.04(e), Purchaser shall provide Sellers and Sellers' Accountants
reasonable access to the books and records (including all supporting documents
and auditors work papers used in the preparation of the Closing Balance Sheet),
facilities and employees of the Company, and Purchaser shall cooperate fully
with Sellers' Accountants, in each case to the extent required by Sellers and
Sellers' Accountants in order to review the Closing Balance Sheet and to
investigate the basis for any such dispute.
(d) Subject to Section 1.04(e), within 35 Business Days after the
date of receipt by Sellers of the Closing Balance Sheet:
(i) If the Closing Net Worth is less than the sum of (A) the Net
Worth Target and (B) the Estimated Net Worth Differential (such sum being,
the "Interim Net Worth") Sellers shall immediately pay to Purchaser, as an
-----------------
adjustment to the Purchase Price, in immediately available funds, an amount
equal to such shortfall below the Interim Net Worth;
(ii) If the Closing Net Worth is greater than the Interim Net Worth,
<PAGE>
Purchaser shall immediately pay, as an adjustment to the Purchase Price, in
immediately available funds, to Sellers an amount equal to such excess over
the Interim Net Worth; and
(iii) If the amount of Working Capital of the Company is less than
$4,200,000 (the "Working Capital Target"), Sellers shall immediately pay to
----------------------
Purchaser, as an adjustment to the Purchase Price, in immediately available
funds, an amount equal to the amount by which the Working Capital is less
than the Working Capital Target.
(e) If not disputed by Sellers in accordance with this Section
1.04(e), the Closing Balance Sheet and the calculation of Closing Net Worth and
Working Capital delivered by Purchaser to Sellers shall be final, binding and
conclusive on the parties hereto. Sellers may dispute any amounts reflected on
the Closing Balance Sheet or the calculation of Closing Net Worth and Working
Capital, provided, however, that Sellers shall notify Purchaser and Purchaser's
-------- -------
Accountants in writing of each disputed item, specifying the amount thereof in
dispute and setting forth, in detail, the basis for such dispute, within 30
Business Days of Sellers' receipt of the Closing Balance Sheet. In the event of
such a dispute, each of Purchaser and Sellers shall negotiate in good faith to
reconcile their differences. If such dispute has not been resolved within 10
Business Days after the notice referred to in the preceding sentence has been
given, Irvin, Abrahamson & Company (the "Sellers' Accountants") and Purchaser's
--------------------
Accountants shall attempt to reconcile their differences, and any resolution by
them as to any disputed amounts shall be final, binding and conclusive on the
parties hereto. If Purchaser's Accountants and Sellers' Accountants are unable
to reach a resolution with respect to all items, Purchaser's Accountants and
Sellers' Accountants shall submit the items remaining in dispute that Sellers
shall be entitled to dispute by the terms of this Section 1.04(e) for resolution
to Arthur Andersen LLP or such other independent accounting firm as may be
mutually acceptable to Sellers and Purchaser (the "Independent Accounting
----------------------
Firm"), which shall, within 30 Business Days of such submission, determine and
- ----
report to Sellers and Purchaser upon such remaining disputed items, and such
report shall have the legal effect of an arbitral award and shall be final,
binding and conclusive on Sellers and Purchaser. The fees and disbursements of
the Independent Accounting Firm shall be allocated between Sellers and Purchaser
in the same proportion that the aggregate amount of such remaining disputed
items so submitted to the Independent Accounting Firm which is unsuccessfully
disputed by each such party (as finally determined by the Independent Accounting
Firm) bears to the total amount of such remaining disputed amounts so submitted.
Any amount that is subject to dispute under this Section 1.04(e) shall be paid
by Sellers or Purchaser, as the case may be, in immediately available funds,
within five Business Days following the resolution of such dispute and in an
amount in accordance with such resolution.
(f) In acting under this Agreement, Sellers' Accountants,
Purchaser's Accountants and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
(g) Any payment required to be made by Sellers or Purchaser
pursuant to
<PAGE>
Sections 1.04(b) or 1.04(d) shall bear interest from the Closing Date through
the date of payment on the basis of the average of the daily rate of interest
publicly announced by Citibank, N.A. in New York, New York from time to time as
its base rate from the Closing Date to the date of such payment. Any payment
required to be made by Sellers pursuant to Sections 1.04(b) or 1.04(d) shall be
a joint and several obligation of all Sellers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of Sellers, jointly and severally among the members of the
Davila Group and severally (and not jointly) as between the Davila Group and
Marcelli, represents and warrants to Purchaser as follows:
SECTION 2.01. Incorporation and Authority of NTI-CA. NTI-CA is a
-------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by NTI-CA, the performance by NTI-CA of its
obligations hereunder and the consummation by NTI-CA of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of NTI-CA. This Agreement has been duly executed and delivered by
NTI-CA, and (assuming due authorization, execution and delivery by Purchaser)
this Agreement constitutes a legal, valid and binding obligation of NTI-CA
enforceable against NTI-CA in accordance with its terms, subject to the effect
of any applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally and subject, as to enforceability, to
the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 2.02. Formation and Authority of the Trusts. Each of the
-------------------------------------
Trusts is a trust duly formed, validly existing and in good standing under the
laws of the State of California and has all necessary power and authority to
enter into this Agreement, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Trusts, the performance by the Trusts of their obligations
hereunder and the consummation by the Trusts of the transactions contemplated
hereby have been duly authorized by all requisite action on the part of the
Trusts. This Agreement has been duly executed and delivered by each of the
Trusts, and (assuming due authorization, execution and delivery by Purchaser)
this Agreement constitutes a legal, valid and binding obligation of each Trust
enforceable against each Trust in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
<PAGE>
SECTION 2.03. Incorporation and Qualification of the Company. The
----------------------------------------------
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado, and has the corporate power
and authority to own, operate or lease the properties and assets now owned,
operated or leased by the Company. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failures which,
would not have, individually or in the aggregate, a Material Adverse Effect.
SECTION 2.04. Capital Stock of the Company. Except as set forth in
----------------------------
Section 2.04 of the Disclosure Schedule, the Shares constitute all the
authorized, issued and outstanding shares of capital stock of the Company. The
Shares have been duly authorized and validly issued and are fully paid and
nonassessable and were not issued in violation of any pre-emptive rights. There
are no options, warrants or rights of conversion or other rights, agreements,
arrangements or commitments relating to the capital stock of the Company
obligating the Company to issue or sell any of its shares of capital stock.
Each Seller has good and valid title to, and is the record beneficial owner of
the Shares set forth opposite such Seller's name in Section 2.04 of the
Disclosure Schedule, free and clear of all pledges, security interests and all
other material liens, encumbrances and adverse claims, except for any liens,
encumbrances or adverse claims arising out of, under or in connection with this
Agreement. There are no voting trusts, stockholder agreements, proxies or other
agreements in effect with respect to the voting or transfer of the Shares.
SECTION 2.05. Subsidiaries. The Company has no Subsidiaries.
------------
SECTION 2.06. No Conflict. Assuming all consents, approvals,
-----------
authorizations and other actions described in Section 2.07 have been obtained
and all filings and notifications listed in Section 2.07 of the Disclosure
Schedule have been made, and except as may result from any facts or
circumstances relating particularly to Purchaser or as described in Section 2.06
of the Disclosure Schedule, the execution, delivery and performance of this
Agreement by Sellers do not and will not (a) violate or conflict with (i) the
Certificate of Incorporation or By-laws of NTI-CA or the Company or (ii) the
organizational documents of the Trusts, (b) conflict with or violate any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to Sellers, the Company or the Business or (c) result in any
breach of, or constitute a default (or event which with the giving of notice or
lapse of time, or both, would become a default) under, require consent under or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any lien or other encumbrance on
the Shares or on any of the assets or properties of the Company pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument relating to such assets or properties to which any
of Sellers or the Company is a party or by which any of such assets or
properties is bound or affected, except in the case of clause (c) as would not
have, individually or in the aggregate, a Material Adverse Effect or have a
material adverse effect on the ability of Sellers to consummate the transactions
contemplated by this Agreement.
<PAGE>
SECTION 2.07. Consents and Approvals. The execution and delivery
----------------------
of this Agreement by Sellers does not, and the consummation by Sellers of the
transactions contemplated hereby and by the other agreements delivered at
Closing will not, require any consent, approval, authorization or other action
by, or filing with or notification to, any Governmental Authority, except (a) as
described in Section 2.07 of the Disclosure Schedule, (b) where failure to
obtain such consent, approval, authorization or action, or to make such filing
or notification, would not prevent Sellers from performing any of their material
obligations under this Agreement and (c) as may be necessary as a result of any
facts or circumstances relating particularly to Purchaser. Sellers make no
representations or warranties regarding the necessity of complying with the pre-
merger notification requirements of the HSR Act.
SECTION 2.08. Financial Information. Sellers have caused to be
---------------------
delivered to Purchaser the Financial Statements (a copy of which is included in
Section 2.08 of the Disclosure Schedule). The Financial Statements fairly
present in all material respects the financial position, results of operations
and cash flows of the Business as of the date thereof and for the period covered
thereby in conformity with GAAP, with respect to the Audited Financial
Statements, with only such deviations from GAAP as are referred to in the notes
thereto and, with respect to the Interim Financial Statements, taking into
account the absence of footnotes and such other exceptions or deviations as are
set forth therein.
SECTION 2.09. Absence of Undisclosed Liabilities. As of the
----------------------------------
Closing, there shall be, to Sellers' knowledge, no liability of the Company
except liabilities (i) disclosed in the Disclosure Schedule or otherwise
addressed by any of the representations, warranties, covenants or agreements
made by Sellers in this Agreement, (ii) as, and to the extent, reflected or
reserved against in the Financial Statements, (iii) to the extent covered by
insurance, indemnification, contribution or comparable arrangements, with
respect to which liabilities, payments related thereto have actually been
recovered or are reasonably expected to be recovered under such arrangements,
(iv) with respect to the matters addressed in Section 2.16 and Article VI (which
shall be governed solely by the terms of such Section 2.16 and Article VI), and
(v) liabilities which would not have, individually or in the aggregate, a
Material Adverse Effect.
SECTION 2.10. Absence of Certain Changes or Events. (a) Since the
------------------------------------
date of the balance sheet contained in the Audited Financial Statements (the
"Balance Sheet Date"), except as disclosed in Section 2.10 of the Disclosure
- -------------------
Schedule, the business of the Company has been conducted in the ordinary course
and consistent with past practice.
(b) Since the Balance Sheet Date and except as set forth in Section
2.10 of the Disclosure Schedule or as contemplated by this Agreement, there has
not been:
(i) any damage, destruction or loss to any of the assets or
properties of the Company in the aggregate in excess of $100,000;
(ii) any capital expenditures by the Company, which exceed in the
aggregate
<PAGE>
$30,000.
(iii) any establishment or increase in any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, any grant of any stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plans, or other increase
in, or promise to increase, the compensation payable or to become payable
to (A) any officer or key employee of the Company or (B) to all or
substantially all of the employees of the Company (including, without
limitation, any such payments to be made or promised to such employees of
the Company in connection with and/or from the proceeds of the transactions
contemplated hereby), except, in any case described above, in accordance
with an existing employee benefit plan or other agreement or as may be
required by law;
(iv) any employment or severance agreement entered into with any of
the employees of the Company;
(v) except for sales of inventory in the ordinary course of
business, any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any of
the fixed assets of the Company having an aggregate value exceeding
$100,000;
(vi) (A) any acquisition by the Company (by merger, consolidation,
or acquisition of stock or assets) of any corporation, partnership or other
business organization or division thereof or (B) any incurrence of any
indebtedness for borrowed money or issuance of any debt securities or
assumption, grant, guarantee or endorsement, or other accommodation or
arrangement making the Company responsible for, the obligations of any
person, or any loans or advances, the aggregate value of any matter set
forth in this clause (vi) which exceeds $100,000;
(vii) any change in any method of accounting, accounting practice,
pricing policies or payment, collection, credit or inventory maintenance
practices used by the Company, other than such changes required by GAAP;
(viii) any issuance or sale of additional shares of the capital stock
of, or other equity interests in, the Company, or securities convertible
into or exchangeable for such shares or equity interests in the Company, or
issuance or granting of any options, warrants, calls, subscription rights
or other rights of any kind to acquire additional shares of such capital
stock, such other equity interests, or such securities;
(ix) any amendment to the Company's Certificate of Incorporation or
By-laws;
(x) any declaration or payment of dividends by the Company;
<PAGE>
(xi) any entering into or performance of transactions by the
Company with Affiliates;
(xii) any agreement by the Company to take any of the actions
specified in this Section 2.10, except for this Agreement; and
(xiii) any labor union organizing activities, or any actual or
threatened employee strikes, work stoppages, slow-downs or lock-outs at the
Company.
SECTION 2.11. Absence of Litigation. Except as set forth in
---------------------
Section 2.11 of the Disclosure Schedule, there are no claims, actions,
proceedings or investigations ("Actions") pending or, to the knowledge of
-------
Sellers, threatened against any of Sellers, the Company or any of the assets or
properties of the Company, before any court, arbitrator or administrative,
governmental or regulatory authority or body which, if adversely determined
against the Company, would (a) result in damages against the Company in excess
of $50,000 or (b) have, individually or in the aggregate, a Material Adverse
Effect. There is no Action pending or, to the knowledge of Sellers, threatened
which seeks rescission of, seeks to enjoin the consummation of or otherwise
relates to, this Agreement or any of the transactions contemplated hereby.
Except as set forth in Section 2.11 of the Disclosure Schedule, the Company and
its assets and properties are not subject to any order, writ, judgment,
injunction, decree, determination or award which would have, individually or in
the aggregate, a Material Adverse Effect.
SECTION 2.12. Compliance with Laws. The Company has not been and
--------------------
is not currently, and its employees have not been and are not currently, in
violation of any law, rule, regulation, order, judgment or decree applicable to
the Company or its operations or by which any of the properties of the Company
is bound or affected, except (i) as set forth in Section 2.12 of the Disclosure
Schedule and (ii) for violations the existence of which would not have,
individually or in the aggregate, a Material Adverse Effect.
SECTION 2.13. Licenses and Permits. Except as set forth in Section
--------------------
2.13 of the Disclosure Schedule, the Company has all governmental licenses,
permits and authorizations necessary to conduct the Business (the "Permits"),
-------
except for such governmental licenses, permits and authorizations the absence of
which would not have, individually or in the aggregate, a Material Adverse
Effect. All of the Permits are in full force and effect, except where failure to
be in full force and effect does not have and would not have, individually or in
the aggregate, a Material Adverse Effect. The operations of the Company as
currently conducted are not in violation of any Permits, except as would not
have, individually or in the aggregate, a Material Adverse Effect. The Company
has not received any written notice that any governmental or licensing authority
or association currently plans to revoke, cancel, rescind, materially modify or
refuse to renew in the ordinary course any of the Permits.
SECTION 2.14. Real Property. (a) The Company does not own any real
-------------
property.
<PAGE>
(b) Section 2.14 of the Disclosure Schedule lists the real property
leased by the Company (the "Leases"). True and correct copies of the Leases
------
have been delivered to Purchaser. Each of the Leases is a legal, valid and
binding obligation of the Company. Neither the Company, nor to the knowledge of
Sellers any other party thereto, is in default of any material provision under
any Lease. Each parcel of real property leased by the Company is leased, free
and clear of all liens, security interests, claims and other charges and
encumbrances, except: (i) as disclosed in Section 2.14 of the Disclosure
Schedule; (ii) liens for Taxes and assessments not yet payable; (iii) liens for
Taxes, assessments and charges and other claims, the validity of which are being
contested in good faith; (iv) imperfections of title, liens, security interests,
claims and other charges and encumbrances the existence of which would not have,
individually or in the aggregate, a Material Adverse Effect; (v) inchoate
mechanics' and materialmen's liens for construction in progress; and (vi)
workmen's, repairmen's, warehousemen's and carriers' liens arising in the
ordinary course of the Business.
SECTION 2.15. Employee Benefit Matters. (a) Section 2.15 of the
------------------------
Disclosure Schedule contains a true and complete list of all employee benefit
plans (within the meaning of Section 3(3) of ERISA) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements with respect to which the Company has any
obligation, liability for premiums or benefits or which are maintained,
contributed to or sponsored by the Company for the benefit of any employee,
former employee, beneficiaries of such employee or former employee, or officer
or director of the Company, other than plans, programs, arrangements, contracts
or agreements for which no benefits, liabilities, or penalties are payable or
due as of or after the Closing (the "Plans"). Except as disclosed in Section
-----
2.15 of the Disclosure Schedule, each Plan is in writing and a true and complete
copy of each Plan has been furnished to Purchaser and each of the following
documents, to the extent applicable, prepared in connection with each such Plan:
(i) a copy of each trust or other funding arrangement, (ii) the most recently
filed Internal Revenue Service ("IRS") Form 5500, (iii) the most recently
---
received IRS determination letter and related correspondence subsequent to such
determination letter and (iv) the most recently prepared actuarial report and
financial statement. Except as otherwise disclosed in Section 2.15 of the
Disclosure Schedule, Sellers and the Company have no express or implied
commitment to modify, change or terminate any Plan, other than with respect to a
modification, change or termination required by any applicable law, including
ERISA and the Code.
(b) Except as otherwise disclosed in Section 2.15 of the Disclosure
Schedule, none of the Plans (i) is a multiemployer plan, within the meaning of
Section 3(37) or 4001(a)(3) of ERISA (a "Multiemployer Plan"), or a single
------------------
employer pension plan, within the meaning of Section 4001(a)(15) of ERISA, for
which the Company could incur liability under Section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"), or (ii) provides or promises to provide retiree
- -----------------------
medical or life insurance benefits.
(c) Each Plan is now and has been operated in all material respects
in
<PAGE>
accordance with the requirements of the Plan and all applicable laws, including,
without limitation, ERISA and the Code. Nothing has occurred with respect to any
Plan that has subjected or could subject the Company to a penalty under Section
502 of ERISA or to a tax under Sections 4972, 4973, 4975 or 4979 of the Code, or
that has subjected or could subject any participant in or beneficiary of any
Plan to a tax under Section 4974 of the Code, except, in each case, as would not
have, individually or in the aggregate, a Material Adverse Effect. All prior
contributions, premiums or payments made with respect to any Plan have been
deducted for income tax purposes and no such deduction previously claimed has
been challenged by any government entity. The Financial Statements reflect
accruals of all amounts of employer contributions and premiums accrued but
unpaid with respect to the Plans as of the date of the Financial Statement.
(d) The Company 401(k) Plan (the "401(k) Plan"), which is intended
-----------
to be qualified under Section 401(a) of the Code, has received a favorable
determination letter from the IRS that it is so qualified, and the related
trust, which is intended to be exempt from federal income tax pursuant to
Section 501(a) of the Code, has received a determination letter from the IRS
that such trust is so exempt.
(e) Except as described in Section 2.15 of the Disclosure Schedule
and other than as required under Section 601 et seq. of ERISA, no Plan that is a
welfare benefit plan within the meaning of Section 3(1) of ERISA (a "Welfare
-------
Benefit Plan") provides benefits or coverage following retirement or other
- ------------
termination of employment. Nothing has occurred with respect to any Plan that
could subject the Company to a tax under Section 4980B of the Code. Any welfare
benefit trust or fund constitutes or is associated with a Plan and that is
intended to be exempt from Federal income tax under Section 501(c)(9) is so
exempt.
SECTION 2.16. Taxes. (a) Except as set forth in Section 2.16 of
-----
the Disclosure Schedule, (i) all returns declarations, reports, claims for
refund or information returns or statements with respect to Taxes, including any
schedule or attachment hereto, and including any amendment thereof ("Tax
---
Returns") required to be filed with respect to the Company (including any
- -------
consolidated federal income tax return of NTI-CA or any state or local income
tax return that includes the Company on a combined, consolidated or unitary
basis) have been timely filed (taking into account any available extensions),
(ii) such Tax Returns are true, correct and complete (it being understood,
however, that the Company makes no representation or warranty as to its net
operating losses or other tax attributes other than the representation contained
in section 2.16(f)), (iii) the Company has paid all Taxes owed by the Company
(whether or not shown on any Tax Returns), (iv) the Company has withheld and
paid all Taxes required to have been withheld and paid in connection with the
amounts paid to any employee, independent contractor, creditor, stockholder, or
other third party, (v) no deficiency for any amount of Tax has been asserted or
assessed by a taxing authority against the Company and (vi) the Company is
currently not and will not be on the Closing Date the beneficiary of any
extension of time within which to file any Tax Return.
(b) Except as set forth in Section 2.16 of the Disclosure Schedule, there
is no dispute or claim concerning any Tax liability of the Company either (i)
claimed or raised by
<PAGE>
any authority in writing or (ii) to Sellers' knowledge, based upon personal
contact by employees of the Company with any agent of such authority. Section
2.16 of the Disclosure Schedule (i) lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods ended
on or after March 31, 1990, (ii) indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. Sellers have delivered to Purchaser correct and complete copies of all
federal income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by or on behalf of the Company since March 31,
1990.
(c) Except as set forth in Section 2.16 of the Disclosure Schedule, the
Company has not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency.
(d) The Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. At the Closing Date, the Company will not
have made any payments, will not be obligated to make any payments, nor will it
be a party to any agreement that under certain circumstances could obligate it
to make any payments that will not be deductible under Section 280G of the Code
or subject to the excise tax of Section 4999 of the Code. The Company has not
been a United States real property holding corporation within the meaning of the
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(e) The Company currently is not a party to any inter-company tax sharing
agreement.
(f) Section 2.16(f) of the Disclosure Schedule sets forth the basis of
the Company in its assets (set forth by category of asset) as of most recent
practicable date.
SECTION 2.17. Brokers. Except for BancAmerica Robertson Stephens
-------
("BARS"), no broker, finder or investment banker is entitled to any brokerage,
-----
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Sellers. Sellers are solely responsible for the fees and expenses of BARS.
SECTION 2.18. Material Contracts. (a) Section 2.18(a) of the
------------------
Disclosure Schedule lists the following contracts (collectively, with the Leases
listed on Section 2.14 of the Disclosure Schedule, the "Material Contracts") in
------------------
effect as of the date of this Agreement to which the Company is a party, true
and correct copies of which have been delivered to Purchaser:
(i) any commitment, contract, agreement, note, loan, evidence
of indebtedness, purchase order or letter of credit (other than the Leases
listed on Section 2.14 of the Disclosure Schedule) that Sellers reasonably
anticipate will, in accordance with its terms, involve aggregate payments
by the Company of more than $100,000 or under which the Company has
guaranteed the obligations of another Person which may give rise to an
obligation of the Company of more than $100,000, in
<PAGE>
each case within the 12 month period following the date of this Agreement
and that is not cancelable without liability upon no more than 60 days'
notice;
(ii) any lease of personal property involving any annual
expense in excess of $50,000 and not cancelable by the Company without
liability upon no more than 60 days' notice;
(iii) any contracts or agreements containing covenants
limiting the freedom of the Company to engage in any line of business or
compete with any Person;
(iv) any employment agreements involving annual payments by
the Company in excess of $50,000 that are not terminable without liability
upon no more than 60 days' notice;
(v) All contractual obligations under which the Company is
or may become obligated to pay any legal, accounting, brokerage, finder's
or similar fees or expenses in excess of $10,000 in connection with, or has
incurred any severance pay or special compensation obligations in excess of
$10,000 which would become payable by reason of, this Agreement or
consummation of the transactions contemplated hereby;
(vi) All contractual obligations (including, without
limitation, options) to sell or otherwise dispose of any Assets except for
sales of inventory in the ordinary course of business;
(vii) All agreements pursuant to which the Company leases
material personal property as lessor or licenses any personal property as
licensor or licensee in any case, aggregating more than $25,000;
(viii) All contractual obligations under which the Company has
or will after the Closing have any liability or obligation to or for the
benefit of the Sellers or any Affiliates of the Sellers; and
(ix) All contractual obligations under which the Company is
or may become obligated to pay any amount in respect of indemnification
obligations, purchase price adjustment or otherwise in connection with any
(A) acquisition or disposition of assets or securities, (B) merger,
consolidation or other business combination, or (C) series or group of
related transactions or events of a type specified in subclauses (A) and
(B);
(x) All agreements with sales representatives and
distributors.
(b) The Company is not (and, to the knowledge of Sellers, no other
party is), as of the date of this Agreement, in breach or violation of, or
default under, any of the Material Contracts, where such breaches or violations
or default would have, individually or in the aggregate, a Material Adverse
Effect. Each Material Contract is, as of the date of this
<PAGE>
Agreement, a valid agreement, arrangement or commitment of the Company,
enforceable against the Company in accordance with its terms (except as would
not have, individually or in the aggregate, a Material Adverse Effect) and, to
the knowledge of Sellers, is a valid agreement, arrangement or commitment of
each other party thereto, enforceable against such party in accordance with its
terms, except in each case where enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally and
except where enforceability is subject to the application of equitable
principles or remedies.
SECTION 2.19. Customers and Suppliers. Section 2.19 of the
-----------------------
Disclosure Schedule contains a complete and accurate list, as of the date of
this Agreement, of the ten largest customers of the Company taken as a whole in
terms of revenues during the Company's 1997 fiscal year and during the 6 months
ended on September 30, 1997, showing the approximate total sales by the Company
to each such customer during such period. Except as set forth in Section 2.19 of
the Disclosure Schedule, from September 30, 1997, through the date of this
Agreement, (i) there has not, to the knowledge of Sellers, been any change in
the business relationships of the Company with any customers named in Section
2.19 of the Disclosure Schedule, (ii) no customer (or group of customers which
in the aggregate is significant) of the Company has either given the Company
written notice or, to the knowledge of the Company, has taken any other action
which has given the Company any reason to believe that such customer (or group
of customers) will cease to purchase products or services or reduce
significantly the amount of products and services purchased from the Company;
and (iii) no significant supplier or vendor (or group of suppliers or vendors
which in the aggregate is significant) of the Company has either given the
Company written notice or, to the knowledge of the Company, has taken any other
action which has given the Company any reason to believe that such supplier or
vendor (or group of suppliers or vendors) will cease to supply or restrict the
amount supplied or adversely change its price or terms to the Company of any
products or services.
SECTION 2.20. Environmental and Safety Matters. The Company is in
--------------------------------
all material respects in compliance with the provisions of all federal, state
and local laws relating to pollution, protection of the environment or
occupational safety and health applicable to it or to real property leased by it
or to the use, operation or occupancy thereof. The Company has not engaged in
any activity in material violation of any provision of any federal, state or
local law, or otherwise, relating to pollution, protection of the environment or
occupational safety and health. Except as disclosed in Section 2.20 of the
Disclosure Schedule, the Company does not have any liability, absolute or
contingent, under any federal, state or local law relating to pollution,
protection of the environment or occupational safety and health which would
have, individually or in the aggregate, a Material Adverse Effect.
SECTION 2.21. Trademarks, Patents and Copyrights. Except as set
----------------------------------
forth in Section 2.21 of the Disclosure Schedule, or to the extent the
inaccuracy of any of the following (or the circumstances giving rise to such
inaccuracy), would not have, individually or in the aggregate, a Material
Adverse Effect, the Company owns or possesses adequate licenses or other legal
rights to use all patents, patent rights, trademarks, trademark rights, trade
names, trade dress, trade name rights, copyrights, servicemarks, trade secrets,
applications for
<PAGE>
trademarks and for servicemarks, know-how and other proprietary rights and
information used in connection with the business of the Company as currently
conducted, and Sellers are unaware of any assertion or claim challenging the
validity of any of the foregoing. The conduct of the business of the Company as
currently conducted does not infringe upon any patent, patent right, license,
trademark, trademark right, trade dress, trade name, trade name right, service
mark, or copyright of any third party that would have, individually or in the
aggregate, a Material Adverse Effect. To Sellers' knowledge, there are no
infringements of any material proprietary rights owned by or licensed by or to
the Company.
SECTION 2.22. Title to Assets. The Company has good and marketable
---------------
title to, or, in the case of property held under lease or other contractual
obligation, a valid and enforceable right to use under an enforceable lease or
license, all of its properties, rights and assets, whether real, personal or
intellectual and whether tangible or intangible (collectively, the "Assets"),
------
including without limitation all properties, rights and assets reflected in the
respective balance sheets included in the Financial Statements (except as sold
or otherwise disposed of since the date thereof in the ordinary course of
business or otherwise in accordance with this Agreement). The Assets are not
subject to any Encumbrance, except for Permitted Encumbrances and except as
described in Section 2.22 of the Disclosure Schedule. The Assets constitute all
properties, rights and Assets held for or used in or necessary for the conduct
of the Business as currently conducted and proposed by the Company to be
conducted. All personal property included in the Assets, other than personal
property having an aggregate book value of less than $25,000, is in good working
order, operating condition and state of repair, ordinary wear and tear excepted.
To the Company's knowledge, all leased real property of the Company is in
reasonably good physical condition commensurate with its current use.
SECTION 2.23. Transactions with Affiliates. Except for the matters
----------------------------
set forth in Section 2.23 of the Disclosure Schedule, (i) no Affiliate of the
Company is an employee, consultant, competitor, customer, distributor, supplier
or vendor of, or is party to any contractual obligation with, the Company and
(ii) to Sellers' knowledge, no officer or director of the Company is an
Affiliate of any competitor, customer, distributor, supplier or vendor of the
Company. There is no intellectual property, franchisee, know-how, or proprietary
or confidential knowledge that any such Affiliate (other than the Company) owns
or is licensed or otherwise has the right to use which are used or necessary to
the conduct of the Business.
SECTION 2.24 Ultimate Parent Entities. As calculated in accordance
------------------------
with Section 801.11 of the Premerger Notification Rules, the annual net sales
and total assets of each Person within which the Company is included (as defined
in accordance with Section 801.1(a)(1) of the Premerger Notification Rules) is
less than $100,000,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers as follows:
<PAGE>
SECTION 3.01. Incorporation and Authority of Purchaser. Purchaser
----------------------------------------
is a corporation duly incorporated, validly existing and in good standing under
the laws of California and has all necessary corporate power and authority to
enter into this Agreement, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Purchaser, the performance by Purchaser of its obligations
hereunder and the consummation by Purchaser of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part
of Purchaser. This Agreement has been duly executed and delivered by Purchaser,
and (assuming due authorization, execution and delivery by each of Sellers)
constitutes a legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms, subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.02. No Conflict. Except as may result from any facts or
-----------
circumstances relating solely to Sellers, the execution, delivery and
performance of this Agreement by Purchaser do not and will not (a) violate or
conflict with the Certificate of Incorporation or By-laws of Purchaser, (b)
conflict with or violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to Purchaser, or (c)
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any lien or other encumbrance on any of the assets or
properties of Purchaser pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument relating to such assets or properties to which Purchaser or any of
its subsidiaries is a party or by which any of such assets or properties is
bound or affected, except as would not, individually or in the aggregate, have a
material adverse effect on the ability of Purchaser to consummate the
transactions contemplated by this Agreement.
SECTION 3.03. Consents and Approvals. The execution and delivery of
----------------------
this Agreement by Purchaser do not, and the performance of this Agreement by
Purchaser will not, require any consent, approval, authorization or other action
by, or filing with or notification to, any Governmental Authority, except (a) as
described in a writing delivered to Sellers by Purchaser on the date hereof, (b)
where failure to obtain such consent, approval, authorization or action, or to
make such filing or notification, would not prevent Purchaser from performing
any of its material obligations under this Agreement and (c) as may be necessary
as a result of any facts or circumstances relating solely to Sellers.
SECTION 3.04. Absence of Litigation. No claim, action, proceeding
---------------------
or investigation is pending before any court, arbitrator or administrative,
governmental or regulatory authority or body which seeks to delay or prevent the
consummation of the transactions contemplated hereby or which would be
reasonably likely to materially and adversely affect or restrict Purchaser's
ability to consummate the transactions contemplated
<PAGE>
hereby.
SECTION 3.05. HSR Act. Based upon the Seller's representation and
-------
warranty in Section 2.24, the requirements of the HSR Act are not applicable to
the transactions contemplated by the Agreements, and accordingly, such
transactions do not obligate the parties to this Agreement to file a
Notification and Report Form pursuant to the HSR Act.
SECTION 3.06. Financing. Purchaser has received and delivered to
---------
Sellers the Bain Funds Commitment Letter. In addition, Purchaser has delivered
to Sellers a copy of the Chase Credit Agreement. Subject to Purchaser's
satisfaction of the funding conditions set forth in the Bain Funds Commitment
Letter and of the conditions set forth in Section 5.2 of the Chase Credit
Agreement, Purchaser will have available at the Closing sufficient funds to pay
the Purchase Price (as the same may be adjusted pursuant to Section 1.04).
SECTION 3.07. Brokers. No broker, finder or investment banker is
-------
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.01. Conduct of Business Prior to the Closing. (a) Unless
----------------------------------------
Purchaser otherwise agrees in writing and except as otherwise set forth herein
or in the Disclosure Schedule (including Section 4.01 thereof), between the date
of this Agreement and the Closing Date, Sellers shall cause the Company to (i)
conduct the Business only in the ordinary course, (ii) use reasonable efforts to
preserve substantially intact the business organization of the Business and
(iii) use reasonable efforts to preserve the current relationships of the
Company with their respective customers, suppliers, distributors and other
persons with which the Company has significant business relationships.
(b) Except as expressly provided in this Agreement or the Disclosure
Schedule (including Section 4.01 thereof), between the date of this Agreement
and the Closing Date, Sellers shall cause the Company to refrain from taking any
of the actions set forth in Section 2.10(b) of the Agreement any of the
following without the prior written consent of Purchaser.
SECTION 4.02. Access to Information. (a) From the date hereof until
---------------------
the Closing, upon reasonable notice, Sellers shall, and shall cause the
officers, directors, employees, auditors and agents of the Company to, (i)
afford the officers, employees and authorized agents and representatives of
Purchaser and the Financing Parties reasonable access, during normal business
hours, to the offices, properties, books and records of the Company, and (ii)
furnish to the officers, employees and authorized agents and representatives of
Purchaser such additional financial and operating data and other information
regarding the
<PAGE>
assets, properties, goodwill and business of the Company as Purchaser may from
time to time reasonably request; provided, however, that such investigation
-------- -------
shall not unreasonably interfere with any of the businesses or operations of
Sellers or the Company or any of their respective affiliates.
(b) Purchaser agrees that it shall use commercially reasonable efforts
to preserve and keep all Books and Records in Purchaser's possession for a
period of at least eight years from the Closing Date, except for Books and
Records destroyed in the ordinary course. After such eight-year period, before
Purchaser shall dispose of any of such Books and Records, at least 90 calendar
days' prior written notice to such effect shall be given by Purchaser to
Sellers, and Sellers shall be given an opportunity, at their cost and expense,
to remove and retain all or any part of such Books and Records as Sellers may
select.
(c) Each party agrees that it will cooperate with and make available
to the other party, during normal business hours, all Books and Records,
information and employees (without substantial disruption of employment)
retained and remaining in existence after the Closing Date which are necessary
or useful in connection with any Tax inquiry, audit, investigation or dispute,
any litigation or investigation or any other matter requiring any such Books and
Records, information or employees for any reasonable business purpose. The
party requesting any such Books and Records, information or employees shall bear
all of the out-of-pocket costs and expenses (including, without limitation,
attorneys' fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such Books and Records,
information or employees. Sellers may require certain financial information
relating to the Business for periods prior to the Closing Date for the purpose
of filing federal, state, local and foreign Tax Returns and other governmental
reports, and Purchaser agrees to furnish such information to Sellers at Sellers'
request and expense.
SECTION 4.03. Confidentiality. Except as required by law,
---------------
contemplated by this Agreement or necessary to carry out the transactions
contemplated hereby in accordance with the terms hereof, at all times prior to
Closing, Purchaser shall comply with, and shall cause its representatives and
the Financing Parties to comply with, all of its obligations under the
Confidentiality Agreement dated October 8, 1997 (the "Confidentiality
---------------
Agreement").
- ---------
SECTION 4.04. Regulatory and Other Authorizations; Consents. (a)
---------------------------------------------
Each party hereto shall use its best efforts to obtain all authorizations,
consents, orders and approvals of all federal, state and local regulatory bodies
and officials that may be or become necessary for its execution and delivery of,
and the performance of its obligations pursuant to, this Agreement and will
cooperate fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals. The parties hereto will not
take any action that will have the effect of delaying, impairing or impeding the
receipt of any required approvals.
(b) Each party hereto agrees to cooperate in obtaining any other
consents and approvals which may be required in connection with the transactions
contemplated by this Agreement.
<PAGE>
SECTION 4.05. Investigation. Purchaser acknowledges and agrees that
-------------
it (i) has made its own inquiry and investigation into, and, based thereon, has
formed an independent judgment concerning, the Company and the Business and (ii)
has been furnished with or given adequate access to such information about the
Company and the Business as it has requested.
SECTION 4.06. Financing. Purchaser shall use commercially
---------
reasonable efforts to satisfy the funding conditions set forth in the Bain Funds
Commitment Letter and Section 5.2 of the Chase Credit Agreement so as to have
available to it at Closing all funds necessary to consummate the transactions
contemplated by this Agreement.
SECTION 4.07. Further Action. Each of the parties hereto shall
--------------
execute and deliver such documents and other papers and use commercially
reasonable efforts to take such further actions as may be reasonably required to
carry out the provisions hereof and give effect to the transactions contemplated
hereby.
SECTION 4.08. Sellers' Confidentiality; Non-Competition. Each
-----------------------------------------
Seller acknowledges that the success of the Company after the Closing depends
upon the continued preservation of the confidentiality of certain information
possessed by Sellers, that the preservation of the confidentiality of such
information by Sellers is an essential premise of the bargain between the
parties, and that Purchaser would be unwilling to enter into this Agreement in
the absence of this Section 4.08.
(a) Sellers' Confidentiality Covenant. Each Seller hereby agrees with
---------------------------------
Purchaser that such Seller will not, and will cause its Affiliates (other
than the Company) not to, at any time during the period commencing on the
date hereof and ending on the fourth anniversary of the Closing Date,
directly or indirectly, without the prior written consent of Purchaser,
disclose or intentionally use, in any way harmful to the Company, any
confidential or proprietary information involving or relating to the
Company; provided, however, that the information subject to the foregoing
provisions of this sentence shall be deemed not to include any information
known generally in the industry or is otherwise publicly available (other
than as a result of disclosure in violation hereof by such Seller or any
such Affiliate thereof). In addition, the provisions of this Section
4.08(a) shall not prohibit any disclosure required in connection with the
enforcement of any right or remedy relating to this Agreement or the
transactions contemplated hereby or required by legal process or by
operation of applicable law; provided, however, that (i) the disclosing
Person shall first promptly (and, if practicable under the circumstances,
prior to disclosure) advise and consult with the Company and its counsel
concerning the information proposed to be disclosed, (ii) the Company shall
have the right to seek an appropriate protective order or other remedy
concerning the confidential information proposed to be disclosed and the
disclosing Person will cooperate with the Company to obtain such protective
order, and (iii) in the event that such protective order or other remedy is
not obtained by the Company, the disclosing Person will disclose only that
portion of the confidential
<PAGE>
information which the disclosing Person is legally required to disclose,
and the disclosing Person will use its reasonable best efforts to obtain
assurances that confidential treatment will be accorded to such
information. The foregoing provisions of this Section 4.08(a) shall not
prohibit any confidential retention of records in connection with the
enforcement of any right or remedy relating to this Agreement or the
transactions contemplated hereby or as required by law.
(b) Non-competition Covenant. By their execution and delivery of this
------------------------
Agreement, each of Sellers hereby confirms and agrees that, during the
period beginning on the Closing Date and ending on the third anniversary
thereof, such Seller will not, and will use his, or her, or its reasonable
best efforts to cause such Seller's Affiliates (other than the Company) not
to, directly or indirectly, or by or through any other Person, whether as a
shareholder, guarantor, employee, agent, partner, joint venturer,
consultant or otherwise, (i) engage or invest in, or consult with or to,
any business (other than the Company) which is the same as or substantially
similar to and which competes, directly or indirectly, with the Business in
the United States or in any other geographic area in which the Company
conducts business as of the date hereof or as of the Closing Date or (ii)
solicit or hire any employee, buying or selling representative or other
agent of the Company, assist in the solicitation or hiring of such Persons
by any other Person, or knowingly encourage any such employee,
representative or agent to terminate his or her relationship with the
Company, or (iii) solicit or encourage any customer, supplier, vendor or
distributor of the Company to terminate its relationship with them;
provided, however, that ownership or acquisition by any Seller and his, her
or its Affiliates of an aggregate of (calculated for such Seller and his or
her Affiliates, collectively) less than five percent (5%) of the
outstanding stock of any publicly traded company shall not in itself
constitute a violation of this Section 4.08(b).
(c) Enforcement. Each Seller acknowledges and agrees that, (i) it regards
-----------
the restrictions applicable to such Seller contained in this Section 4.08
as reasonable and designed to provide Purchaser with limited, legitimate
and reasonable protection against subsequent diminution of the value of the
Company attributable to any actions of any such Seller or any of its
Affiliates contrary to such covenants and (ii) because the legal remedies
of Purchaser may be inadequate in the event of a breach of, or other
failure to perform, any of the covenants and obligations set forth in this
Section 4.08, Purchaser may, in addition to obtaining any other remedy or
relief available to them (including, without limitation, consequential and
other damages at law), obtain specific enforcement of this Section 4.08 and
other equitable remedies. Each Seller also acknowledges and agrees that no
breach by Purchaser of, or other failure by Purchaser to perform, any of
the material covenants or obligations of Purchaser under this Agreement
required to be performed following the Closing or otherwise shall relieve
such Seller of any of its obligations under this Section 4.08.
SECTION 4.09. Preparation of Financial Statements; Consents.
---------------------------------------------
Sellers shall cause the Company to promptly cause its accountants, Stockman,
Kast, Ryan & Scruggs (the "Company Accountants") to (a) undertake preparation of
-------------------
financial statements for the Company
<PAGE>
which meet the requirements of Regulation S-X under the Securities Act
applicable in respect of Purchaser's registration statement on form S-4 filed
with the Securities and Exchange Commission under the Securities Act on November
26, 1997 (File No. 333-41211)(the "Registration Statement")and (b) complete the
----------------------
work necessary for an interim period review under Statement of Accounting
Standards No. 71 in respect of the interim periods included in the financial
statements described in clause (a) above. In addition, Sellers shall cause the
Company to request (x) the Company Accountants, subject to appropriate
conditions, to deliver to Purchaser in connection with the Registration
Statement a "comfort letter" in accordance with Statement of Accounting
Standards No. 72 in respect of the financial statements of the Company included
in the Registration Statement and to consent to the inclusion in the
Registration Statement of those reports of the Company Accountants on such
financial statements as have been reported on by the Company Accountants and (y)
Deloitte & Touche LLC, subject to appropriate conditions, to consent to the
inclusion in the Registration Statement of those reports of the Company
Accountants on such financial statements as have been reported on by Deloitte &
Touche LLC. Purchaser shall reimburse Sellers for all out-of-pocket costs and
expenses incurred by the Company or Sellers in connection with the preparation
of such financial statements or the procurement of such consents
(collectively, the "Financial Statements Expenses"); provided, however, in the
----------------------------- -------- -------
event this Agreement is terminated in accordance with Section 9.01, the
Financial Statements Expenses shall be borne equally by Sellers and Purchaser.
SECTION 4.10. NTI Name. At Closing, the Sellers shall assign the
--------
trademark "NTI" to the Company and, within three days following the Closing,
NTI-CA shall change its name such that it does not involve "NTI" or any variant
thereof.
SECTION 4.11. Davila Group Assets. NTI-CA covenants and agrees that
-------------------
for the period commencing on the Closing Date and ending on March 31, 1999, it
will not distribute its assets, except to the Trusts. Each of the Trusts
covenants and agrees that for the period commencing on the Closing Date and
ending on March 31, 1999, it shall not liquidate or otherwise distribute assets
of such Trust, except to other members of the Davila Group; provided, however,
-------- -------
that nothing contained in this Section 4.11 shall prohibit the Davila Group from
paying expenses, or shall prohibit the Trusts from making such payments as are
required by the Code for purposes of retaining their status as Qualified
Terminable Interest Property Trusts or Qualified Subchapter S Trusts.
SECTION 4.12. Real Estate Leases. As soon as reasonably practicable
------------------
after the Closing, Sellers and Purchaser shall cause the Trusts and the Company,
respectively, to enter into amendments and restatements of the Leases, which
amendments and restatements shall be in substantially the form attached as
Exhibit 4.12, except that (i) the Leases with respect to the premises at 980
- ------------
Technology Court and 2115 Victor Place shall not contain the right of first
offer and purchase option provision set forth in Sections 54, 55 and 56 of
Exhibit 4.12, (ii) Section 8 of the Leases shall be modified as appropriate to
reflect the reasonable requests of the Lessor's (as defined in the Leases)
lender, (iii) Sellers shall use commercially reasonable efforts to obtain the
Lessor's lender's consent to providing subordination and non-disturbance
agreements from such lender, (iv) the Leases shall be modified, as
<PAGE>
appropriate, to reflect the legal comments of local (Colorado) counsel with
respect to conveyancing procedures and other issues that are generally local in
nature and (v) the effectiveness of the amendments and restatements of the
Leases shall be subject to the consent (if required) of the Lessor's lender.
Sellers shall use commercially reasonable efforts to obtain any required consent
of the Lessor's lenders to such amendment and restatements.
ARTICLE V
[INTENTIONALLY OMITTED]
ARTICLE VI
TAX MATTERS
SECTION 6.01. Tax Indemnities. (a) From and after the Closing
---------------
Date, each Seller, jointly and severally among the members of the Davila Group,
and severally (and not jointly) as between the Davila Group and Marcelli, agrees
to indemnify and hold harmless Purchaser and the Company and their Affiliates
against all Taxes (including but not limited to, any obligation to contribute to
the payment of Tax determined on a consolidated, combined or unitary basis with
respect to a group of corporations that include or included the Company),
imposed on, and against any costs or expenses (including, without limitation,
reasonable attorney's fees) incurred by the Company with respect to (i) a breach
of the representations and warranties made in Section 2.16 and (ii) any taxable
period or portion thereof that ends on or before the Closing Date, except to the
extent that the amount of such Taxes (together with all Taxes as of the Closing
Date) does not exceed the amount reserved for as a current liability for Taxes
(and not including deferred Taxes reflecting timing differences between book and
Tax income liabilities in the Closing Balance Sheet (but taking into account
previous payments made after the Closing Date of Taxes included in the Closing
Balance Sheet) and taken into account in the Closing Net Worth ("Reserved
--------
Taxes"), except that, in the case of a breach of the representation contained in
- -----
Section 2.16(f), Taxes reflecting timing differences between book and Tax income
liabilities shall be included); provided, however, that no indemnity shall be
-------- -------
provided under this Agreement for any Tax resulting from (x) an actual or deemed
election under Section 338 of the Code with respect to the transactions
contemplated by this Agreement; or (y) any transaction of the Company, occurring
on the Closing Date but after the Closing that is not in the ordinary course of
business. Sellers also shall indemnify Purchaser, the Company, and their
affiliates against any Taxes imposed on the receipt or accrual of any indemnity
payment and its Tax effects so that on an after-Tax basis, Purchaser receives an
indemnity for Taxes described in the preceding sentence. If the income Tax
deduction for the Grosso/St. Andre Payments and the Bonus Payments to be claimed
by the Company under Section 6.02 of this Agreement is disallowed in whole or in
part, Sellers shall promptly pay to Purchaser or the Company any Tax which is
payable by Purchasers or the Company due to the disallowance of these
deductions, to the extent that such deductions have been taken into account in
adjusting the Purchase Price or otherwise have been paid to the Sellers.
<PAGE>
(b) From and after the Closing Date, Purchaser and the Company shall
indemnify each of Sellers and their affiliates against all Taxes imposed on or
with respect to the Company that are not subject to indemnification pursuant to
paragraph (a) of this Section 6.01, including, but not limited to, Taxes (i)
resulting from an actual or deemed election under Section 338 of the Code with
respect to the transactions contemplated by this Agreement or (ii) resulting
from any transaction of the Company occurring on the Closing Date but after the
Closing that is not in the ordinary course of business.
(c) Payment by the indemnitor of any amount due under this Section
6.01 shall be made within ten days following written notice by the indemnitee
that payment of such amounts to the appropriate tax authority is due it being
understood that in the case of a Tax that is contested in accordance with the
provisions of Section 6.04, payment of the Tax to the appropriate tax authority
will not be considered to be due (unless the applicable taxing authority
requires payment prior to a final determination or in order to contest the Tax)
earlier than the date a final determination to such effect is made by the
appropriate taxing authority or a court, provided that the indemnitor shall not
--------
be required to make any payment earlier than ten business days before it is due
to the appropriate tax authority. If any Seller receives an assessment or other
notice of Tax due with respect to the Company for any period ending on or before
the Closing Date for which Sellers are not responsible, in whole or in part,
pursuant to paragraph (a) of this Section 6.01 because all or a part of such Tax
does not exceed the amount of Reserved Taxes, and such Seller pays such Tax,
then Purchaser or the Company shall refund to such Seller, in accordance with
the first sentence of this Section 6.01(c), the amount of such Tax for which
such Seller is not responsible.
(d) For purposes of this Agreement, in the case of any Tax that is
imposed on a periodic basis and is payable for a period that begins before the
Closing Date and ends after the Closing Date, the portion of such Taxes payable
for the period ending on the Closing Date shall be (i) in the case of any Tax
based upon or measured by income or receipts, the amount which would be payable
if the taxable year ended on the Closing Date, except that exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a time basis, (ii) ad
--
valorem Taxes (including, without limitation, real and personal property Taxes)
- -------
shall be accrued on a daily basis over the period for which the Taxes are
levied, or if it cannot be determined over what period the Taxes are being
levied, over the fiscal period of the relevant taxing authority, in each case
irrespective of the lien or assessment date of such Taxes, and (iii) franchise
and other privilege Taxes not measured by income shall be accrued on a daily
basis over the period to which the privilege relates.
SECTION 6.02. Preparation of Tax Returns. For the taxable year
--------------------------
ending on the Closing Date (or, with respect to any state or local Tax for which
the taxable year of the Company does not end on the Closing Date, the taxable
year that includes the Closing Date), the Company shall claim compensation
deductions that include the Grosso/St. Andre Payments and the Bonus Payments,
except to the extent expressly not allowed by applicable law. To the extent
that such deductions result in a net operating loss for such taxable year, such
net operating loss shall be carried back to prior taxable years of the Company
to the extent
<PAGE>
allowable under applicable law. Such Tax Returns shall be prepared on a basis
consistent with prior tax years unless a different treatment is required by an
intervening change in law, or in facts. The parties agree that if the Company is
permitted, but not required, under applicable state or local income or franchise
tax laws to treat the Closing Date as the last day of a Tax period, they will
treat the Tax period as ending on the Closing Date. NTI-CA shall prepare all
such Tax Returns to be filed on a combined, consolidated or unitary basis with
NTI-CA with respect to the Company for periods ending on or before the Closing
Date only. Sellers shall prepare all other Tax Returns of the Company relating
to any taxable years ending on or prior to the Closing Date. Such Tax Returns
prepared by Sellers shall be subject to the reasonable review of Purchaser, and
after such Tax Returns have been finalized shall be filed by the Company.
Purchaser and the Company shall reasonably cooperate with the Sellers, and at
Sellers' expense, in pursuing any claims for refund. Sellers shall pay or cause
to be paid when due and payable all Taxes with respect to the Company for any
taxable period ending on or before the Closing Date to the extent such Taxes
exceed the amount of Reserved Taxes. Purchaser shall prepare and timely file or
cause the Company to prepare and timely file all Tax Returns for which Sellers
are not responsible. Purchaser and the Company agree to notify Sellers in
writing prior to filing any return that reports any material item in a manner
that is materially inconsistent with prior years and to consider all comments
made by Sellers with respect thereto in good faith.
SECTION 6.03. Refunds and Tax Benefits. (a) Purchaser shall
------------------------
promptly pay to Sellers any refund of Taxes net of additional Tax and other
reasonable costs (including any interest paid or credited with respect thereto)
actually received by Purchaser or the Company (i) relating to taxable periods or
portions thereof ending on or before the Closing Date but not after the Closing
(other than carry-backs from periods after the Closing Date that result in a
refund for periods ending before the Closing Date), and (ii) were paid by
Sellers or the Company, except for any refund included in the Closing Date
Balance Sheet. Notwithstanding the foregoing, with respect to the net income
tax benefit from the payment of the Grosso/St. Andre Payments on the Closing
Date, the Purchaser shall pay to Sellers 75% of the entire amount of such net
income tax benefit (and shall retain 25% of the entire amount of such net income
tax benefit) when a refund claim is actually received in respect of carrying
back into a prior tax year the tax loss in the tax year ending on the Closing
Date attributable to the Grosso/St. Andre Payments. The net income tax benefit
in respect of the Grosso/St. Andre Payments shall be deemed to be the excess of
(i) the income tax paid or payable in respect of periods through and including
the Closing Date assuming the Grosso/St. Andre Payments were made, over (ii) the
income taxes paid or payable (after taking into account refunds received or to
be received) in respect of periods through and including the Closing Date after
taking into account the Grosso/St. Andre Payments. In the event that any refund
of Taxes for which a payment has been made pursuant to this Section 6.03(a) is
subsequently reduced or disallowed, Sellers shall indemnify and hold harmless
the payor or the Company for any additional Taxes or costs.
(b) Purchaser and the Company shall, upon actual realization, refund
to Sellers, any Tax benefit which they realize for a period or portion thereof
beginning after the Closing Date (a "Post-Closing Date Tax Benefit") that arose
-----------------------------
in connection with any underlying
<PAGE>
adjustment that resulted in a payment by Sellers to Purchaser or the Company
under Section 6.01 (such as a timing adjustment resulting in a Tax deduction for
the Company for a period after the Closing Date), provided that such payment
shall not exceed the related payment actually made by Sellers under Section
6.01. A Post-Closing Date Tax Benefit will be considered to be actually realized
for purposes of this Section 6.03 at the time that it is reflected on a Tax
Return of Purchaser or the Company, provided, however, that if Purchaser and the
Company make a payment to Sellers for such a Post-Closing Date Tax Benefit that
is disallowed or reduced (or Purchaser or the Company do not actually realize
such Post-Closing Date Tax Benefit), then Sellers shall refund such payment to
Purchaser and the Company plus interest at the rate for Tax underpayments
prescribed in Section 6621(a)(2) of the Code and similar provision under state
or local law.
SECTION 6.04. Contests. (a) After the Closing, Purchaser shall
--------
promptly notify Sellers in writing of the commencement of any Tax audit or
administrative or judicial proceeding or of any demand or claim on Purchaser or
the Company which, if determined adversely to the taxpayer or after the lapse of
time would be grounds for indemnification under Section 6.01 hereof. Such
notice shall contain factual information (to the extent known to Purchaser or
the Company) describing the asserted Tax liability in reasonable detail and
shall include copies of any notice or other document received from any taxing
authority in respect of any such asserted Tax liability. The failure to give
any notice required by this Section 6.04(a) shall not relieve Sellers of any
obligations contained in this Article VI, except to the extent that the failure
to give such notice actually prejudices the rights of the Sellers.
(b) Purchaser and the Company shall reasonably cooperate with the
Sellers, at Sellers' expense, in causing the Company to contest any audit, claim
for refund and administrative or judicial proceeding involving any asserted
liability with respect to which indemnity may be sought under Section 6.01 (any
such audit, claim for refund or proceeding relating to an asserted Tax liability
is referred to herein as a "Contest"). However, neither Purchaser nor the
-------
Company may settle or compromise any asserted liability for which the Sellers
are liable under Section 6.01 over the objection of Sellers.
SECTION 6.05. Cooperation and Exchange of Information. Sellers and
---------------------------------------
Purchaser will provide each other with such cooperation and information as any
of them reasonably may request of another in filing any Tax Return, amended
return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes or participating in or conducting any audit or other proceeding
in respect of Taxes, consistent with this Agreement. Such cooperation and
information shall include providing copies of relevant Tax returns or portions
thereof, together with accompanying schedules, books and related work papers and
documents relating to rulings or other determinations by taxing authorities.
Each party shall make its employees available on a mutually convenient basis to
provide explanations of any documents or information provided hereunder. Each
party will retain all returns, schedules and work papers and all material
records or other documents relating to Tax matters of the Company for its
taxable period first ending after the Closing Date and for all prior taxable
periods until the later of (i) the expiration of the statute of limitations of
the taxable periods to which such returns and other documents relate, without
regard to extensions except to the extent notified by another party in writing
of such extensions for the respective Tax periods, or
<PAGE>
(ii) eight years following the due date (without extension) for such returns.
Any information obtained under this Section 6.05 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns or
claims for refund or in conducting an audit or other proceeding.
SECTION 6.06. Conveyance Taxes. Purchaser and Sellers shall equally
----------------
share liability for and to pay all sales, transfer, stamp, real property
transfer or gains and similar Taxes incurred as a result of the sale of the
Shares contemplated hereby.
SECTION 6.07. Miscellaneous. (a) The parties agree to treat all
-------------
payments made under this Article VI or under Article VIII as adjustments to the
purchase price for Tax purposes, unless provided for otherwise by applicable
law.
(b) Except as expressly provided otherwise and except for the
representations contained in Section 2.16 of this Agreement, this Article VI
shall be the sole provision governing Tax matters and indemnities therefor under
this Agreement.
(c) For purposes of this Article VI, all references to Purchaser,
Sellers, and the Company include successors thereto.
(d) All indemnification obligations of Sellers under this Article VI
shall be joint and several obligations among the members of the Davila Group,
and several (and not joint) as between the Davila Group and Marcelli and shall
be pro-rata based on each party's Seller's Percentage.
SECTION 6.08. Survival of Obligations. The obligations of the
-----------------------
parties set forth in this Agreement relating to Taxes (including, without
limitation, the representations and warranties contained in Section 2.16) shall,
except as otherwise agreed to in writing by the parties, be unconditional and
absolute and shall remain in effect without limitation as to time or amount of
recovery by any party hereto until the date 60 days after the expiration of the
applicable statute of limitations governing the Tax to which such obligations
relate (after giving effect to any agreement extending or tolling such statute
of limitations).
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of Sellers. The obligations
------------------------------------
of Sellers to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver, at or prior to the Closing, of each of
the following conditions:
(a) Representations and Warranties; Covenants. (i) The
-----------------------------------------
representations and warranties of Purchaser contained in this Agreement
shall be true and correct as of the Closing, with the same force and effect
as if made as of the Closing (or, in the case of
<PAGE>
representations and warranties of Purchaser which address matters only as
of a particular date, as of such date), except where the failure to be so
true and correct would not have a material adverse effect on the ability of
Purchaser to consummate the transactions contemplated by this Agreement;
(ii) the covenants and agreements contained in this Agreement to be
complied with by Purchaser at or prior to the Closing shall have been
complied with in all material respects and (iii) Sellers shall have
received a certificate of Purchaser as to the matters set forth in clauses
(i) and (ii) above signed by a duly authorized officer of Purchaser; and
(b) No Order. No United States or state governmental authority or
--------
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, injunction or other order which is in effect
and has the effect of making the transactions contemplated by this
Agreement illegal or otherwise restraining or prohibiting consummation of
such transactions; provided, however, that the parties hereto shall use
-------- -------
their best efforts to have any such order or injunction vacated.
(c) Opinion of Counsel. Purchaser shall have furnished Sellers with a
------------------
favorable opinion of Ropes & Gray, addressing the matters set forth in
Section 7.01(c).
SECTION 7.02. Conditions to Obligations of Purchaser. The
--------------------------------------
obligations of Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
-----------------------------------------
representations and warranties of Sellers contained in this Agreement shall
be true and correct as of the Closing, with the same force and effect as if
made as of the Closing (or, in the case of representations and warranties
of Sellers which address matters only as of a particular date, as of such
date), except where the failure to be so true and correct would not have a
Material Adverse Effect or have a material adverse effect on the ability of
Sellers to consummate the transactions contemplated by this Agreement; (ii)
the covenants and agreements contained in this Agreement to be complied
with by Sellers at or prior to the Closing shall have been complied with in
all material respects, except where the failure to so comply would not have
a Material Adverse Effect or have a material adverse effect on the ability
of Sellers to consummate the transactions contemplated by this Agreement;
and (iii) Purchaser shall have received a certificate from each of Sellers
as to the matters set forth in clauses (i) and (ii) above signed by a duly
authorized officer or trustee of each such Seller or from such Seller, if a
natural person;
(b) No Order. No United States or state governmental authority or
--------
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, injunction or other order which is in effect
and has the effect of making the transactions contemplated by this
Agreement illegal or otherwise restraining or prohibiting consummation of
such transactions; provided, however, that the parties hereto shall use
-------- -------
<PAGE>
their best efforts to have any such order or injunction vacated.
(c) Financing. Purchaser shall have obtained an incremental
---------
$25,000,000 in Borrowings pursuant to Section 5.2 of the Chase Credit
Agreement in order to fund a portion of the Purchase Price.
(d) Marcelli Employment Agreement. Marcelli shall have entered into
-----------------------------
the Marcelli Employment Agreement.
(e) Material Adverse Effect. There shall have been no Material
-----------------------
Adverse Effect from the date hereof until the Closing Date.
(f) Resignation of Directors. Purchaser shall have received the
------------------------
resignations, effective as of the Closing, of all the directors of the
Company.
(g) Consents, etc. Sellers shall have secured written consents or
-------------
waivers for all agreements identified in Section 2.06 of the Disclosure Schedule
and all consents, approvals, authorizations and other actions identified in
Section 2.07 of the Disclosure Schedule, in each case reasonably satisfactory in
form and substance to Purchaser, necessary to permit the consummation of the
transactions contemplated hereby.
(h) Releases. The Company shall have received releases executed by
--------
each of John Grosso and David St. Andre regarding the obligations of the Company
under the letter agreements between each of John Grosso and David St. Andre and
the Company, dated as of May 12, 1992, as amended by agreements, dated as of
December 19, 1997.
(i) Opinions of Counsel. Sellers shall have furnished Purchaser with
-------------------
favorable opinions of Shearman & Sterling and such other counsel as shall be
reasonably satisfactory to Purchaser, addressing the matters set forth in
Exhibit 7.02(i).
(j) Change of Name. NTI-CA shall have executed an agreement assigning
--------------
the trademark "NTI" to Purchaser and shall have taken all corporate action
necessary other than the filing of the amendment to its articles of
incorporation, to change its name as of, upon the filing of the amendment to its
articles of incorporation, as of December 22, 1997.
(k) Stock Pledge. Marcelli shall have entered into the Stock Pledge.
------------
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Survival. Subject to the limitations and other
--------
provisions of this Agreement, the representations and warranties, of the parties
hereto contained herein shall survive the Closing and shall remain in full force
and effect until March 31, 1999; provided that (i) the representations and
warranties in Sections 2.12 (provided that Sellers' liability for a
<PAGE>
breach of the representations and warranties contained in Section 2.12 shall
only remain in full force and effect with respect to willful or reckless
violations of applicable law, rule, regulation, order, judgment or decree) and
2.15, and claims based on representations set forth in Article II which were
fraudulently made by Sellers, shall remain in full force and effect until the
expiration of the respective statute of limitations, (ii) the representations
and warranties in Sections 2.03 and the fourth sentence of Section 2.04 shall
survive indefinitely and (iii) the survival of the representations and
warranties in Section 2.16 shall be governed exclusively by Section 6.09.
SECTION 8.02. Indemnification by Purchaser. (a) Purchaser agrees,
----------------------------
subject to the other terms and conditions of this Agreement, to indemnify
Sellers against and hold Sellers harmless from all Losses to Sellers arising out
of (i) the breach of any representation, warranty, covenant or agreement of
Purchaser herein (other than Article VI, it being understood that the sole
remedy for breach thereof shall be pursuant to Article VI) and (ii) the conduct
of the Business by Purchaser following the Closing. Anything in Section 8.01
to the contrary notwithstanding, no claim may be asserted nor any action
commenced against Purchaser (x) for breach of any representation or warranty
contained herein, unless written notice of such claim or action is received by
Purchaser describing in detail the facts and circumstances with respect to the
subject matter of such claim or action on or prior to the date on which the
representation or warranty on which such claim or action is based ceases to
survive as set forth in Section 8.01, irrespective of whether the subject matter
of such claim or action shall have occurred before or after such date or
(y) for breach of any covenant or agreement contained herein to be performed
prior to the Closing, unless written notice of such claim or action is received
by Purchaser describing in detail the facts and circumstances with respect to
the subject matter of such claim or action on or prior to March 31, 1999 and (z)
for breach of any covenant contained in Section 4.02(b), 4.02(c) or 4.07 unless
written notice of such claim or action is received by Purchaser describing in
detail the facts and circumstances with respect to the subject matter of such
claim or action on or prior to the 90th day after any Seller becomes aware of
the facts or circumstances constituting such breach.
(b) The indemnification obligations of Purchaser pursuant to Section
8.02(a)(i) (other than in respect of a Seller Special Claim) shall not be
effective until the aggregate dollar amount of all Losses which would otherwise
be indemnifiable pursuant to Section 8.02(a)(i) exceeds $450,000 ("Purchaser's
-----------
Threshold Amount"), and then only to the extent such aggregate amount exceeds
- ----------------
Purchaser's Threshold Amount; provided, however, that the indemnification
-------- -------
obligations of Purchaser pursuant to Section 8.02(a)(i) shall be effective from
the first dollar with respect any Losses arising out of a breach of the
representations and warranties set forth in Section 3.05. In addition, no claim
may be made against Purchaser for indemnification pursuant to Section 8.02(a)(i)
with respect to any individual item of Loss (other than Losses arising from a
breach of the representations and warranties set forth in Section 3.05), unless
such item exceeds $10,000, nor shall any such item be applied to or considered
part of Purchaser's Threshold Amount (it being understood that substantially
similar Losses arising out of or resulting from a breach of the same
representation or warranty based on a substantially similar set of facts and
circumstances shall be considered a single item of Loss). The indemnification
obligations of Purchaser pursuant to Section 8.02(a)(i) shall be
<PAGE>
effective only until the dollar amount paid in respect of the Losses indemnified
against under Section 8.02(a)(i) (other than in respect of a Seller Special
Claim) aggregates to an amount equal to $6,000,000. A "Seller Special Claim"
--------------------
shall mean a claim based on representations set forth in Article III which were
fraudulently made by Purchaser or for a breach of any covenant or agreement.
(c) Payments by Purchaser pursuant to Section 8.02(a) shall be limited
to the amount of any Losses that remains after deducting therefrom (i) any Tax
benefit to Sellers or any affiliate thereof net of any additional Tax costs,
(ii) any insurance proceeds and any indemnity, contribution or other similar
payment if and when actually received by Sellers or any affiliate thereof from
any third party with respect thereto and (iii) any adjustments to the Purchase
Price pursuant to Section 1.04 with respect to the subject matter in dispute
(the limitations set forth in clauses (i), (ii) and (iii) in the preceding
sentence shall also apply to the determination of the amount of any Loss for
purposes of Section 8.02(b)). If a payment is made by Purchaser in accordance
with this Section 8.02, and (A) if in a subsequent taxable year a Tax benefit is
realized by Sellers (that was not previously taken into account to reduce an
amount otherwise payable by Purchaser under Section 8.02), Sellers shall pay to
Purchaser at the time of such realization the amount of such Tax benefit to the
extent that the Tax benefit would have resulted in a reduction in the amount
paid by Purchaser under Section 8.02 if the Tax benefit had been obtained in the
year of such payment and (B) if subsequently any Seller or any affiliate of
Seller receives insurance proceeds or indemnity, contribution or other similar
payments from any third party (that was not previously taken into account to
reduce the amount otherwise payable by Purchaser under Section 8.02), in respect
of the Loss for which such payment was made, Sellers shall pay to Purchaser at
the time that such proceeds or payments are received by Sellers or any affiliate
thereof the amount of such proceeds or payments to the extent that such proceeds
or payments would have resulted in a reduction in the amount paid by Purchaser
under this Section 8.02 if the proceeds or payments had been received by Sellers
or any affiliate thereof at the time the amount of Purchaser's obligations with
respect thereto under Section 8.02 were initially determined. A Tax benefit
will be considered to be realized for purposes of this Section 8.02 at the time
and to the extent that it is reflected on a Tax Return of any Seller and it
actually results in a reduction of Taxes otherwise then payable. Purchaser
shall indemnify Sellers if any such Tax benefit is disallowed or subsequently
reduced.
(d) Sellers hereby acknowledge and agree that, from and after the
Closing, their sole and exclusive remedy with respect to any and all claims
relating to the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in this Article VIII and in Article VI. In
furtherance of the foregoing, Sellers hereby waive, to the fullest extent
permitted under applicable law, any and all other rights, claims and causes of
action they may have, from and after the Closing, against Purchaser or its
officers, directors, employees, agents, representatives and affiliates relating
to the subject matter of this Agreement.
(e) Except as set forth in this Agreement, Purchaser is not making any
representation, warranty, covenant or agreement with respect to the matters
contained herein. Notwithstanding anything to the contrary contained in this
Agreement, no breach of any
<PAGE>
representation, warranty, covenant or agreement contained herein shall give rise
to any right on the part of Sellers, after the consummation of the purchase and
sale of the Shares contemplated by this Agreement, to rescind this Agreement or
any of the transactions contemplated hereby.
(f) Sellers shall take all reasonable steps to mitigate their
Losses upon and after becoming aware of any event which could reasonably be
expected to give rise to any Losses.
SECTION 8.03. Indemnification by Sellers. (a) Each Seller, as a
--------------------------
joint and several obligation among the members of the Davila Group, and as a
several (and not joint) obligation as between the Davila Group and Marcelli,
agrees, subject to the other terms and conditions of this Agreement, to
indemnify the Company and Purchaser against and hold them harmless from all
Losses to the Company and Purchaser to the extent arising out of (i) the breach
of any representation or warranty (as each such representation or warranty would
read if all qualifications as to materiality (including, without limitation, as
to Material Adverse Effect) were deleted therefrom), or covenant or agreement of
Sellers herein (other than Section 2.16 and Article VI, it being understood that
the sole remedy for breach of such provisions shall be pursuant to Article VI),
(ii) any liability of NTI-CA existing (whether or not contingent) at the time of
the Section 351 transfer dated April 1, 1991 from NTI-CA to the Company,
including without limitation liability related to the matters disclosed under
the caption "Charleston Road California Site" in Section 2.20 of the Disclosure
Schedule, (iii) any obligation owing to John Grosso or David St. Andre under the
respective letters dated May 12, 1992 between the Company and each of them or
any successor agreement or (iv) liabilities related to the matters disclosed
under the caption "Galley Road Dump Site" on Section 2.20 of the Disclosure
Schedule. Anything in Section 8.01 to the contrary notwithstanding, no claim
may be asserted nor any action commenced against Sellers (x) for breach of any
representation or warranty contained herein, unless written notice of such claim
or action is received by Sellers describing in detail the facts and
circumstances with respect to the subject matter of such claim or action on or
prior to the date on which the representation or warranty on which such claim or
action is based ceases to survive as set forth in Section 8.01, irrespective of
whether the subject matter of such claim or action shall have occurred before or
after such date or (y) for breach of any covenant or agreement contained herein
to be performed prior to the Closing, unless written notice of such claim or
action is received by Sellers describing in detail the facts and circumstances
with respect to the subject matter of such claim or action on or prior to March
31, 1999 and (z) for breach of any covenant contained in Section 4.02(c), 4.07
or 4.08 unless written notice of such claim or action is received by Sellers
describing in detail the facts and circumstances with respect to the subject
matter of such claim or action on or prior to the 90th day after Purchaser
becomes aware of the facts or circumstances constituting such breach.
(b) The indemnification obligations of Sellers pursuant to clauses
(i) and (iv) of Section 8.03(a) (other than in respect of a Special Claim) shall
not be effective until the aggregate dollar amount of all Losses which would
otherwise be indemnifiable pursuant thereto exceeds $450,000 ("Sellers'
--------
Threshold Amount"), and then only to the extent such aggregate
- ----------------
<PAGE>
amount exceeds Sellers' Threshold Amount. In addition, no claim may be made
against Sellers for indemnification pursuant to clauses (i) and (iv) of Section
8.03(a) (other than in respect of a Special Claim) with respect to any
individual item of Loss, unless such item exceeds $10,000, nor shall any such
item be applied to or considered part of Sellers' Threshold Amount (it being
understood that substantially similar Losses arising out of or resulting from a
breach of the same representation or warranty based on a substantially similar
set of facts and circumstances shall be considered a single item of Loss). The
indemnification obligations of Sellers pursuant to clauses (i) and (iv) of
Section 8.03(a) (other than in respect of a Special Claim) shall be effective
only until the aggregate dollar amount paid in respect of the Losses indemnified
against under this Section 8.03 aggregates to an amount equal to $6,000,000. In
no event shall the Davila Group, on the one hand, and Marcelli, on the other
hand, be obligated to make indemnification payments to Purchaser pursuant to
clauses (i) and (iv) of Section 8.03(a) (other than in respect of a Special
Claim) once the aggregate of all such payments made by the Davila Group or
Marcelli, as the case may be, equals such party's or group's pro-rata share
(based on the Sellers' Percentages) of $6,000,000. To the extent that Purchaser
seeks indemnification from Sellers under the provisions of this Article VIII,
Purchaser shall use commercially reasonable efforts to pursue such claim for
indemnification against each of the Davila Group and Marcelli on the same basis
and any settlement entered into by Purchaser with the Davila Group or Marcelli,
as the case may be, shall be offered to the other party on the same basis. For
purposes of this Section 8.03, a "Special Claim" shall mean a claim based on
-------------
representations set forth in Article II which were fraudulently made by Sellers
or for a breach of any covenant or agreement or a representation or warranty
contained in Section 2.03, the fourth sentence of Section 2.04, Section 2.12 or
Section 2.15; provided, however, that a claim for a breach of a representation
or warranty contained in Section 2.12 shall only be a Special Claim to the
extent that it related to a reckless or willful violation by the Company or any
employee of applicable law, rule, regulation, order, judgment or decree.
(c) Payments by Sellers pursuant to Section 8.03(a) shall be
limited to the amount of any Losses that remains after deducting therefrom (i)
any Tax benefit to Purchaser (including the Company) net of any additional tax
costs, (ii) any insurance proceeds and any indemnity, contribution or other
similar payment if and when actually received by Purchaser or any affiliate from
any third party with respect thereto and (iii) any adjustments to the Purchase
Price pursuant to Section 1.04 with respect to the subject matter in dispute. If
a payment is made by any Seller in accordance with this Section 8.03, and (A) if
in a subsequent taxable year a Tax benefit is realized by Purchaser, the Company
or any affiliate of Purchaser, the Company or any Person with which the Company
files a consolidated, combined or unitary Tax return (that was not previously
taken into account to reduce an amount otherwise payable by Sellers under
Section 8.03), Purchaser, the Company or any affiliate of Purchaser in respect
of the Loss for which such payment was made, the Company or any Person with
which the Company files a consolidated, combined or unitary Tax Return shall pay
to such Seller at the time of such realization the amount of such Tax benefit to
the extent that the Tax benefit would have resulted in a reduction in the amount
paid by Sellers under this Section 8.03 if the Tax benefit had been obtained in
the year of such payment or (B) if subsequently Purchaser or the Company or any
affiliate of Purchaser or the Company receives insurance proceeds or indemnity,
contribution or other similar payments from any third party (that was not
<PAGE>
previously taken into account to reduce the amount otherwise payable by Sellers
under Section 8.03) in respect of the Loss for which such payment was made, the
Company shall pay to Sellers at the time that such proceeds or payments are
received by Purchaser, the Company or any affiliate of Purchaser the amount of
such proceeds or payments to the extent that such proceeds or payments would
have resulted in a reduction in the amount paid by Sellers under this Section
8.03 if the such proceeds or payments had been received by Purchaser, the
Company or any affiliate of Purchaser at the time the amount of Sellers
obligations with respect thereto under Section 8.03 were initially determined.
A Tax benefit will be considered to be realized for purposes of this Section
8.03 at the time and to the extent that it is reflected on a Tax Return of
Purchaser, the Company or any affiliate of Purchaser, the Company or any Person
with which Purchaser or the Company files a consolidated, combined or unitary
Tax Return and actually results in a reduction in Tax otherwise then payable.
Sellers shall indemnify Purchaser and the Company if any such Tax benefit is
disallowed or subsequently reduced.
(d) Purchaser hereby acknowledges and agrees that, from and after
the Closing, its sole and exclusive remedy with respect to any and all claims
relating to the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in this Article VIII and in Article VI. In
furtherance of the foregoing, Purchaser hereby waives, from and after the
Closing, to the fullest extent permitted under applicable law, any and all other
rights, claims and causes of action it (or, after the Closing, the Company) may
have against Sellers or their officers, directors, employees, agents,
representatives and affiliates relating to the subject matter of this Agreement.
(e) Except as set forth in this Agreement, Sellers are not making
any representation, warranty, covenant or agreement with respect to the matters
contained herein. Anything herein to the contrary notwithstanding, no breach of
any representation, warranty, covenant or agreement contained herein shall give
rise to any right on the part of Purchaser, after the consummation of the
purchase and sale of the Shares contemplated hereby, to rescind this Agreement
or any of the transactions contemplated hereby.
(f) Purchaser shall take and shall cause the Company to take all
reasonable steps to mitigate their Losses upon and after becoming aware of any
event which could reasonably be expected to give rise to any Losses.
SECTION 8.04. Indemnification Procedures. (a) For purposes of this
--------------------------
Section 8.04, a party against which indemnification may be sought is referred to
as the "Indemnifying Party" and the party which may be entitled to
------------------
indemnification is referred to as the "Indemnified Party".
-----------------
(b) The Indemnified Party agrees to give the Indemnifying Party
written notice of any claim, assertion, event or proceeding made against it by a
third party as to which it may request indemnification hereunder or as to which
Purchaser's Threshold Amount or Sellers' Threshold Amount, as the case may be,
may be applied within 30 days after the receipt by the Indemnified Party of
notice of any claim against such Indemnified Party or the commencement of any
action or proceeding against such Indemnified Party. The failure to
<PAGE>
give any notice required by this Section 8.04(b) shall not relieve any
Indemnifying Party of any obligations contained in this Article VIII, except to
the extent that the failure to give such notice actually prejudices the rights
of such Indemnifying Party. [With respect to a claim by or in respect of a
person not party to this Agreement, the Indemnifying Party shall, after giving
prompt notice to the Indemnified Party acknowledging the Indemnifying Party's
obligation under this Article VIII to indemnify the Indemnified Party in respect
of such claim have the right to direct, through counsel of its own choosing, the
defense or settlement of any such claim or proceeding at its own expense;
provided, however, in the event that, subsequent to the Indemnifying Party's
- -------- -------
acknowledgment of its indemnification obligation under this Article VIII, the
Indemnifying Party discovers additional or different facts which cause the
Indemnifying Party to determine that it is not obligated under this Article VIII
to indemnify the Indemnified Party therefore, the Indemnifying Party shall give
the Indemnified Party prompt written notice of such determination and shall
relinquish the defense or settlement of such claim to the Indemnified Party; and
provided, further, that except for the settlement of a claim that involves no
- --------
obligation of the Indemnified Party other than the payment of money for which
indemnification is provided hereunder (in which case the Indemnifying Party may
effect such settlement in its discretion), the Indemnifying Party shall not
settle or compromise any claim without the prior written consent of the
Indemnified Party, which consent will not be unreasonably withheld; and
provided, further, that the Indemnifying Party may not consent to entry of any
- --------
judgment or enter into any settlement in respect of a claim which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to the Indemnified Party of a release from all liability in respect of such
claim. If the Indemnifying Party elects to assume the defense of any such claim
or proceeding, the Indemnified Party may participate in such defense, but in
such case the expenses of the Indemnified Party shall be paid by the Indemnified
Party. The Indemnified Party shall provide the Indemnifying Party with access
to its records and personnel relating to any such claim, assertion, event or
proceeding during normal business hours and shall otherwise cooperate with the
Indemnifying Party in the defense or settlement thereof, and the Indemnifying
Party shall reimburse the Indemnified Party for all its reasonable out-of-pocket
expenses in connection therewith. Notwithstanding the foregoing, if the
Indemnifying Party shall fail to defend, or if, after commencing or undertaking
any such defense, the Indemnifying Party fails to prosecute or withdraws from
such defense, or, if in the reasonable judgment of the Indemnified Party (i)
there is a conflict between the positions of the Indemnifying Party and the
Indemnified Party in conducting the defense of such claim or (ii) in the case
where Purchaser or the Company is the Indemnified Party, considerations relating
to the operation of the Company that, in the reasonable judgment of Purchaser,
would materially adversely affect the business, operations or profitability of
the Company would require the Indemnified Party to defend or respond in a manner
different from that recommended by the Indemnifying Party, the Indemnified Party
shall have the right to undertake the defense or settlement thereof, at the
Indemnifying Party's expense, and the Indemnifying Party shall be entitled to
participate in the defense of such claim, the cost of such participation to be
at its own expense. The Indemnified Party may compromise or settle any claim
against it at any time; provided, however, that the Indemnified Party shall not
-------- -------
settle or compromise any claim without the prior written consent of the
Indemnifying Party; provided, further, that if in
-------- -------
<PAGE>
the reasonable judgment of the Indemnified Party it would be materially harmed
or otherwise materially prejudiced by not entering into a proposed settlement or
compromise and the Indemnifying Party withholds consent to such settlement or
compromise, the Indemnified Party may enter into such settlement or compromise
and such settlement or compromise shall not be conclusive as to, or otherwise be
used to establish, the liability of the Indemnifying Party to the Indemnified
Party or any third party.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by the mutual written consent of Sellers and Purchaser;
(b) either by Sellers, acting collectively, or Purchaser, if any
Governmental Authority with jurisdiction over such matters shall have
issued a Governmental Order restraining, enjoining or otherwise prohibiting
the sale of the Shares hereunder and such order, decree, ruling or other
action shall have become final and unappealable; provided, however, that
-------- -------
the provisions of this Section 9.01(b) shall not be available to any party
unless such party shall have used its best efforts to oppose any such
order, judgment, injunction, decree, stipulation, determination or award or
to have such order, judgment, injunction, decree, stipulation,
determination or award vacated or made inapplicable to the transactions
contemplated by this Agreement; or
(c) either by Sellers, acting collectively, or Purchaser, if the
Closing shall not have occurred prior to January 31, 1998; provided,
--------
however, that the right to terminate this Agreement under this Section
-------
9.01(c) shall not be available to any party whose failure to fulfill any
obligation under this Agreement shall have been the cause of, or shall have
resulted in, the failure of the Closing to occur prior to such date.
Time shall be of the essence in this Agreement.
SECTION 9.02. Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 9.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except (a) as set forth in Section 4.03, Section 11.01 and 11.03 and (b) that
nothing herein shall relieve either party from liability for any willful breach
hereof.
SECTION 9.03. Waiver. At any time prior to the Closing, any party
------
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby.
<PAGE>
ARTICLE X
DEFINITIONS
SECTION 10.01. Certain Defined Terms. As used in this Agreement,
---------------------
the following terms shall have the following meanings:
"Adjacent Property" The term "Adjacent Property" shall mean the land
-----------------
owned by the Trusts and known as Lot 3, KayTree Sub. No. 4, a replat of Blk 2,
G&H Sub. in El Paso County, in the State of Colorado, consisting of
approximately 5.54 acres of land.
"Affiliate" The term "Affiliate" shall mean, as to the Company (or, if
---------
another Person is specified, as to such other specified Person), (i) each Person
directly or indirectly controlling, controlled by or under the direct or
indirect common control with the Company (or such specified Person), including
without limitation, in the case of the Company, each Seller, (ii) any Person who
is or has been within two years of the time in question a director or direct or
indirect beneficial holder of at least 5% of any class of the outstanding
capital stock of any Person referred to in clause (i) above and the members of
the immediate family of each such director or holder (and, if such specified
Person is a natural person, of such specified Person), and (iii) each Person of
which the Company (or such specified Person) or an Affiliate (as defined in
clauses (i) or (ii) above) thereof shall, directly or indirectly, beneficiary
own at least 5% of any class of outstanding capital stock or other evidence of
beneficial interest.
"Agreement" means this Stock Purchase Agreement, dated as of December
---------
19, 1997, among Sellers and Purchaser (including the Disclosure Schedule) and
all amendments hereto made in accordance with Section 10.10.
"Audited Financial Statements" means the audited balance sheet, income
----------------------------
statement and statement of cash flows of the Company as of and for the 12 month
period ended March 31, 1997.
"Bain Funds Commitment Letter" means the financing commitment letter,
----------------------------
dated November 19, 1997, pursuant to which Bain Capital Fund V, L.P. and Bain
Capital Fund V-B, L.P. have committed to purchase an aggregate of $15,000,000 of
equity in Purchaser to fund a portion of the Purchase Price.
"Bonus Payments" means the "successful transaction" bonus payments in
--------------
the aggregate amount of $300,000 to be paid by the Company to the employees of
the Company specified on Schedule 10.01 in connection with the closing of the
transactions contemplated by this Agreement.
"Books and Records" means all books of account and other financial
-----------------
records pertaining to the Company.
<PAGE>
"Business" means the business of the Company as conducted as of the
--------
date hereof.
"Business Day" means any day that is not a Saturday, a Sunday or other
------------
day on which banks are required or authorized by law to be closed in the City of
New York.
"Chase Credit Agreement" means the Credit Agreement, dated as of
----------------------
October 28, 1997, by and among Purchaser, The Chase Manhattan Bank and the banks
and other financial institutions or entities from time to time party thereto,
pursuant to which Purchaser is entitled to borrow up to $25,000,000 in order to
fund a portion of the Purchase Price, subject to the conditions set forth in
Section 5.2 of the Chase Credit Agreement.
"Closing Net Worth" means total assets minus total liabilities of the
-----------------
Company as shown on the Closing Balance Sheet; provided, however, regardless of
-------- -------
whether such items are reflected on the Closing Balance Sheet, for purposes of
the Closing Net Worth calculation, the Closing Net Worth shall be calculated
without regard to (i) any liability in respect of the Grosso/St. Andre Payments
or the Bonus Payments, and (ii) any asset or reduction in liability in respect
of any income tax deduction or other Tax benefit relating to the Grosso/St.
Andre Payments (it being understood that the calculation of Closing Net Worth
shall include an asset or reduction in liability in respect of an income tax
deduction for the Bonus Payments).
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Disclosure Schedule" means the Disclosure Schedule dated as of the
-------------------
date hereof delivered to Purchaser by Sellers.
"Encumbrance" means any security interest, pledge, mortgage, lien,
-----------
charge, adverse claim of ownership or use, or other encumbrance of any kind.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Financial Statements" means, collectively, the Audited Financial
--------------------
Statements and the Interim Financial Statements.
"GAAP" means United States generally accepted accounting principles in
----
effect from time to time applied consistently throughout the time period
involved.
"Governmental Authority" means any government, any governmental
----------------------
entity, department, commission, board, agency or instrumentality, and any court,
tribunal, or judicial or arbitral, body, whether federal, state or local.
"Governmental Order" means any order, judgment, injunction, decree,
------------------
<PAGE>
stipulation, determination or award entered by or with any Governmental
Authority.
"Grosso/St. Andre Payments" means the payments to be made by the
-------------------------
Company to John Grosso and David St. Andre, pursuant to letters between the
Company and each of them, dated as of December 19, 1997, which letters amend and
restate the letters between the Company and each of John Grosso and David St.
Andre, each dated May 12, 1992.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended, and the rules and regulations thereunder.
"Interim Financial Statements" means the unaudited balance sheet,
----------------------------
income statements and statement of cash flows of the Company as of and for the
six month period ended September 29, 1997.
"knowledge of Sellers" or "Sellers' knowledge" means the actual
-------------------- ------------------
knowledge after reasonable inquiry of each Seller, each of the directors of the
Company or NTI-CA, and each of the following employees of the Company: Peter
Malinaro, David St. Andre and Frank Gorman.
"Losses" of a Person means any and all losses, liabilities, damages,
------
claims, awards, judgments, costs and expenses (including, without limitation,
reasonable attorney's fees) actually suffered or incurred by such Person.
"Marcelli Employment Agreement" means the Employment Agreement, dated
-----------------------------
as of December 19, 1997, between Purchaser and Marcelli.
"Material Adverse Effect" means any effect or change that does have,
-----------------------
or would reasonably be expected to have, a material adverse affect on the
business, financial condition, operating results or assets of the Company or the
Business.
"Net Debt Obligations" means (A) all obligations of the Company in
--------------------
respect of long-term debt obligations (including the current portion thereof),
indebtedness for borrowed money, lines of credit, notes payable and capital
leases (but excluding therefrom any operating leases of the Company), together
with all accrued and unpaid interest thereon through the Closing Date and all
prepayment penalties and other obligations due in respect thereof upon repayment
and termination at the Closing and the Transaction Costs of the Company less (B)
all cash and cash equivalents held by the Company.
"Person" means any individual, partnership, firm, corporation,
------
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
"Permitted Encumbrances" means (i) Encumbrances for inchoate
----------------------
mechanics' and materialmen's liens for construction in progress and workmen's,
repairmen's, warehousemen's and carriers' liens arising in the ordinary course
of the Business which in the
<PAGE>
aggregate have a value of less than $25,000, (ii) Encumbrances for Taxes not yet
payable and for Taxes being contested in good faith, (iii) Encumbrances arising
out of, under or in connection with this Agreement, (iv) Encumbrances in
connection with debt obligations of the Company as described in clause (A) of
the definition of Net Debt Obligations and (v) Encumbrances and imperfections of
title the existence of which would not materially affect the use of the property
subject thereto, consistent with past practice.
"Premerger Notification Rules" means the rules promulgated pursuant to
----------------------------
the HSR Act.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Stock Pledge" means the Stock Pledge Agreement, dated as of December
------------
19, 1997, between Marcelli and Purchaser.
"Tax" or "Taxes" means all income, gross receipts, sales, use,
--- -----
employment, franchise, profits, property, transfer or other taxes, fees, stamp
taxes and duties, assessments or charges of any kind whatsoever (whether payable
directly or by withholding), together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority with
respect thereto.
"Working Capital" means current assets of the Company minus current
---------------
liabilities of the Company, as reflected on the Closing Balance Sheet; provided,
however, that regardless of whether such items are reflected on the Closing
Balance Sheet, the Working Capital shall be calculated without regard to (i) any
liability in respect to the Grosso/St. Andre Payments or the Bonus Payments, and
(ii) any asset or reduction in liability in respect of any income tax deduction
or other Tax Benefit relating to the Grosso/St. Andre Payment or the Bonus
Payments.
SECTION 10.02. Other Defined Terms. Each of the following terms has
-------------------
the meaning specified in the Section set forth opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -----------
<S> <C>
Actions 2.11
Assets 2.22
BARS 2.17
Balance Sheet Date 2.10(a)
Closing 1.03(a)
Closing Balance Sheet 1.04(c)
Closing Date 1.03(a)
Company recitals
Company Accountants 4.09
Confidentiality Agreement 4.03
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Contest 6.04(b)
Davila Group preamble
Davila Marital Trust preamble
Davila Survivor's Trust preamble
Estimated Net Debt Obligations 1.04(b)
Estimated Grosso/
St. Andre Payments 1.04(b)
Estimated Net Worth Differential 1.04(b)
Financial Statement Expenses 4.09
401(k) Plan 2.15(d)
Grosso/St. Andre Escrow 1.03(d)
Independent Accounting Firm 1.04(e)
IRS 2.15(a)
Indemnified Party 8.04(a)
Indemnifying Party 8.04(a)
Interim Net Worth 1.04(d)(i)
Leases 2.14(b)
Marcelli preamble
Marcelli Employment Agreements 7.02(d)
Material Contracts 2.18
Multiemployer Plan 2.15(b)
Multiple Employer Plan 2.15(b)
Net Worth Target 1.04(b)
NTI-CA preamble
Permits 2.13
Plans 2.15(a)
Post-Closing Date Tax Benefit 6.03(b)
Purchase Price 1.02
Purchaser preamble
Purchaser's Accountants 1.04(c)
Purchaser's Threshold Amount 8.02(b)
Registration Statement 4.09
Reserved Taxes 6.01(a)
Sellers preamble
Sellers' Accountants 1.04(e)
Sellers' Percentages 1.03(c)
Seller Special Claim 8.02(b)
Sellers' Threshold Amount 8.03(b)
Shares Recitals
Special Claim 8.03(b)
Tax Returns 2.16(a)
Trusts preamble
Welfare Benefit Plan 2.15(e)
Working Capital Target 1.04(d)(iii)
</TABLE>
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. All costs and expenses, including, without
--------
limitation, fees and disbursements of counsel, financial advisors, financing
sources, equity investors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby (the "Transaction Costs")
-----------------
shall be paid by the party incurring such costs and expenses, whether or not the
Closing shall have occurred, subject, in the case of Transaction Costs of the
Company (including any bonus payments made in connection with the Closing of the
transactions contemplated hereby), to the definition of Long-term Debt
Obligations in Section 10.1.
SECTION 11.02. Notices. All notices, request, claims, demands and
-------
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by facsimile, by telegram,
by telex or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 11.02):
(a) if to any Seller:
Shareholders of Colorado Springs Circuits, Inc.
c/o NTI
980 Technology Court
Colorado Springs, Colorado 80915
Attention: James S. Marcelli
Facsimile: (719) 574-3375
with a copy to:
Shearman & Sterling
555 California Street
San Francisco, CA 94104
Attention: Christopher D. Dillon, Esq.
Facsimile: (415) 616-1199
(b) if to Purchaser:
Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention: Bruce McMaster
<PAGE>
Facsimile: (714) 630-9438
with a copy to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: David Dominik
Facsimile: (617) 572-3274
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Daniel S. Evans, Esq.
Facsimile: (617) 951-7050
SECTION 11.03. Public Announcements. No party to this Agreement
--------------------
shall make any public announcements in respect of this Agreement or the
transactions contemplated hereby or otherwise communicate with any news media
without the prior written consent of the parties hereto, and the parties shall
cooperate as to the timing and contents of any such announcement.
SECTION 11.04. Headings. The headings contained in this Agreement
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.05. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
SECTION 11.06. Entire Agreement. This Agreement and the
----------------
Confidentiality Agreement constitute the entire agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, other than the Confidentiality Agreement,
among Sellers and Purchaser with respect to the subject matter hereof and except
as otherwise expressly provided herein.
SECTION 11.07. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise; provided, however, that after the Closing,
Purchaser may (a)
<PAGE>
make a collateral assignment of this Agreement to any lender to the Company and
(b) assign this Agreement to any entity which acquires all or substantially all
of the Business.
SECTION 11.08. No Third-Party Beneficiaries. Except as provided in
----------------------------
Article V, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein, express or implied, is intended to
or shall confer upon any other person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 11.09. Amendment. This Agreement may not be amended or
---------
modified except by an instrument in writing signed by Sellers and Purchaser.
SECTION 11.10. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of New York applicable
to contracts executed in and to be performed in that State.
SECTION 11.11. Counterparts. This Agreement may be executed in one
------------
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, each Seller and Purchaser has executed this
Agreement as of the date first written above or has caused this Agreement to be
executed as of the date first written above by its respective officers or
trustee thereunto duly authorized.
NTI, INC., a California corporation
By /s/ James S. Marcelli
------------------------------------
Name:
Title:
----------------------------
JAMES S. MARCELLI
THE DAVILA MARITAL TRUST DATED
MARCH 13, 1989, a California irrevocable trust
By /s/ Michael J. Irvin
-----------------------------------
Michael J. Irvin
Trustee
THE DAVILA SURVIVOR'S TRUST DATED
MARCH 13, 1989, a California revocable trust
By /s/ Liane Davila
-----------------------------------
Liane Davila
Trustee
DETAILS, INC.
By /s/ Joseph P. Gisch
-----------------------------------
Name: Joseph P. Gisch
Title: Chief Financial Officer
<PAGE>
EXHIBIT 1.03(c)
---------------
SELLERS' PERCENTAGES
--------------------
Marcelli 24.62%
NTI-CA 75.18%
The Davila Marital Trust 00.10%
The Davila Survivor's Trust 00.10%
The calculation of Sellers' percentages are based upon Sellers' respective
percentage ownership interests in the shares, adjusted to reflect the
understanding of the parties that Marcelli's proceeds are not reduced by
obligations relating to the Grosso/St. Andre payments or any intercompany debt.
Sellers' percentages will be adjusted to reflect final purchase price
adjustments under the terms of the Stock Purchase Agreement relating to the
differences between Sellers' estimates of such amounts and the final
calculations thereof.
<PAGE>
Exhibit 7.01(c)
[Form of Purchaser's Counsel Opinion]
<PAGE>
Exhibit 7.02(d)
[Forms of Employment and Non-Compete Agreements]
<PAGE>
Exhibit 7.02(i)
[Forms of Legal Opinions]
<PAGE>
Exhibit 7.02(i)
[Forms of Real Property Documents]
<PAGE>
Disclosure Schedule
<PAGE>
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
dated as of December 19, 1997
among
NTI, INC.,
JAMES S. MARCELLI,
THE
DAVILA MARITAL TRUST,
UNDER TRUST DOCUMENT DATED MARCH 13, 1989,
MICHAEL J. IRVIN, AS TRUSTEE ,
THE DAVILA SURVIVOR'S TRUST,
UNDER TRUST DOCUMENT DATED MARCH 13, 1989,
LIANE DAVILA, AS TRUSTEE
and
DETAILS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE
<TABLE>
<S> <C>
1.01. Purchase and Sale. 1
1.02. Purchase Price 1
1.03. Closing 1
1.04. Purchase Price Adjustment 2
<CAPTION>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
<S> <C>
2.01. Incorporation and Authority of NTI-CA 5
2.02. Formation and Authority of the Trusts 5
2.03. Incorporation and Qualification of the Company 6
2.04. Capital Stock of the Company 6
2.05. Subsidiaries 6
2.06. No Conflict 6
2.07. Consents and Approvals 7
2.08. Financial Information 7
2.09. Absence of Undisclosed Liabilities 7
2.10. Absence of Certain Changes or Events 8
2.11. Absence of Litigation 9
2.12. Compliance with Laws 9
2.13. Licenses and Permits 10
2.14. Real Property 10
2.15. Employee Benefit Matters 10
2.16. Taxes 12
2.17. Brokers 13
2.18. Material Contracts 13
2.19. Customers and Suppliers 14
2.20. Environmental and Safety Matters 15
2.21. Trademarks, Patents and Copyrights 15
2.22. Title to Assets 15
2.23. Transactions with Affiliates 16
2.24. Ultimate Parent Entities 16
</TABLE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
<PAGE>
<TABLE>
<S> <C>
3.01. Incorporation and Authority of Purchaser 16
3.02. No Conflict 17
3.03. Consents and Approvals 17
3.04. Absence of Litigation 17
3.05. HSR Act 17
3.06. Financing 17
3.07. Brokers 18
4.01. Conduct of Business Prior to the Closing 18
4.02. Access to Information 18
4.03. Confidentiality 19
4.04. Regulatory and Other Authorizations; Consents. 19
4.05. Investigation 19
4.06. Financing 20
4.07. Further Action 20
4.08. Sellers' Confidentiality; Non-Competition 20
4.09. Preparation of Financial Statements; Consents 21
4.10. NTI Name 22
4.11. Davila Group Assets 22
4.12. Real Estate Leases 22
<CAPTION>
ARTICLE V
[INTENTIONALLY OMITTED]
ARTICLE VI
TAX MATTERS
<S> <C>
6.01. Tax Indemnities 23
6.02. Preparation of Tax Returns 24
6.03. Refunds and Tax Benefits 25
6.04. Contests 26
6.05. Cooperation and Exchange of Information 26
6.06. Conveyance Taxes 27
6.07. Miscellaneous 27
6.08. Survival of Obligations 27
<CAPTION>
ARTICLE VII
CONDITIONS TO CLOSING
<S> <C>
7.01. Conditions to Obligations of Sellers 28
7.02. Conditions to Obligations of Purchaser 28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VIII
INDEMNIFICATION
<S> <C>
8.01. Survival 30
8.02. Indemnification by Purchaser 30
8.03. Indemnification by Sellers 32
8.04. Indemnification Procedures 35
<CAPTION>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
<S> <C>
9.01. Termination 36
9.02. Effect of Termination 37
9.03. Waiver 37
<CAPTION>
ARTICLE X
DEFINITIONS
<S> <C>
10.01. Certain Defined Terms 37
10.02. Other Defined Terms 41
<CAPTION>
ARTICLE XI
GENERAL PROVISIONS
<S> <C>
11.01. Expenses 42
11.02. Notices 43
11.03. Public Announcements 44
11.04. Headings 44
11.05. Severability 44
11.06. Entire Agreement 44
11.07. Assignment 44
11.08. No Third-Party Beneficiaries 44
11.09. Amendment 45
11.10. Governing Law 45
11.11. Counterparts 45
<CAPTION>
EXHIBITS AND SCHEDULES
<S> <C> <C>
Exhibit 1.03(c) - Sellers' Percentages
Exhibit 1.04(b) - Sellers' Written Estimates
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit 4.12 - Form of Amendment and Restatement of Lease
Exhibit 7.01(c) - Form of Purchaser's Counsel Opinion
Exhibit 7.02(d) - Marcelli Employment Agreement
Exhibit 7.02(i) - Forms of Legal Opinions
Schedule 10.01 - Bonus Payments
Disclosure Schedule
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
James Marcelli ("Marcelli") and Details, Inc. ("Details," which shall
include the Company unless the context otherwise requires), for good and
valuable consideration including the mutual promises contained herein, hereby
agree to the following:
1. Effective Date of the Agreement. The effective date of this Agreement
--------------------------------
is December __, 1997 (the "Effective Date"). For purposes of this Agreement,
the term "Employment Period" shall mean the period beginning on the date hereof
and ending on the later of December 31, 2000 or the date twelve months after
written notice of the expiration thereof is given by Marcelli or the Company to
the other.
2. Duties. During his employment, Marcelli shall serve as the President
-------
of the NTI Division of Details (such NTI Division, the "Company") and as Vice
President of Details. In such capacity, Marcelli will be accountable to, and
will also have such powers, duties and responsibilities as may from time to time
be prescribed by, the Chief Executive Officer of Details or the Board of
Directors of Details, provided that such duties and responsibilities are
consistent with his executive position. He will perform and discharge his
duties and responsibilities faithfully, diligently and to the best of his
ability. He will devote substantially all of his working time and efforts to
the business and affairs of Details.
3. Base Salary. For the remainder of the 1997 calendar year, Marcelli
-----------
will receive a base salary at a rate commensurate and consistent with his
current salary at the Company. For the calendar years 1998, 1999 and 2000,
Marcelli will receive a base salary at the rate of $275,000, $300,000 and
$325,000 per year, respectively. In December 2000 and in each subsequent year
during Marcelli's employment, the Board of Directors of Details will review his
base salary and determine the level of his base salary for the following year
(which level shall not be reduced). All payments under this paragraph or any
other paragraph of this Agreement will be made in accordance with the regular
payroll practices of the Company, reduced by applicable withholding.
4. Annual Bonus. For calendar 1997 (including the portion thereof
------------
prior to the date of this Agreement), Marcelli shall not receive a bonus unless
it is accrued on the Closing Balance Sheet or contributed to the Company by the
Sellers (the terms "Closing Balance Sheet" and "Sellers" being used as such
terms are defined in the Stock Purchase Agreement dated as of December 19, 1997
among Details, Marcelli and the other parties thereto). For subsequent periods
during his employment, Marcelli will be eligible to receive an annual bonus (the
"Bonus") based on calendar year performance. The Bonus shall be calculated
according to the table set forth in Exhibit A hereto and shall be based on the
EBITDA targets ("Target EBITDA") set forth below for calendar years 1998, 1999
and 2000. In December 2000 and in each subsequent year during Marcelli's
employment, the Board of Directors of Details will determine appropriate Bonus
performance criteria and targets and the associated Bonus
<PAGE>
amounts (which shall be based on a Bonus amount payable upon achievement of the
performance targets of not less than the Bonus amount payable in respect of
target performance in the prior year).
<TABLE>
<CAPTION>
Calendar Target
Year EBITDA
-------- ------
<S> <C>
1998 $6,500,000
1999 $8,600,000
2000 $9,900,000
</TABLE>
In the event of any material acquisition or disposition by the Company or its
subsidiaries of assets or stock (other than acquisitions or dispositions of
assets in the ordinary course of business), the foregoing EBITDA Targets shall
be appropriately adjusted in good faith by Details' Board of Directors based on
the projected pro forma impact of the acquisition or disposition.
For purposes of calculating the Bonus, EBITDA shall be the Company's
earnings before interest, taxes, depreciation, amortization and extraordinary or
non-recurring income or charges, as determined by Details in its reasonable
judgment. In the event that the Board of Directors of Details implements
reductions in overall levels of benefits enjoyed by the Company's employees that
cause a sufficiently negative impact on employee morale or the Company's ability
to attract, retain and incent highly qualified employees as to preclude the
Company from attaining at least $6,500,000 of EBITDA in 1998, Marcelli will
nevertheless receive a bonus for 1998 of at least $100,000.
After the preparation and finalization of the financial statements
reflecting the first six months of each calendar year, Details shall pay
Marcelli an advance on the Bonus, if any, payable to him for the year (the
"Advance"). The Advance shall equal seventy-five percent (75%) of fifty percent
(50%) of the Bonus that Details expects to pay Marcelli at year end based on
Details' then good faith estimate of the Company's EBITDA for the calendar year.
If the actual Bonus for a calendar year is less than the amount of the Advance
paid to Marcelli in such year, then the shortfall shall be deducted from the
next Bonus(es) to which Marcelli would otherwise be entitled (but in no event
shall Marcelli be required to repay an Advance).
5. Stock Options. Key employees of the Company will be eligible to
-------------
participate in the 1997 Equity Incentive Plan (the "Equity Incentive Plan") of
Details Holdings Corp. (or, if applicable, its parent corporation) ("Details
Holdings"), and in connection therewith to receive restricted shares of and/or
options to acquire, Details Holdings' Class A-5 Common Stock, in each case
subject to the vesting and other terms specified in the applicable Option
Agreement and the Equity Incentive Plan. Details Holdings' intends that options
to acquire an aggregate of 24,062.45 shares of Class A-5 Common Stock,
representing 1.25% of the currently outstanding Class A Common Stock, will be
made available to the Company's employees (including Marcelli, as described
below) under the Equity Incentive Plan, divided equally
<PAGE>
between options exercisable at $5.00 per share and options exercisable at $61.17
per share, it being understood that each employee will be given the opportunity
to purchase Restricted Stock (as defined in the 1997 Equity Incentive Plan) for
a purchase price of $5.00 per share in lieu of receiving options exercisable for
$5.00 per share. Each employee, as a condition to receiving Restricted Stock or
options under the Equity Incentive Plan, will be required to become party, as an
"Employee" (or if designated as such by the Company, a "Manager"), to the
Stockholders Agreement dated as of October 28, 1997 among Details Holdings and
its stockholders, as amended and otherwise modified from time to time.
Following the Effective Date, Details Holdings shall grant Marcelli the
option to purchase up to 9,023.25 shares of Details Holdings' Class A-5 Common
Stock (which shall be Restricted Stock (as defined in the Equity Incentive
Plan)) at a purchase price of $5.00 per share, and will receive options to
purchase up to 9,023.25 shares of Details Holdings' Class A-5 Common Stock, at
an exercise price of $61.17 per share. The shares of Restricted Stock and
options will vest in equal monthly installments over a four-year period from the
Effective Date, and will be subject to the terms and conditions set forth in the
1997 Equity Incentive Plan and the Option Agreement between Details Holdings and
Marcelli.
6. Benefits. Beginning January 1, 1998, Marcelli will receive four weeks
--------
of paid vacation per year, pro rated for partial years. He will be eligible to
participate in all benefit and welfare plans made generally available to
executives of the Company, as in effect from time to time, all subject to plan
terms and generally applicable policies. The Company will continue to pay the
premium for Marcelli's life insurance which he now owns in the amount of $1.5
million (Federal Kemper, Policy No. FK-2228575).
7. Severance. Marcelli's employment may be terminated at any time by him
---------
or by the Company (regardless of the length or existence of any notice of
expiration of the Employment Period). In the event his employment terminates
prior to the expiration of the Employment Period, Marcelli shall be entitled to
the payments specified in this paragraph 7.
If Details terminates Marcelli's employment other than for Cause (meaning
fraud in the performance of his duties for, or responsibilities to, Details;
breach of fiduciary duty in the performance of his duties for, or
responsibilities to, Details; his commission of a felony or a crime involving an
act that would substantially and adversely affect Details' image or reputation;
or gross neglect of his duties or responsibilities or gross misconduct), or
Marcelli terminates his employment for Good Reason (meaning Details requires
Marcelli to relocate outside of the Colorado Springs area, or imposes duties on
Marcelli that are inconsistent with his executive position), Details will, in
lieu of any other payments or benefits hereunder or otherwise, (i) continue to
pay his base salary at the rate in effect on the Date of Termination through the
expiration of the Employment Period, and (ii) pay him a prorated bonus for the
period from the beginning of the year in which the Date of Termination occurred
through the Date of Termination, to be paid at the same time that the annual
bonus for the full year is ordinarily paid pursuant to paragraph 4, in the
amount, based on actual achievement of annual bonus targets for such full fiscal
year, that would have been paid had his employment
<PAGE>
continued through the end of the year, prorated by the portion of the full year
represented by the period ended on the Date of Termination.
If Marcelli or Details terminates his employment because of death, Details
will, in lieu of any other payments or benefits hereunder or otherwise, (i)
continue to pay his base salary through the Date of Termination at the rate then
in effect and (ii) pay him a prorated bonus (pro rated in the manner set forth
above) through the Date of Termination, to be paid at the same time that the
annual bonus is ordinarily paid pursuant to paragraph 4.
If Marcelli or Details terminates his employment because of Disability,
Details will, in lieu of any other payments or benefits hereunder or otherwise,
(i) continue to pay his base salary at the rate then in effect for a period of
one year from the date of such Disability, provided, however, that if Marcelli
is eligible to receive disability payments under a long-term disability plan of
Details or the Company, such payments of salary shall cease, and (ii) pay him a
prorated bonus (pro rated in the manner set forth above) through the Date of
Termination, to be paid at the same time that the annual bonus is ordinarily
paid pursuant to paragraph 4.
If Details terminates Marcelli's employment for Cause or Marcelli
terminates his employment for any reason other than Good Reason or death or
Disability, Details will, in lieu of any other payments hereunder or otherwise,
pay his base salary through the Date of Termination, at the rate then in effect.
For purposes of this Agreement, the "Date of Termination" shall mean the
date Marcelli's employment with Details terminates regardless of the reason, and
"Disability" shall mean any illness, injury, accident or condition of either a
physical or psychological nature that results in Marcelli being unable to
perform substantially all of the duties of his employment with Details for a
period of 90 consecutive calendar days, or for an aggregate of 180 days during
any period of 365 consecutive calendar days.
8. Confidentiality; Proprietary Rights. Without the written consent of
-----------------------------------
the Board of Directors of Details, Marcelli will not during or after his
employment with Details, disclose to any person or entity (other than a person
or entity to which disclosure is in his reasonable judgment necessary or
appropriate in connection with the performance of his duties as an executive
officer of Details), any information obtained by him while in the employ of
Details the disclosure of which may be adverse to the interests of Details, or
use any such information to the detriment of Details; provided, however, that
such restriction shall not apply to information generally known to the public
other than as a result of unauthorized disclosure by Marcelli.
All inventions, developments, methods, processes and ideas conceived,
developed or reduced to practice by Marcelli during his employment, and for
three months thereafter, which are directly or indirectly useful in, or relate
to, the business of or products manufactured or sold by Details or any of its
subsidiaries shall be promptly and fully disclosed by him to an
<PAGE>
appropriate executive officer of Details (accompanied by all papers, drawings,
data and other materials relating thereto) and shall be Details' exclusive
property as against him. Marcelli will, upon Detail's request and at its expense
(but without any additional compensation to him), execute all documents
reasonably necessary to assign his right, title and interest in any such
invention, development, method or idea (and to direct issuance to Details of all
patents or copyrights with respect thereto).
9. Restricted Activities. Marcelli agrees that, through the Date of
---------------------
Termination and for a period until the earlier of (A) twenty-four months after
the Date of Termination or (B) the later of (i) December 31, 2000 or (ii) one
year after the Date of Termination, (a) he will not, directly or indirectly, be
connected as an officer, employee, consultant, owner or otherwise with any
business which competes with any business of Details or its subsidiaries (other
than a business of Details that represents less than five percent of Details'
revenues) in any area where such business is then being conducted by Details or
a subsidiary, and (b) he will not, and he will not assist any other person or
entity to, hire or otherwise seek to induce employees of Details or any of its
subsidiaries to terminate their employment; provided, however, that the
-------- -------
restrictions contained in this paragraph 9 shall not extend beyond the end of
the period (if any) for which he receives base salary payments pursuant to
paragraph 7, unless Details determines in its sole discretion, on or prior to
the end of such period, to continue (or commence) to make base salary payments
to him in the manner specified in paragraph 7, in which case the restrictions
under this paragraph 9 shall continue as long as Details is making such base
salary payments, but in no event longer than the period specified above;
provided, further, that any base salary payments made pursuant to the foregoing
- -------- -------
proviso for periods after December 31, 2000 shall be made at the rate of
$450,000 per year.
It is understood and agreed that ownership of not more than five percent of
the stock or other equity interests of a public company shall not constitute a
violation of this Agreement. Marcelli agrees that the restrictions contained in
paragraph 8 and this paragraph 9 are reasonably necessary for the protection of
Details and that a violation of such provisions will cause damage that may be
irreparable or impossible to ascertain and, accordingly, that Details will be
entitled (subject to meeting the appropriate evidentiary standard for injunctive
relief) without posting a bond to injunctive or other similar relief in equity
from a court of competent jurisdiction to enforce or restrain a violation of
these restrictions.
10. Arbitration. In the event of any dispute between the parties
-----------
concerning the construction or interpretation of this Agreement, or the
performance or breach of the Agreement by any party, the dispute shall be
resolved by binding arbitration subject to the rules and procedures of the
American Arbitration Association; provided, however, that the parties shall be
entitled to discovery in accordance with the Federal Rules of Civil Procedure.
Hearings will be held in Denver, Colorado. Arbitration shall be commenced by
the written demand by any party for arbitration served upon the other party and
filed with the American Arbitration Association. Notwithstanding the foregoing,
each of the Parties agree that nothing contained in this paragraph 11 shall
prevent either party from seeking temporary or permanent injunctive relief to
prevent breaches of or otherwise to specifically enforce paragraphs 8 and 9
hereof.
<PAGE>
11. Headings. The headings in this Agreement are for convenience only and
--------
shall not affect the meaning hereof.
12. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Details, the Company and Marcelli with respect to the subject matter
hereof, and supersedes any prior communications, agreements and understandings,
written or oral among Details, the Company and Marcelli, with respect to his
employment and compensation and all matters pertaining thereto.
13. Severability. If any provision of this Agreement should, for any
------------
reason, be held invalid or unenforceable in any respect, it shall be construed
by limiting it so as to be enforceable to the maximum extent compatible with
applicable law.
14. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws of the State of Colorado 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.
15. Binding Effect. This Agreement shall be binding upon, and shall inure
--------------
to the benefit of the parties to this Agreement and their respective heirs,
personal and legal representatives, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by Details, by its
duly authorized representative, and by Marcelli as of the date and year first
above written.
DETAILS, INC.
/s/ Joseph P. Gisch
--------------------------------------------
By: Joseph P. Gisch
Title: Chief Financial Officer
/s/ James S. Marcelli
- --------------------------
James S. Marcelli
<PAGE>
EXHIBIT A
The Bonus for each year shall be determined by the following methodology.
EBITDA of the Company 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 Bonus 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 Bonus
Percentage is: in each year shall equal:
- -----------------------------------------------
<S> <C> <C> <C>
1998 1999 2000
Below 90%
- -----------------------------------------------
-0- -0- -0-
- -----------------------------------------------
Between 90% and $ 33,000 $ 36,667 $ 40,000
below 95%
- -----------------------------------------------
95%* $ 66,000 $ 73,333 $ 80,000
- -----------------------------------------------
100%** $100,000 $110,000 $120,000
- -----------------------------------------------
</TABLE>
*For an EBITDA Percentage that exceeds 95%, the Bonus will be determined by
linear interpolation from the Bonus payable at 95% to the Bonus payable at 100%.
**For an EBITDA Percentage that exceeds 100%, the Bonus will be determined by
linear interpolation from the Bonus payable at 100% to a maximum Bonus equal to
two-times the Bonus payable at 100%, which maximum Bonus will be paid at EBITDA
of $10,000,000, $12,900,000 and $14,900,000 for the calendar years 1998, 1999
and 2000, respectively.
<PAGE>
EXHIBIT 10.16
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,
June 15, 1994, is made by and between Michael J. Irvin, Trustee of the Davila
Living Trust dated March 13, 1989 ("LESSOR") and Colorado Springs Circuits, Inc.
("LESSEE"), (collectively the "PARTIES," or individually 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 6031-6035 Galley Road located in the City of
Colorado Springs, State of Colorado and generally described as (describe
briefly the nature of the property) together with the buildings constituting
approximately 40,516 square feet and improvements thereon ("PREMISES"). (See
Paragraph 2 for further provisions.)
1.3 TERM: 10 years and _______ months ("ORIGINAL TERM") commencing July 1,
1994 ("COMMENCEMENT DATE") and ending June 30, 2004 ("EXPIRATION DATE"). (See
Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: Tenant in possession and has been for many years
("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $20,258 per month ("BASE RENT"), payable on the first day
of each month commencing July 1, 1994 (See Paragraph 4 for further provisions.)
[_] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted and for renewal option.
1.6 SECURITY DEPOSIT:$ -0- ("SECURITY DEPOSIT"). (See Paragraph 5 for
further provisions.)
<PAGE>
1.7 PERMITTED USE: Manufacture and sale of printed circuit boards (See
Paragraph 6 for further provisions.)
1.8 INSURING PARTY: LESSEE IS THE "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.9 REAL ESTATE BROKERS: There are no brokers involved in this
transaction.
1.10 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 56 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 not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date 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 warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, 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 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.
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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 fire 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 warranties with respect to the said
matters other than as set forth in this Lease.
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.
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 herein 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's
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
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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 Basic 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 forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other 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 such
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 CONSENT. 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
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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, (ii) 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 or 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
same, 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
Lessee's 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 Lessee, 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
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this Lease. No
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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 the
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.
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(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, subject to
Paragraph 2.5, etc), 7.2 (Lessor's 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 detection 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
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hereto that Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, the improvements located thereon, or the equipment
therein, 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,
communication 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. "Lessee Owned
Alterations 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 cost thereof during the term of this
Lease as extended does not exceed $250,000.
(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 furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
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 term 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 furnish 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-
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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
judgment 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 lion 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 by 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
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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. 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 or insurance carrier 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.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in
force
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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 latter amount is less than full replacement
cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and
Utility 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 $5,000 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 Insuring Party shall, in addition, 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 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. Lessee 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, or
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 said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
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(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 carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for 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
lien 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 the 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 cancellable 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 ("Waiving 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 Waiving 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
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warranties, Lessee shall indemnify, 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 Lessees
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
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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 or discovery
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 Lessee'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 any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
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shall be Subject to Paragraph 9.3 rather than Paragraph 9.2. notwithstanding
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 wilful 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
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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 or $100,000, whichever is greater, give
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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 and 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 affect, 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.
9.8 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 such payments shall be made at least
ten (1 0) 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.
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(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 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 TAX." 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 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
affect, 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
riot 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
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.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
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 proportion, 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 the 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.
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(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
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair 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 hold
by Lessee shall be subject to similar adjustment to the then fair 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 now
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) alter the primary liability of Lessee for
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
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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:
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(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 sublessee 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 sublessee 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. DEFAULT; BREACH; REMEDIES.
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
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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" is defined as the occurrence
of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, shall entitle Lessor to
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, it 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 this 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) A 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 it 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
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general arrangement or assignment for the benefit of creditors; (ii) Lessee's
becoming a "debtor" as defined in 11 U.S.C. (S)1 01 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 obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a 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 Lessee 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
limiting 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
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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 detriment 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 attorneys' 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
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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 abated 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 abated, 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
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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 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 Lessor's
'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
damages required to complete such repair.
15. TENANCY STATEMENT.
15.1 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 or similar plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
15.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or
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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 by 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
21. 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.
22. NOTICES.
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22.1 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 on this Lease shall be that
Party's address for delivery or mailing of notice purposes. 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.
22.2 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 sent 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 or 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.
23. 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 estoppel 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.
24. 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
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purposes. The Party requesting recordation shall be responsible for payment of
any fees or taxes applicable thereto.
25. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
28. 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.
29. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
29.1 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 invoking 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.
29.2 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.
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29.3 NON-DISTURBANCE. With respect to Security Devices entered into 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.
29.4 SELF-EXECUTING. The agreements contained 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.
30. 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 judgment. 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, judgment, 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.
31. 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 Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, 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.
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<PAGE>
33. 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.
34. 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.
35. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in 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 architects', attorneys', engineers' or other consultants' fees)
incurred in 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 subletting 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 acknowledgment 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 stated 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
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<PAGE>
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.
36. GUARANTOR.
36.1 If there are to be any Guarantors of this Lease per Paragraph 1. 11,
the form of the guaranty to be executed by each such 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.
36.2 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.
37. 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 hereof
subject to all of the provisions of this Lease.
38. OPTIONS.
38.1 DEFINITION. 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
this 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.
38.2 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 voluntarily or involuntarily 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
-33-
<PAGE>
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 in any manner, by reservation or otherwise.
38.3 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.
38.4 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: (i) 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 an 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.
39. 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.
40. 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
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<PAGE>
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.
41. 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, dedication, map or restrictions.
42. 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.
43. AUTHORITY. If either Party hereto 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.
44. 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.
45. 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.
46. 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
required 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.
47. 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
-35-
<PAGE>
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 OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE 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.
-36-
<PAGE>
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<S> <C>
Executed at Palo Alto, California Executed at Colorado Springs, Colorado
-------------------------------- --------------------------------
on on
----------------------------------------- -----------------------------------------
by LESSOR: by LESSEE:
Davila Living Trust dated March 13, 1989 Colorado Springs Circuits, Inc.
- -------------------------------------------- --------------------------------------------
By /s/ Michael J. Irvin, Trustee By /s/ James Marcelli
---------------------------------------- ----------------------------------------
Name Printed: Michael J. Irvin Name Printed: James Marcelli
------------------------------ ------------------------------
Title: Trustee Title: President
------------------------------------- -------------------------------------
By By
---------------------------------------- ----------------------------------------
Name Printed: Name Printed:
------------------------------ ------------------------------
Tile: Tile:
-------------------------------------- --------------------------------------
Address: 438 Cambridge Avenue Address: 6031-6035 Galley Road
---------------------------------- ----------------------------------
Palo Alto, CA 94306 Colorado Springs, CO 80915
- ------------------------------------------- -------------------------------------------
Tel No. (415) 328-6161 Fax No. ( ) Tel No. (719) 574-4900 Fax. No. ( )
----------------------------------- -----------------------------------
</TABLE>
-37-
<PAGE>
LEASE ADDENDUM
This lease addendum ("Addendum") is to that certain lease ("Lease") dated June
15, 1994 between Michael J. Irvin, Trustee of the Davila Living Trust dated
March 13, 1989, ("Lessor") and Colorado Springs Circuits, Inc., ("Lessee"), for
rental of the premises located at 6031-6035 Galley Road, Colorado Springs,
Colorado, ("Premises").
49. Inconsistencies. In the event of any inconsistencies between the
---------------
provisions of the Lease and this Addendum, the provisions of this Addendum shall
govern and control.
50. Adjustments to Base Rent.
------------------------
50.1. Cost of Living Adjustments: Years Three, Four, and Five.
(a) The Base Rent (as set forth in Paragraph 1.5 of the Lease) shall be
subject to a cost of living adjustment at the commencement of the third, fourth,
and fifth year of the term ("the COL Adjustment Date") as follows:
(b) The base for computing the adjustment is the Consumer Price Index
[All Urban Consumers] (base year 1982-1984 = 100) for Denver-Boulder, Colorado,
published by the United States Department of Labor, Bureau of Labor Statistics
("Index"), which is in effect on the date of the commencement of the term
("Beginning Index"). The index published most immediately preceding the COL
Adjustment Date in question ("Extension Index") is to be used in determining the
amount of the adjustment. If the Extension Index has increased over the
Beginning Index, the minimum monthly rent for the following year (until the next
rent adjustment) shall be set by multiplying the Base Rent set forth in
Paragraph 1.5 of the Lease by a fraction, the numerator of which is the
Extension Index and the denominator of which is the Beginning Index. In no case
shall the adjusted Base Rent be less than the Base Rent in effect immediately
prior to the COL Adjustment Date then occurring.
(c) If the Index is changed so that the base year differs from that in
effect when the term commences, the index shall be converted in accordance with
the conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the Index is discontinued or revised during the term,
such other government index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Index had not been discontinued or revised.
50.2. Fair Market Value Adjustment: Year Six.
(a) At the commencement of the sixth year of the term, ("FMV Adjustment
Date"), the then current monthly Base Rent for the Premises shall be adjusted to
the fair market rental value for the Premises in the manner provided in
Paragraph 52 below, payable in advance in
<PAGE>
the first day of each month thereafter.
(b) The Base Rent for year seven (7) of the term shall not be adjusted
but shall be the same as Base Rent for year six (6) of the Lease term.
50.3. Cost of Living Adjustments: Years Eight, Nine and Ten. At the
commencement of the eighth, ninth, and tenth year of the term, (the "COL
Adjustment Date"), the then current monthly Base Rent for the Premises shall be
subject to a cost of living adjustment in the manner set forth in Paragraphs
50.1 (b) through 50.1(c) above.
50.4 On adjustment of the Base Rent as provided herein, the parties shall
immediately execute an amendment to the Lease stating the new Base Rent.
51. Option To Extend.
----------------
51.1. Grant of Option/Notice. Pursuant to Paragraph 39 of the Lease,
Lessor hereby grants to Lessee an option to extend the Original Term (as set
forth in Paragraph 1.3 of the Lease) for an additional ten (10) year period
("Option Term") subject to all of the terms contained in the Lease. Lessee
shall notify Lessor of exercise of the option at least six (6) months but not
more than one year before the expiration of the Original Term. Provided
however, if Lessee is in default on the date of giving the option notice, the
option notice shall be totally ineffective, or if Lessee is in default on the
date the Option Term is to commence, the Option Term shall not commence and the
Lease shall expire at the end of the Original Term.
51.2. Option Term Rent.
(a) The Base Rent for the first (1st) year of the Option Term, (" FMV
Adjustment Date"), shall be subject to adjustment as set forth in Paragraph 52
of this Addendum, payable in advance on the first day of each month thereafter.
(b) The Base Rent for year two (2) of the Option Term shall not be
adjusted but shall be the same as Base Rent for year one (1) of the Option Term.
(c) Base Rent for the third, fourth and fifth year of the Option Term
shall be adjusted as set forth in Paragraphs 50. 1 (b) through 50. 1 (c) of this
Addendum at the commencement of the third, fourth and fifth year of the Option
Term, ("COL Adjustment Date").
(d) At the commencement of the sixth year of the Option Term, ("FMV
Adjustment Date"), the then current monthly Base Rent for the Premises shall be
adjusted to the fair market rental value for the Premises in the manner provided
in Paragraph 52 below, payable in advance on the first day of each month
thereafter.
-39-
<PAGE>
(e) The Base Rent for year seven (7) of the Option Term shall not be
adjusted but shall be the same as Base Rent for year six (6) of the Option Term.
(f) At the commencement of the eighth, ninth, and tenth year of the term,
("COL Adjustment Date") the then current monthly Base Rent for the Premises
shall be subject to a cost of living adjustment in the manner set forth in
Paragraphs 50. 1 (b) through 50. 1 (c) above.
51.3 On adjustment of the Base Rent as provided herein, the parties shall
immediately execute an amendment to the Lease stating the new Base Rent.
52. Fair Market Rent.
----------------
(a) The fair market rental value of the Premises shall be agreed upon by
the parties on or before one hundred eighty (180) days prior to the FMV
Adjustment Date, or if the parties are unable to agree upon such fair market
rental value one hundred eighty (180) days prior to the FMV Adjustment Date,
such fair market rental value shall be determined by arbitration as provided in
Paragraph 53 below, provided in no event shall such fair market rental value be
less than the Base Rent for the period immediately prior thereto.
(b) In determining the fair market rental value of the premises as
aforesaid, the parties and, if applicable, the arbitrators shall take into
account that such rent shall be in equal monthly payments throughout the two
years following the FMV Adjustment Date, and thereafter subject to cost of
living adjustments as provided herein.
(c) All costs and expenses of any arbitration hereunder to determine the
fair market rental value of the Premises shall be borne equally by Lessor and
Lessee.
53. Arbitration. In the event that the parties are unable to agree upon a fair
-----------
market value of the Premises for the purposes of making a fair market rental
adjustment as provided in Paragraphs 50.2, 51.2(a), and 51.2(d) such fair market
value shall be determined by arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The site
of any arbitration hereunder shall be in Colorado Springs, Colorado.
54. Insurance. The amount of property insurance provided for in Paragraph 8.3
---------
of the Lease shall not be less than $1,900,000.00 and shall be increased by 2%
each year of the Original Term and Option Term.
54. Previous Lease Superseded. The Lease and this Addendum hereby supersedes
-------------------------
any previous lease concerning the Premises previously entered into by the
parties.
55. Lessee Taking Premises "AS IS". Lessee is the occupant of the Premises
------------------------------
prior to the date
<PAGE>
set forth in Paragraph 1.1 of the Lease. Therefore, pursuant to Paragraph 2.5 of
the Lease, the warranties made by Lessor in Paragraph 2 are of no force and
effect and Lessee agrees to the Premises in their "AS IS" condition.
56. Acknowledgment Regarding Substances Used by Lessee. Notwithstanding any
--------------------------------------------------
contained herein, Lessor, acknowledges that Lessee is in the business of
producing printed circuit boards, which process necessarily requires the use,
generation, manufacture, treatment and disposal of hazardous substances. Lessee
declares that it is now in compliance with all local, state and federal
regulations concerning hazardous substances; Lessor agrees that so long Lessee
remains in compliance with all applicable regulations, such use, generation,
manufacture, treatment and disposal of hazardous substances shall not be a
default hereunder or under any of the related documents.
LESSOR: LESSEE:
Michael J. Irvin, Trustee Colorado Springs Circuits, Inc.
of the Davila Living Trust
dated March 13 1989 By: /s/ James Marcelli
-------------------------------
/s/ Michael J. Irvin, Trustee Its: President
- ----------------------------------- ---------------------------------------
Date: 6/30/94 Date: 7/11/94
---------------------------- -------------------------------------
<PAGE>
EXHIBIT 10.17
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,
----
June 15 , 1994, is made by and between Michael J. Irvin, Trustee of
- ---------------- -- ---------------------------------
the Davila Living Trust dated March 13, 1989 ("LESSOR") and Colorado
- ------------------------------------------------ ----------------
Springs Circuits, Inc.
- --------------------------------------------------------------------------------
("LESSEE"), (collectively
- ----------------------------------------------------
the "PARTIES," or individually 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 2115 Victor Place
-------------------------------------------------
located in the City of Colorado Springs , State of Colorado
--------------------------------------- ---------------
and generally described as (describe briefly the nature of the property)
together with the buildings constituting approximately 10,865 square feet and
- --------------------------------------------------------------------------------
improvements thereon
- --------------------------------------------------------------------------------
- ---------------------- ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: 10 years and months ("ORIGINAL
------------------------ -------
TERM") commencing July 1, 1994 ("COMMENCEMENT DATE") and ending
----------------------
June 30, 2004 ("EXPIRATION DATE"). (See Paragraph 3 for further
- -----------------
provisions.)
1.4 EARLY POSSESSION: Tenant in possession and has been for many years
-----------------------------------------------------
("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT:$ 2,285 per month ("BASE RENT"), payable on the
---------------
first day of each month commencing July 1, 1994
------------------------------------------
- --------------------------------------------------------------------------------
(See Paragraph 4 for further provisions.)
- -------------------------------------
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted. and for renewal option.
1.6 SECURITY DEPOSIT:$ -0- ("SECURITY DEPOSIT"). (See
--------------------
Paragraph 5 for further provisions.)
<PAGE>
1.7 PERMITTED USE: General storage
--------------------------------------------------------
(See Paragraph 6 for further provisions.)
- -----------------------
1.8 INSURING PARTY: LESSEE IS THE "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.9 REAL ESTATE BROKERS: There are no brokers involved in this
transaction.
1.10 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 56 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 not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date 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 warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, 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 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-
<PAGE>
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 fire 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 warranties with respect to the said
matters other than as set forth in this Lease.
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.
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 herein 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's
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
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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 Basic 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 forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other 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 such
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 CONSENT. 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"
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shall mean (i) the installation or use of any above or below ground storage
tank, (ii) 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 or 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
same, 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
Lessee's 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 Lessee, 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
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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 the
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),
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2.3 (Lessor's warranty as to compliance with covenants, subject to Paragraph
2.5, etc), 7.2 (Lessor's 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 detection 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
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Premises, the improvements located thereon, or the equipment therein, 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,
communication 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. "Lessee Owned
Alterations 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 cost thereof during the term of this
Lease as extended does not exceed $250,000.
(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 furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
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 term 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 furnish 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
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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
judgment 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 lion 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 by 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
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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. 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 or insurance carrier 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.
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
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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 latter amount is less than full replacement cost. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility 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
$5,000 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 Insuring Party shall, in addition, 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 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. Lessee 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, or
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 said 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
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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 carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for 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
lien 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 the 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 cancellable 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 ("Waiving 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 Waiving 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 indemnify, protect, defend and hold harmless the
Premises, Lessor
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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 Lessees
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
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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 or discovery
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 Lessee'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 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. notwithstanding
that there may be
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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 wilful 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
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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 or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the
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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 and 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 affect, 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.
9.8 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. (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 such 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
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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 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 TAX." 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 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
affect, 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
riot 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
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.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
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 proportion, 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 the 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
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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 fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair 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 hold
by Lessee shall be subject to similar adjustment to the then fair 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 now
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) alter the primary liability of Lessee for
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
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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:
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(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 sublessee 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 sublessee 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. DEFAULT; BREACH; REMEDIES.
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
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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" is defined as the occurrence of any one or more of
the following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, shall entitle Lessor to 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, it 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 this 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) A 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 it 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
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"debtor" as defined in 11 U.S.C. (S)1 01 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 obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a 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 Lessee 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
limiting 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
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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 detriment
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 attorneys' 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
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occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated 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 abated, 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
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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 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 Lessor's
'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
damages required to complete such repair.
15. TENANCY STATEMENT.
15.1 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 or similar plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
15.2 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
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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 by 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
21. 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.
22. NOTICES.
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22.1 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 on this Lease shall be that
Party's address for delivery or mailing of notice purposes. 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.
22.2 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 sent 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 or 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.
23. 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 estoppel 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.
24. 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
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taxes applicable thereto.
25. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
28. 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.
29. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
29.1 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 invoking 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.
29.2 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.
29.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor
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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.
29.4 SELF-EXECUTING. The agreements contained 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.
30. 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 judgment. 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, judgment, 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.
31. 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 Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, 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.
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33. 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.
34. 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.
35. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in 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 architects', attorneys', engineers' or other consultants' fees)
incurred in 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 subletting 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 acknowledgment 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 stated 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
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other conditions as are then reasonable with reference to the particular matter
for which consent is being given.
36. GUARANTOR.
36.1 If there are to be any Guarantors of this Lease per Paragraph 1. 11,
the form of the guaranty to be executed by each such 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.
36.2 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.
37. 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 hereof
subject to all of the provisions of this Lease.
38. OPTIONS.
38.1 DEFINITION. 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
this 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.
38.2 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 voluntarily or involuntarily 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
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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 in
any manner, by reservation or otherwise.
38.3 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.
38.4 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: (i) 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 an 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.
39. 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.
40. 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
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for the protection of the Premises, Lessee, its agents and invitees and their
property from the acts of third parties.
41. 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, dedication, map or restrictions.
42. 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.
43. AUTHORITY. If either Party hereto 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.
44. 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.
45. 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.
46. 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
required 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.
47. 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
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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 OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE 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.
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<PAGE>
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<S> <C>
Executed at Palo Alto, California Executed at Colorado Springs, Colorado
------------------------ --------------------------
on on
---------------------------------- ------------------------------------
by LESSOR: by LESSEE:
Davila Living Trust dated March 13, 1989 Colorado Springs Circuits, Inc.
- ---------------------------------------- --------------------------------------
By/s/ Michael J. Irvin, Trustee By /s/ James Marcelli
-------------------------------------- -----------------------------------
Name Printed: Michael J. Irvin Name Printed: James Marcelli
-------------------------- -----------------------
Title: Trustee Title: President
- ---------------------------------------- -------------------------------
By By
-------------------------------------- ------------------------------------
Name Printed: Name Printed:
--------------------------- -----------------------
Title: Title:
--------------------------------- -------------------------------
Address: 438 Cambridge Avenue Address: 2115 Victor Place
----------------------------- ---------------------------
Palo Alto, CA 94306 Colorado Springs, CO 80915
- ---------------------------------------- --------------------------------------
Tel No. (415) 328-6161 Fax No. ( ) Tel. No. (719) 574-4900 Fax. No. ( )
-------------------------------- --------------------------------------
</TABLE>
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<PAGE>
LEASE ADDENDUM
This lease addendum ("Addendum") is to that certain lease ("Lease") dated June
15, 1994 between Michael J. Irvin, Trustee of the Davila Living Trust dated
March 13, 1989, ("Lessor") and Colorado Springs Circuits, Inc., ("Lessee"), for
rental of the premises located at 2115 Victor Place, Colorado Springs, Colorado,
("Premises").
49. Inconsistencies. In the event of any inconsistencies between the
---------------
provisions of the Lease and this Addendum, the provisions of this Addendum shall
govern and control.
50. Adjustments to Base Rent.
------------------------
50.1. Cost of Living Adjustments: Years Three, Four, and Five.
(a) The Base Rent (as set forth in Paragraph 1.5 of the Lease) shall be
subject to a cost of living adjustment at the commencement of the third, fourth,
and fifth year of the term ("the COL Adjustment Date") as follows:
(b) The base for computing the adjustment is the Consumer Price Index
[All Urban Consumers] (base year 1982-1984 = 100) for Denver-Boulder, Colorado,
published by the United States Department of Labor, Bureau of Labor Statistics
("Index"), which is in effect on the date of the commencement of the term
("Beginning Index"). The index published most immediately preceding the COL
Adjustment Date in question ("Extension Index") is to be used in determining the
amount of the adjustment. If the Extension Index has increased over the
Beginning Index, the minimum monthly rent for the following year (until the next
rent adjustment) shall be set by multiplying the Base Rent set forth in
Paragraph 1.5 of the Lease by a fraction, the numerator of which is the
Extension Index and the denominator of which is the Beginning Index. In no case
shall the adjusted Base Rent be less than the Base Rent in effect immediately
prior to the COL Adjustment Date then occurring.
(c) If the Index is changed so that the base year differs from that in
effect when the term commences, the index shall be converted in accordance with
the conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the Index is discontinued or revised during the term,
such other government index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Index had not been discontinued or revised.
50.2. Fair Market Value Adjustment: Year Six.
(a) At the commencement of the sixth year of the term, ("FMV Adjustment
Date"), the then current monthly Base Rent for the Premises shall be adjusted to
the fair market rental value for the Premises in the manner provided in
Paragraph 52 below, payable in advance in
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the first day of each month thereafter.
(b) The Base Rent for year seven (7) of the term shall not be adjusted but
shall be the same as Base Rent for year six (6) of the Lease term.
50.3. Cost of Living Adjustments: Years Eight, Nine and Ten. At the
commencement of the eighth, ninth, and tenth year of the term, (the "COL
Adjustment Date"), the then current monthly Base Rent for the Premises shall be
subject to a cost of living adjustment in the manner set forth in Paragraphs
50.1 (b) through 50.1(c) above.
50.4 On adjustment of the Base Rent as provided herein, the parties shall
immediately execute an amendment to the Lease stating the new Base Rent.
51.1 Option To Extend.
----------------
51.1. Grant of Option/Notice. Pursuant to Paragraph 39 of the Lease,
Lessor hereby grants to Lessee an option to extend the Original Term (as set
forth in Paragraph 1.3 of the Lease) for an additional ten (10) year period
("Option Term") subject to all of the terms contained in the Lease. Lessee
shall notify Lessor of exercise of the option at least six (6) months but not
more than one year before the expiration of the Original Term. Provided
however, if Lessee is in default on the date of giving the option notice, the
option notice shall be totally ineffective, or if Lessee is in default on the
date the Option Term is to commence, the Option Term shall not commence and the
Lease shall expire at the end of the Original Term.
51.2. Option Term Rent.
(a) The Base Rent for the first (1st) year of the Option Term, (" FMV
Adjustment Date"), shall be subject to adjustment as set forth in Paragraph 52
of this Addendum, payable in advance on the first day of each month thereafter.
(b) The Base Rent for year two (2) of the Option Term shall not be adjusted
but shall be the same as Base Rent for year one (1) of the Option Term.
(c) Base Rent for the third, fourth and fifth year of the Option Term shall
be adjusted as set forth in Paragraphs 50. 1 (b) through 50. 1 (c) of this
Addendum at the commencement of the third, fourth and fifth year of the Option
Term, ("COL Adjustment Date").
(d) At the commencement of the sixth year of the Option Term, ("FMV
Adjustment Date"), the then current monthly Base Rent for the Premises shall be
adjusted to the fair market rental value for the Premises in the manner provided
in Paragraph 52 below, payable in advance on the first day of each month
thereafter.
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<PAGE>
(e) The Base Rent for year seven (7) of the Option Term shall not be
adjusted but shall be the same as Base Rent for year six (6) of the Option Term.
(f) At the commencement of the eighth, ninth, and tenth year of the term,
("COL Adjustment Date") the then current monthly Base Rent for the Premises
shall be subject to a cost of living adjustment in the manner set forth in
Paragraphs 50. 1 (b) through 50. 1 (c) above.
51.3 On adjustment of the Base Rent as provided herein, the parties shall
immediately execute an amendment to the Lease stating the new Base Rent.
52. Fair Market Rent.
----------------
(a) The fair market rental value of the Premises shall be agreed upon by
the parties on or before one hundred eighty (180) days prior to the FMV
Adjustment Date, or if the parties are unable to agree upon such fair market
rental value one hundred eighty (180) days prior to the FMV Adjustment Date,
such fair market rental value shall be determined by arbitration as provided in
Paragraph 53 below, provided in no event shall such fair market rental value be
less than the Base Rent for the period immediately prior thereto.
(b) In determining the fair market rental value of the premises as
aforesaid, the parties and, if applicable, the arbitrators shall take into
account that such rent shall be in equal monthly payments throughout the two
years following the FMV Adjustment Date, and thereafter subject to cost of
living adjustments as provided herein.
(c) All costs and expenses of any arbitration hereunder to determine the
fair market rental value of the Premises shall be borne equally by Lessor and
Lessee.
53. Arbitration. In the event that the parties are unable to agree upon a fair
-----------
market value of the Premises for the purposes of making a fair market rental
adjustment as provided in Paragraphs 50.2, 51.2(a), and 51.2(d) such fair market
value shall be determined by arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The site
of any arbitration hereunder shall be in Colorado Springs, Colorado.
54. Insurance. The amount of property insurance provided for in Paragraph 8.3
---------
of the Lease shall not be less than $350,000.00 and shall be increased by 2%
each year of the Original Term and Option Term.
54. Previous Lease Superseded. The Lease and this Addendum hereby supersedes
-------------------------
any previous lease concerning the Premises previously entered into by the
parties.
55. Lessee Taking Premises "AS IS". Lessee is the occupant of the Premises
------------------------------
prior to the date
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<PAGE>
set forth in Paragraph 1.1 of the Lease. Therefore, pursuant to Paragraph 2.5 of
the Lease, the warranties made by Lessor in Paragraph 2 are of no force and
effect and Lessee agrees to the Premises in their "AS IS" condition.
56. Acknowledgment Regarding Substances Used by Lessee. Notwithstanding any
--------------------------------------------------
contained herein, Lessor, acknowledges that Lessee is in the business of
producing printed circuit boards, which process necessarily requires the use,
generation, manufacture, treatment and disposal of hazardous substances. Lessee
declares that it is now in compliance with all local, state and federal
regulations concerning hazardous substances; Lessor agrees that so long Lessee
remains in compliance with all applicable regulations, such use, generation,
manufacture, treatment and disposal of hazardous substances shall not be a
default hereunder or under any of the related documents.
LESSOR: LESSEE:
Michael J. Irvin, Trustee Colorado Springs Circuits, Inc.
of the Davila Living Trust
dated March 13 1989 By:/s/ James Marcelli
--------------------------------
/s/ Michael J. Irvin, Trustee Its: President
- --------------------------------- --------------------------
Date: 6/30/94 Date: 7/11/94
---------------------------- --------------------------
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<PAGE>
EXHIBIT 10.18
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,
June 15, 1994, is made by and between Michael J. Irvin, Trustee of the Davila
Living Trust dated March 13, 1989 ("LESSOR") and Colorado Springs Circuits, Inc.
("LESSEE"), (collectively the "PARTIES," or individually 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 980 Technology Court located in the City of
Colorado Springs, State of Colorado and generally described as (describe
briefly the nature of the property) together with the buildings constituting
approximately 32,000 square feet and improvements thereon ("PREMISES"). (See
Paragraph 2 for further provisions.)
1.3 TERM: 10 years and _______ months ("ORIGINAL TERM") commencing July 1,
1994 ("COMMENCEMENT DATE") and ending June 30, 2004 ("EXPIRATION DATE"). (See
Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: Tenant in possession and has been for many years
("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $16,595 per month ("BASE RENT"), payable on the first day
of each month commencing July 1, 1994 (See Paragraph 4 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted. and for renewal option.
1.6 SECURITY DEPOSIT: $-0- ("SECURITY DEPOSIT"). (See Paragraph 5 for
further provisions.)
<PAGE>
1.7 PERMITTED USE: Manufacture and sale of printed circuit boards,
(See Paragraph 6 for further provisions.)
1.8 INSURING PARTY: LESSEE IS THE "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.9 REAL ESTATE BROKERS: There are no brokers involved in this
transaction.
1.10 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 56 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 not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date 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 warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, 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 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-
<PAGE>
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 fire 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 warranties with respect to the said
matters other than as set forth in this Lease.
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.
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 herein 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's
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
-3-
<PAGE>
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 Basic 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 forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other 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 such
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 CONSENT. 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
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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, (ii) 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 or 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
same, 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
Lessee's 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 Lessee, 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
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this Lease. No
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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 recom-
mendations 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 the
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.
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(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, subject to
Paragraph 2.5, etc), 7.2 (Lessor's 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 detection 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
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hereto that Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, the improvements located thereon, or the equipment
therein, 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,
communication 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. "Lessee Owned
Alterations 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 cost thereof during the term of this
Lease as extended does not exceed $250,000.
(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 furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
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 term 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 furnish 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-
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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
judgment 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 lion 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 by 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
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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. 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 or insurance carrier 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.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in
force
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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 latter amount is less than full replacement
cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and
Utility 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 $5,000 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 Insuring Party shall, in addition, 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 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. Lessee 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, or
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 said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
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(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 carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for 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
lien 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 the 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 cancellable 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 ("Waiving 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 Waiving 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
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warranties, Lessee shall indemnify, 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 Lessees
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
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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 or discovery
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 Lessee'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 any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
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shall be Subject to Paragraph 9.3 rather than Paragraph 9.2. notwithstanding
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 wilful 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
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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 or $100,000, whichever is greater, give
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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 and 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 affect, 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.
9.8 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 such 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.
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(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 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 TAX." 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 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
affect, 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
riot 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
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.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
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 proportion, 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 the 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.
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(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 fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair 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 hold
by Lessee shall be subject to similar adjustment to the then fair 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 now
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) alter the primary liability of Lessee for
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
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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:
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(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 sublessee 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 sublessee 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. DEFAULT; BREACH; REMEDIES.
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
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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" is defined as the occurrence
of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, shall entitle Lessor to
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, it 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 this 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) A 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 it 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
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general arrangement or assignment for the benefit of creditors; (ii) Lessee's
becoming a "debtor" as defined in 11 U.S.C. (S)1.01 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 obligations hereunder was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a 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 Lessee 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
limiting 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
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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 detriment 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 attorneys' 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
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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 abated 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 abated, 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
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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 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 Lessor's
'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
damages required to complete such repair.
15. TENANCY STATEMENT.
15.1 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 or similar plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
15.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or
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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 by 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
21. 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.
22. NOTICES.
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22.1 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 on this Lease shall be that
Party's address for delivery or mailing of notice purposes. 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.
22.2 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 sent 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 or 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.
23. 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 estoppel 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.
24. 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
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purposes. The Party requesting recordation shall be responsible for payment of
any fees or taxes applicable thereto.
25. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
28. 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.
29. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
29.1 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 invoking 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.
29.2 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.
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29.3 NON-DISTURBANCE. With respect to Security Devices entered into 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.
29.4 SELF-EXECUTING. The agreements contained 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.
30. 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 judgment. 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, judgment, 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.
31. 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 Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, 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.
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33. 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.
34. 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.
35. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in 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 architects', attorneys', engineers' or other consultants' fees)
incurred in 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 subletting 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 acknowledgment 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 stated 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
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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.
36. GUARANTOR.
36.1 If there are to be any Guarantors of this Lease per Paragraph 1. 11,
the form of the guaranty to be executed by each such 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.
36.2 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.
37. 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 hereof
subject to all of the provisions of this Lease.
38. OPTIONS.
38.1 DEFINITION. 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
this 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.
38.2 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 voluntarily or involuntarily 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
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<PAGE>
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 in any manner, by reservation or otherwise.
38.3 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.
38.4 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: (i) 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 an 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.
39. 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.
40. 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
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<PAGE>
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.
41. 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, dedication, map or restrictions.
42. 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.
43. AUTHORITY. If either Party hereto 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.
44. 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.
45. 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.
46. 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
required 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.
47. 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
-35-
<PAGE>
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 OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE 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.
-36-
<PAGE>
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Palo Alto, California Executed at Colorado Springs, Colorado
------------------------ --------------------------
on _________________________________ on ___________________________________
by LESSOR: by LESSEE:
Davila Living Trust dated March 13, 1989 Colorado Springs Circuits, Inc.
- ---------------------------------------- --------------------------------------
By /s/ Michael J. Irvin, Trustee By /s/ James Marcelli
--------------------------------- -----------------------------------
Name Printed: Michael J. Irvin Name Printed: James Marcelli
--------------------- -----------------------
Title: Trustee Title: President
---------------------------- ------------------------------
By__________________________________ By____________________________________
Name Printed: ______________________ Name Printed: _______________________
Title: ____________________________ Title: ______________________________
Address: 438 Cambridge Avenue Address: 980 Technology Court
-------------------------- ----------------------------
Palo Alto, CA 94306 Colorado Springs, CO 80915
-------------------------- ----------------------------
Tel No. (415) 328-6161 Fax No. ( ) Tel. No. (719) 574-4900 Fax. No. ( )
---------------------------- -----------------------------
-37-
<PAGE>
LEASE ADDENDUM
This lease addendum ("Addendum") is to that certain lease ("Lease") dated June
15, 1994 between Michael J. Irvin, Trustee of the Davila Living Trust dated
March 13, 1989, ("Lessor") and Colorado Springs Circuits, Inc., ("Lessee"), for
rental of the premises located at 980 Technology Court, Colorado Springs,
Colorado, ("Premises").
49. Inconsistencies. In the event of any inconsistencies between the
---------------
provisions of the Lease and this Addendum, the provisions of this Addendum shall
govern and control.
50. Adjustments to Base Rent.
------------------------
50.1. Cost of Living Adjustments: Years Three, Four, and Five.
(a) The Base Rent (as set forth in Paragraph 1.5 of the Lease) shall
be subject to a cost of living adjustment at the commencement of the third,
fourth, and fifth year of the term ("the COL Adjustment Date") as follows:
(b) The base for computing the adjustment is the Consumer Price Index [All
Urban Consumers] (base year 1982-1984 = 100) for Denver-Boulder, Colorado,
published by the United States Department of Labor, Bureau of Labor Statistics
("Index"), which is in effect on the date of the commencement of the term
("Beginning Index"). The index published most immediately preceding the COL
Adjustment Date in question ("Extension Index") is to be used in determining the
amount of the adjustment. If the Extension Index has increased over the
Beginning Index, the minimum monthly rent for the following year (until the next
rent adjustment) shall be set by multiplying the Base Rent set forth in
Paragraph 1.5 of the Lease by a fraction, the numerator of which is the
Extension Index and the denominator of which is the Beginning Index. In no case
shall the adjusted Base Rent be less than the Base Rent in effect immediately
prior to the COL Adjustment Date then occurring.
(c) If the Index is changed so that the base year differs from that in
effect when the term commences, the index shall be converted in accordance with
the conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the Index is discontinued or revised during the term,
such other government index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Index had not been discontinued or revised.
50.2. Fair Market Value Adjustment: Year Six.
(a) At the commencement of the sixth year of the term, ("FMV Adjustment
Date"), the then current monthly Base Rent for the Premises shall be adjusted to
the fair market rental value for the Premises in the manner provided in
Paragraph 52 below, payable in advance in
-38-
<PAGE>
the first day of each month thereafter.
(b) The Base Rent for year seven (7) of the term shall not be adjusted but
shall be the same as Base Rent for year six (6) of the Lease term.
50.3. Cost of Living Adjustments: Years Eight, Nine and Ten. At the
commencement of the eighth, ninth, and tenth year of the term, (the "COL
Adjustment Date"), the then current monthly Base Rent for the Premises shall be
subject to a cost of living adjustment in the manner set forth in Paragraphs
50.1 (b) through 50.1(c) above.
50.4 On adjustment of the Base Rent as provided herein, the parties shall
immediately execute an amendment to the Lease stating the new Base Rent.
51. Option To Extend.
----------------
51.1. Grant of Option/Notice. Pursuant to Paragraph 39 of the Lease,
Lessor hereby grants to Lessee an option to extend the Original Term (as set
forth in Paragraph 1.3 of the Lease) for an additional ten (10) year period
("Option Term") subject to all of the terms contained in the Lease. Lessee
shall notify Lessor of exercise of the option at least six (6) months but not
more than one year before the expiration of the Original Term. Provided
however, if Lessee is in default on the date of giving the option notice, the
option notice shall be totally ineffective, or if Lessee is in default on the
date the Option Term is to commence, the Option Term shall not commence and the
Lease shall expire at the end of the Original Term.
51.2. Option Term Rent.
(a) The Base Rent for the first (1st) year of the Option Term, (" FMV
Adjustment Date"), shall be subject to adjustment as set forth in Paragraph 52
of this Addendum, payable in advance on the first day of each month thereafter.
(b) The Base Rent for year two (2) of the Option Term shall not be adjusted
but shall be the same as Base Rent for year one (1) of the Option Term.
(c) Base Rent for the third, fourth and fifth year of the Option Term shall
be adjusted as set forth in Paragraphs 50. 1 (b) through 50. 1 (c) of this
Addendum at the commencement of the third, fourth and fifth year of the Option
Term, ("COL Adjustment Date").
(d) At the commencement of the sixth year of the Option Term, ("FMV
Adjustment Date"), the then current monthly Base Rent for the Premises shall be
adjusted to the fair market rental value for the Premises in the manner provided
in Paragraph 52 below, payable in advance on the first day of each month
thereafter.
-39-
<PAGE>
(e) The Base Rent for year seven (7) of the Option Term shall not be
adjusted but shall be the same as Base Rent for year six (6) of the Option Term.
(f) At the commencement of the eighth, ninth, and tenth year of the term,
("COL Adjustment Date") the then current monthly Base Rent for the Premises
shall be subject to a cost of living adjustment in the manner set forth in
Paragraphs 50.1 (b) through 50.1 (c) above.
51.3 On adjustment of the Base Rent as provided herein, the parties shall
immediately execute an amendment to the Lease stating the new Base Rent.
52. Fair Market Rent.
----------------
(a) The fair market rental value of the Premises shall be agreed upon by
the parties on or before one hundred eighty (180) days prior to the FMV
Adjustment Date, or if the parties are unable to agree upon such fair market
rental value one hundred eighty (180) days prior to the FMV Adjustment Date,
such fair market rental value shall be determined by arbitration as provided in
Paragraph 53 below, provided in no event shall such fair market rental value be
less than the Base Rent for the period immediately prior thereto.
(b) In determining the fair market rental value of the premises as
aforesaid, the parties and, if applicable, the arbitrators shall take into
account that such rent shall be in equal monthly payments throughout the two
years following the FMV Adjustment Date, and thereafter subject to cost of
living adjustments as provided herein.
(c) All costs and expenses of any arbitration hereunder to determine the
fair market rental value of the Premises shall be borne equally by Lessor and
Lessee.
53. Arbitration. In the event that the parties are unable to agree upon a fair
-----------
market value of the Premises for the purposes of making a fair market rental
adjustment as provided in Paragraphs 50.2, 51.2(a), and 51.2(d) such fair market
value shall be determined by arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The site
of any arbitration hereunder shall be in Colorado Springs, Colorado.
54. Insurance. The amount of property insurance provided for in Paragraph 8.3
---------
of the Lease shall not be less than $2,200,000.00 and shall be increased by 2%
each year of the Original Term and Option Term.
54. Previous Lease Superseded. The Lease and this Addendum hereby supersedes
-------------------------
any previous lease concerning the Premises previously entered into by the
parties.
55. Lessee Taking Premises "AS IS". Lessee is the occupant of the Premises
------------------------------
prior to the date
-40-
<PAGE>
set forth in Paragraph 1.1 of the Lease. Therefore, pursuant to Paragraph 2.5 of
the Lease, the warranties made by Lessor in Paragraph 2 are of no force and
effect and Lessee agrees to the Premises in their "AS IS" condition.
56. Acknowledgment Regarding Substances Used by Lessee. Notwithstanding any
--------------------------------------------------
contained herein, Lessor, acknowledges that Lessee is in the business of
producing printed circuit boards, which process necessarily requires the use,
generation, manufacture, treatment and disposal of hazardous substances. Lessee
declares that it is now in compliance with all local, state and federal
regulations concerning hazardous substances; Lessor agrees that so long Lessee
remains in compliance with all applicable regulations, such use, generation,
manufacture, treatment and disposal of hazardous substances shall not be a
default hereunder or under any of the related documents.
LESSOR: LESSEE:
Michael J. Irvin, Trustee Colorado Springs Circuits, Inc.
of the Davila Living Trust
dated March 13 1989 By:/s/ James Marcelli
-----------------------------
/s/ Michael J. Irvin, Trustee Its: President
- ------------------------------------- ----------------------------
Date: 6/30/94 Date: 7/11/94
------------------------------- ---------------------------
-41-
<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 8,592 6,694 6,648 9,130
Fixed charges:
Interest expense....... 57 167 181 371 9,518 6,974 7,427 21,157 15,899 15,888 21,146
Rentals:
1/3 of all lease rent-
als.................... 211 239 179 207 -- -- -- 725 136 184 773
---- --- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total fixed charges.... 268 406 360 578 9,518 6,974 7,427 21,882 16,035 16,072 21,919
Earnings before income
taxes and fixed charges. 73 440 18,524 26,963 28,139 20,542 15,401 30,474 22,729 22,720 31,049
Ratio of earnings to
fixed charges........... -- (1) 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x 1.4x 1.4x 1.4x 1.4x
</TABLE>
- ----
(1) Earnings were not sufficient to cover Fixed Charges by $195.
<PAGE>
[MCGLADREY & PULLEN, LLP LETTERHEAD APPEARS HERE]
January 14, 1998
To the Board of Directors
Details Holdings Corp.
Anaheim, California
We were previously the independent accountants for Details Holdings Corp.,
formerly Details, Inc., and on February 14, 1997, we reported on the
consolidated financial statements of Details, Inc. and Subsidiaries as of
December 31, 1995 and 1996, and for each of the three years in the period ended
December 31, 1996. On December 16, 1997, we were notified that we would be
dismissed as independent accountants of Details Holdings Corp. effective
December 31, 1997.
We have read Details Holdings Corp.'s statement on page 107 of Amendment No. 1
to Form S-4 Registration Statement of Details, Inc. and on page 109 of Amendment
No. 1 to Form S-4 of Details Capital Corp. and we agree with such statement.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
<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 Amendment No. 1 to the Registration Statement (Form S-4) (333-41211)
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
January 16, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-41211 of Details, Inc. on Form S-4 of our report dated May 9, 1997 and
December 22, 1997 relating to the financial statements of Colorado Springs
Circuits, Inc. as of April 1, 1997 and 1996 and for the years then ended,
appearing in the Prospectus, which is part of this Registration Statement and
to the reference to us under the heading "Independent Auditors" in such
Prospectus.
Stockman Kast Ryan & Scruggs, P.C.
Colorado Springs, Colorado
January 16, 1998
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-41211 of Details, Inc. on Form S-4 of our report dated June 2, 1995
relating to the statements of income and retained earnings and of cash flows
of Colorado Springs Circuits, Inc. for the year ended March 31, 1995,
appearing in the Prospectus, which is part of this Registration Statement and
to the reference to us under the heading "Independent Auditors" in such
Prospectus.
Deloitte & Touche LLP
Denver, Colorado
January 16, 1998
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
DETAILS, INC.
OFFER TO EXCHANGE ITS
10% SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2005
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
FOR AN EQUAL PRINCIPAL AMOUNT OF ITS
10% SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2005
WHICH HAVE NOT BEEN SO REGISTERED
PURSUANT TO THE PROSPECTUS
DATED_________________________
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
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)
(617) 664-5371
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY
<PAGE>
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , UNLESS THE OFFER IS EXTENDED.
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Original Notes (as
defined below) either if Original Notes are to be forwarded herewith or if
tenders of Original Notes are to be made by book-entry transfer to an account
maintained by State Street Bank and Trust Company (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and an Agent's
Message (as defined herein) is not delivered.
Holders of Original Notes whose certificates (the "Certificates") for such
Original Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Original
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
- --------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL NOTES TENDERED
<TABLE>
- -----------------------------------------------------
<CAPTION>
IF BLANK, <S> <C>
PLEASE
PRINT NAME
AND
ADDRESS
OF
REGISTERED ORIGINAL NOTES
HOLDER. (ATTACH ADDITIONAL LIST)
- -----------------------------------------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
CERTIFICATE OF ORIGINAL NOTES
NUMBER(S) * TENDERED**
<S> <C> <C>
-----------
-----------
-----------
-----------
TOTAL AMOUNT
TENDERED:
- -----------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** All Original Notes held shall be deemed tendered unless a lesser number is
specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETED THE FOLLOWING;
Name of Tendering Institution:
----------------------------------------------
DTC Account Number
----------------------------------------------------------
Transaction Code Number
-----------------------------------------------------
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s) :
-------------------------------------------
Window Ticket Number (if any)
-----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------
Name of Institution which Guaranteed Delivery
-------------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
-3-
<PAGE>
Name of Tendering Institution
-----------------------------------------
DTC Account Number
----------------------------------------------------
Transaction Code Number
------------------------------------------------
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[_] 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:
--------------------------------------------------------------------
- ----------------------------------------------------------------------------
-4-
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Details Inc., a California corporation
(the "Company"), the above described principal amount of the Company's
outstanding 10% Senior Subordinated Notes due November 15, 2005 (the "Original
Notes") in exchange for a like principal amount of the Company's new 10% Senior
Subordinated Notes due November 15, 2005 (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
upon the terms and subject to the conditions set forth in the Prospectus dated
_________________, 1998 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitutes the "Exchange
Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Original Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfer to or upon the order of the
Company all right, title and interest in and to such Original Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Original Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Original Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to be issued in exchange for such
Original Notes, (ii) present Certificates for such Original Notes for transfer,
and to transfer the Original Notes on the books of the Company, and (iii)
receive for the account of the Company all benefits and otherwise exercise all
rights of beneficial ownership of such Original Notes, all in accordance with
the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY
OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE ORIGINAL
NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS
-5-
<PAGE>
OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ
AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Original
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Original Notes. The
Certificate number(s) and the Original Notes that the undersigned wishes to
tender should be indicated in the appropriate boxes above.
If any tendered Original Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Original Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Original Notes will be returned (or, in the case of Original
Notes tendered by book-entry transfer, such Original Notes will be credited to
an account maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
If the undersigned is a broker-dealer holding Original Notes acquired for
its own account as a result of market-making activities or other trading
activities, it agrees to deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes received in
respect of such Original Notes pursuant to the Exchange Offer.
The undersigned understands that tenders of Original Notes pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions will, upon the Company's
acceptance for exchange of such tendered Original Notes, constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Original Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Original Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Original Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Original
Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver Exchange Notes to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING ORIGINAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING
-6-
<PAGE>
ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, FOR THE UNDERSIGNED'S OWN
ACCOUNT, FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
ANY DISTRIBUTION OF THE EXCHANGE NOTES, (III) THE UNDERSIGNED HAS NO ARRANGEMENT
OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE
OFFER, (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT
ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING
OF THE SECURITIES ACT) OF SUCH EXCHANGE NOTES, AND (V) THE UNDERSIGNED WILL
PROVIDE THE COMPANY WITH ANY ADDITIONAL REPRESENTATIONS SO REQUESTED IN ORDER
FOR THE COMPANY TO ENSURE COMPLIANCE WITH APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS. ANY HOLDER OF ORIGINAL NOTES WHICH IS NOT A BROKER-DEALER, AND WHICH
IS USING THE EXCHANGE OFFER TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING
OF THE SECURITIES ACT) OF EXCHANGE NOTES, IS HEREBY NOTIFIED (1) THAT IT WILL
NOT BE ABLE TO RELY ON THE POSITION OF THE STAFF OF THE DIVISION OF CORPORATE
FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION (THE "STAFF") SET FORTH IN
EXXON CAPITAL HOLDINGS CORPORATION (AVAIL. APRIL 13, 1989) AND SIMILAR LETTERS
AND (2) THAT IT MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF EXCHANGE
NOTES.
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. ANY HOLDER OF ORIGINAL NOTES WHICH IS A BROKER-DEALER BY
TENDERING ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS
LETTER OF TRANSMITTAL, REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN
INTERPRETIVE LETTERS ISSUED BY THE STAFF TO THIRD PARTIES, THAT (A) SUCH
ORIGINAL NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH
ORIGINAL NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
ALL RESALES MUST BE MADE IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR
"BLUE SKY" LAWS. SUCH COMPLIANCE MAY REQUIRE THAT THE EXCHANGE NOTES BE
REGISTERED OR QUALIFIED IN A PARTICULAR
-7-
<PAGE>
STATE OR THAT THE RESALE BE MADE BY OR THROUGH A LICENSED BROKER-DEALER, UNLESS
EXEMPTIONS FROM THESE REQUIREMENTS ARE AVAILABLE. THE COMPANY ASSUMES NO
RESPONSIBILITY WITH REGARD TO COMPLIANCE WITH SUCH REQUIREMENTS.
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.
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer (as defined below) in
connection with resales or Exchange Notes received in exchange for Original
Notes, where such Original Notes were acquired by such Participating Broker-
Dealer for its own account as a result of market-making activities or other
trading activities, for a period ending 90 days after the Expiration Date
(subject to extension under certain limited circumstances described in the
Prospectus) or, if earlier, when all such Exchange Notes have been disposed of
by such Participating Broker-Dealer. In that regard, each Broker-Dealer who
acquired Original Notes for its own account and as a result or market-making or
other trading activities (a "Participating Broker-Dealer"), by tendering such
Original Notes and executing this letter of transmittal, agrees that, upon
receipt of notice from the Company of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference therein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of Exchange Notes pursuant to the Prospectus until the Company has amended
or supplemented the Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to the Participating
Broker-Dealer or the Company given notice that the sale of the Exchange Notes
may be resumed, as the case may be. If the Company gives such notice to suspend
the sale of the Exchange Notes, it shall extend the 90-day period referred to
above during which Participating Broker-Dealers are entitled to use the
Prospectus in connection with the resale of Exchange Notes by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the supplemented or amended Prospectus necessary to permit resales of
the Exchange Notes or to and including the date on which the Company has given
notice that the sale of Exchange Notes may be resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the
Prospectus in connection with resales of Exchange Notes received in exchange for
Original Notes pursuant to the Exchange Offer must notify the Company, or cause
the Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given
-8-
<PAGE>
in the space provided above or may be delivered to the Exchange Agent at the
address set forth in the Prospectus under "The Exchange Offer--Exchange Agent."
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
-9-
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Original Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certificates and other information as may be required by the Company
for the Original Notes to comply with any restrictions on transfer applicable to
the Original Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date: , 1998
-----------------
Name(s)
- ------------------------------------------------------------------------------
(PLEASE PRINT)
- ------------------------------------------------------------------------------
Capacity or Title
------------------------------------------------------------
Address
----------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code(s) and Telephone Number
- -----------------------------------------------
- ------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature
---------------------------------------------------------
Name
-------------------------------------------------------------------------
(PLEASE PRINT)
Date , 1998
-----------------------
Capacity or Title
------------------------------------------------------------
Name of Firm
-----------------------------------------------------------------
Address
----------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code(s) and Telephone Number
--------------------------------------------
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<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes or any Original Notes that are not
tendered are to be issued in the name of someone other than the registered
holder of the Original Notes whose name(s) appear(s) above.
ISSUE:
[__] Exchange Notes to:
[__] Original Notes not tendered to:
Name(s):
----------------------------
- -----------------------------------
(PLEASE PRINT)
Address:
----------------------------
- -------------------------------------
(ZIP CODE)
- -------------------------------------
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
(SEE ENCLOSED SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes or any Original Notes that are not
tendered are to be sent to someone other than the registered holder of the
Original Notes whose name(s) appear(s) above, or to the registered holder(s) at
an address other than that shown above.
MAIL:
[__] Exchange Notes to:
[__] Original Notes not tendered to:
Name(s)
----------------------------
- -----------------------------------
(PLEASE PRINT)
Address:
----------------------------
- -------------------------------------
(ZIP CODE)
-11-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of Letter of Transmittal and Certificates; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be completed either if
(a) tenders are to be made pursuant to the procedures for tender by book-entry
transfer set forth in "The Exchange Offer - Procedures for Tendering" in the
Prospectus and an Agent's Message is not delivered or (b) Certificates are to be
forwarded herewith. Timely confirmation of a book-entry transfer of such
Original Notes into the Exchange Agent's account at DTC, or Certificates as well
as this Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its addresses set forth herein on or prior to the Expiration Date. Tenders
by book-entry transfer may also be made by delivering an Agent's Message in lieu
of this Letter of Transmittal. The term "Agent's Message" means a message,
transmitted by DTC to and received by the Exchange Agent and forming a part of a
book-entry confirmation, which states that DTC has received an express
acknowledgment from the tendering Participant, which acknowledgment states that
such Participant has received and agrees to be bound by the Letter of
Transmittal and that the Company may enforce the Letter of Transmittal against
such Participant. The term "book-entry confirmation" means a timely
confirmation of book-entry transfer of Original Notes into the Exchange Agent's
account at DTC.
Holders who wish to tender their Original Notes and (i) who cannot deliver
their Original Notes, this Letter of Transmittal and all other required
documents to the Exchange Agent on or prior to the Expiration Date or (ii) whose
Original Notes are not immediately available may tender their Original Notes by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth in "The Exchange Offer -
Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures:
(a) such tender must be made through an Eligible Institution (as defined below);
(b) prior to the applicable Expiration Date, the Exchange Agent must receive
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
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 (c) such properly completed and executed Letter of
Transmittal, as well as the certificate(s) representing the all tendered
Original Notes in proper form for transfer (or 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,
all as provided in "The Exchange Offer - Guaranteed Delivery
-12-
<PAGE>
Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by mail, hand delivery
or facsimile transmission to the Exchange Agent, and must include a guarantee by
an Eligible Institution in the form set forth in such Notice. For Original
Notes to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act
as "an eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
THE COMPANY WILL NOT ACCEPT ANY ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS. EACH TENDERING HOLDER, BY EXECUTION OF A LETTER OF TRANSMITTAL (OR
FACSIMILE THEREOF OR AGENT'S MESSAGE IN LIEU THEREOF), WAIVES ANY RIGHT TO
RECEIVE ANY NOTICE OF THE ACCEPTANCE OF SUCH TENDER.
2. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required if:
a. this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Original Notes) of Original Notes tendered herewith, unless such
holder(s) has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" above, or
b. such Original Notes are tendered for the account of a firm that is
an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter
-13-
<PAGE>
of Transmittal. See Instruction 5.
3. Inadequate Space. If the space provided in the box captioned
"Description of Original Notes Tendered" is inadequate, the Certificate
number(s) and/or the principal amount of Original Notes and any other required
information should be listed on a separate signed schedule which is attached to
this Letter of Transmittal.
4. Partial Tenders and Withdrawal Rights. If less than all the Original
Notes evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Original Notes which are to be tendered in the box entitled
"Principal Amount of Original Notes Tendered." In such case, new Certificate(s)
for the remainder of the Original Notes that were evidenced by your old
Certificate(s) will be sent to the holder of the Original Notes, promptly after
the Expiration Date. All Original Notes represented by Certificates delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
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 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.
-14-
<PAGE>
5. Signatures on Letter of Transmittal, Assignments and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Original
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) or on a security position listing
without alteration, enlargement or any change whatsoever.
If any of the Original Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof or Agent's Message in
lieu thereof) as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates 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 must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Original Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes are
to be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Original Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company may require in accordance with the restrictions on transfer
applicable to the Original Notes. Signatures on such Certificates or bond
powers must be guaranteed by an Eligible Institution.
6. Special Issuance and Delivery Instructions. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Original Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. Irregularities. The Company will determine, in its sole discretion,
all questions
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<PAGE>
as to the form of documents, validity, eligibility (including time of receipt)
and acceptance for exchange of any tender of Original Notes which determination
shall be final and binding on all parties. The Company reserves the absolute
right, in its sole and absolute discretion, to reject any and all tenders
determined by it not to be in proper form or the acceptance of which, or
exchange for, may, in the view of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer set forth in the Prospectus under
"The Exchange Offer - Conditions of the Exchange Offer" or any conditions or
irregularity in any tender of Original Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Original Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent, or any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. Questions, Requests for Assistance and Additional Copies. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, this Letter of Transmittal and the Notice
of Guaranteed Delivery may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% Backup Withholding; Substitute Form W-9. Under U.S. Federal
income tax law, a holder whose tendered Original Notes are accepted for exchange
is required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Original Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld
-16-
<PAGE>
from payments made to the holder thereafter. If, however, the holder has not
provided the Exchange Agent with its TIN within such 60 day period, amounts
withheld will be remitted to the IRS as backup withholding. In addition, 31% of
all payments made thereafter will be withheld and remitted to the IRS until a
correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Original Notes. If the Original Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. Lost, Destroyed or Stolen Certificates. If any Certificate(s)
representing Original Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The holder will then be instructed
as to the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. Security Transfer Taxes. Holders who tender their Original Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Original Notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of Original Notes in connection with the Exchange Offer, then
the amount of any such transfer tax (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.
-17-
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
-18-
<PAGE>
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, AS EXCHANGE AGENT
- --------------------------------------------------------------------------------
PART I--PLEASE SOCIAL SECURITY OR
PROVIDE YOUR TIN IN EMPLOYER
THE BOX AT RIGHT AND IDENTIFICATION
CERTIFY BY SIGNING NUMBER
AND DATING BELOW.
SUBSTITUTE
_____________________
FORM W-9 (If awaiting TIN
DEPARTMENT OF THE write "Applied For")
TREASURY INTERNAL
REVENUE SERVICE
_________________________________________
NAME (please print)
_________________________________________
PAYOR'S REQUEST FOR ADDRESS
TAXPAYER
IDENTIFICATION _________________________________________
NUMBER ("TIN") AND CITY STATE ZIP CODE
CERTIFICATION
PART II--For Payees NOT subject to backup
withholding, see the enclosed Guidelines for
Certification of Taxpayer Identification Number on
Substitute Form W-9 and complete as instructed
therein.
_________________________________________
CERTIFICATION--UNDER PENALTIES OF
PERJURY, I CERTIFY THAT:
1. The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), AND
2. I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b) I
have not been notified
-19-
<PAGE>
by the Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of a
failure to report all interest or dividends, or
(c) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2)
above if you have been notified by the IRS that you are
subject to backup withholding because of under reporting
interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to
backup withholding you received another notification from
the IRS that you are no longer subject to backup
withholding, do not cross out item (2).
Signature:______________________ Date:____,1998
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART I OF
SUBSTITUTE FORM W-9.
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, AS EXCHANGE
AGENT
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number within sixty (60)
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
Signature:___________________________ Date:_____, 1998
-20-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
10% SENIOR SUBORDINATED NOTES
DUE NOVEMBER 15, 2005
OF
DETAILS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis (ii) certificates for the Company's (as defined below) 10% Senior
Subordinated Notes due November 15, 2005 (the "Original Notes") are not
immediately available or (iii) Original Notes, the Letter of Transmittal and all
other required documents cannot be delivered to State Street Bank and Trust
Company (the "Exchange Agent") on or prior to the Expiration Date (as defined in
the Prospectus referred to below). This Notice of Guaranteed Delivery may be
delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for
Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
By Registered or Certified Mail or Hand or Overnight Delivery:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Earl Dennison
Confirm by Telephone: (617) 664-5670
Facsimile Transmissions:
(Eligible Institutions Only)
(617) 664-5371
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Details, Inc., a California corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate liquidation amount of Original Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering."
Aggregate Principal Amount Tendered:
- ---------------------------------- -----------------------------------
(NAME(S) OR REGISTERED HOLDER(S) --
PLEASE PRINT)
- ----------------------------------
CERTIFICATE NOS. (IF AVAILABLE)
- ---------------------------------- -----------------------------------
(ADDRESS OF REGISTERED HOLDER (S))
Check box if Original Notes will be
delivered by book-entry transfer and
provide account number. -----------------------------------
(ZIP CODE)
[_] The Depository Trust Company
-----------------------------------
(AREA CODE AND TELEPHONE NO.)
DTC Account Number:
---------------
-----------------------------------
Date: (NAME(S) OF AUTHORIZED SIGNATORY)
-----------------------------------
(CAPACITY)
-----------------------------------
(ADDRESS(ES) OF AUTHORIZED
SIGNATORY)
-----------------------------------
(AREA CODE AND TELEPHONE NO.)
-----------------------------------
-----------------------------------
(SIGNATURE(S) OF RECORD HOLDER OR
AUTHORIZED SIGNATORY)
DATED:
-----------------------------
-2-
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (1) a bank; (2) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (3) a credit union;
(4) a national securities exchange, registered securities association or
clearing agency; or (5) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent at one of its addresses set forth above, either the Original
Notes tendered hereby in proper form for transfer, or confirmation of the book-
entry transfer of such Original Notes to the Exchange Agent's account at The
Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof) and any other required documents
within three business days after the date of execution of this Notice of
Guaranteed Delivery. The undersigned acknowledges that it must deliver the
Letter(s) of Transmittal (or facsimile thereof or Agent's Message in lieu
thereof) and the Original Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
- --------------------------------------------------------------------------------
(NAME OF FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(ADDRESS)
- --------------------------------------------------------------------------------
(ZIP CODE)
- --------------------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
DATED:
--------------------------------------------------------------------------
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF ORIGINAL NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
-3-
<PAGE>
EXHIBIT 99.3
DETAILS, INC.
1231 Simon Circle
Anaheim, California 92806
EXCHANGE AGENT AGREEMENT
January __, 1998
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Ladies and Gentlemen:
Details, Inc., a California corporation (the "Company") proposes to make an
offer (the "Exchange Offer") to exchange up to $100,000,000 aggregate principal
amount of its 10% Senior Subordinated Notes due November 15, 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 10%
Senior Subordinated Notes due November 15, 2005 (the "Original Notes"), of which
$100,000,000 aggregate principal amount is outstanding. The terms and
conditions of the Exchange Offer as currently contemplated are set forth in a
prospectus, dated _______________, 1998 (the "Prospectus"), a copy of which is
attached to this Agreement as Attachment A, proposed to be distributed to all
record holders of the Original Notes. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Prospectus
The Company hereby appoints State Street Bank and Trust Company to act as
exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to State Street Bank and Trust
Company.
The Exchange Offer is expected to be commenced by the Company on or about
January____, 1998. The Letter of Transmittal accompanying the Prospectus is to
be used by the holders of the Original Notes to accept the Exchange Offer, and
contains instructions with respect to the Exchange Offer.
<PAGE>
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
__________, 1998 or on such later date or time to which the Company may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Company expressly reserves the right to extend
the Exchange Offer from time to time and may extend the Exchange Offer by giving
oral (promptly confirmed in writing) or written notice to you no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Original Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange
Offer--Conditions of the Exchange Offer." The Company will give oral (promptly
confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer," as
specifically set forth herein and such duties which are necessarily incidental
thereto; provided, however, that in no way will your general duty to act in good
faith be discharged by the foregoing.
2. You will establish an account with respect to the Original Notes at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus or,
if you already have established an account with the Book-Entry Transfer Facility
suitable for the Exchange Offer, you will identify such pre-existing account to
be used in the Exchange Offer, and any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may make book-entry
delivery of the Original Notes by causing the Book-Entry Transfer Facility to
transfer such Original Notes into your account in accordance with the Book-Entry
Transfer Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal, certificates for
the Original Notes and confirmations of book-entry transfers into your account
at the Book-Entry Transfer Facility and any Agent's Message or other documents
delivered or mailed to you by or for holders of the Original Notes to ascertain
whether: (i) the Letters of Transmittal and any such other documents are duly
executed and properly completed in accordance with instructions set forth
therein and (ii) the Original Notes have otherwise been properly tendered or are
covered by a Notice of Guaranteed Delivery. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed or
any of the certificates for Original Notes are not in proper form for transfer
or some other irregularity in connection with the acceptance of the Exchange
Offer exists, you will endeavor promptly to inform the presenters
2
<PAGE>
that their tenders will not be accepted in the form made and of the defects
therein.
4. With the approval of the President or the Vice President and Chief
Financial Officer of the Company (such approval, if given orally, to be promptly
confirmed in writing), you are authorized to waive any irregularities in
connection with any tender of Original Notes pursuant to the Exchange Offer.
5. Tenders of Original Notes may be made only as set forth in the section
of the Prospectus captioned "The Exchange Offer--Procedures for Tendering" or in
the Letter of Transmittal, and Original Notes shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
therein.
Notwithstanding the provisions of this paragraph 5, Original Notes which
the Company or any other party designated by the Company in writing shall
approve as having been properly tendered shall be considered to be properly
tendered (such approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Original Notes
delivered subsequent to the Expiration Date and accept its instructions (such
instructions, if given orally, to be promptly confirmed in writing) with respect
to the disposition of such Original Notes.
7. You shall accept tenders:
(a) in cases where the Original Notes are registered in two or more
names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority to so act is submitted; and
(c) from persons other than the registered holder of Original Notes
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Original Notes where so indicated, and
as permitted, in the Letter of Transmittal and deliver certificates for Original
Notes to the transfer agent for split-up and return any untendered Original
Notes to the holder (or to such other person as may be designated in the Letter
of Transmittal) as promptly as practicable after expiration or termination of
the Exchange Offer.
For the purposes hereof, to "accept" means to make the examination of
documents presented in connection with a tender pursuant to Section 3 and to
include such tender in your report of accepted tenders made pursuant to Section
16.
3
<PAGE>
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be promptly
confirmed in writing) of the Company's acceptance, promptly after the Expiration
Date, of all Original Notes properly tendered and you, on behalf of the Company,
will exchange such Original Notes for Exchange Notes and cause such Original
Notes to be canceled. Delivery of Exchange Notes will be made on behalf of the
Company by you at the rate of $1,000 principal amount of Exchange Notes for each
$1,000 principal amount of Original Notes tendered promptly after notice (such
notice if given orally, to be promptly confirmed in writing) of acceptance of
said Original Notes by the Company; provided, however, that in all cases,
Original Notes tendered pursuant to the Exchange Offer will be exchanged only
after timely receipt by you of certificates for such Original Notes (or
confirmation of book-entry transfer into your account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees (or Agent's Message in
lieu thereof) and any other required document. You shall issue Exchange Notes
only in denominations of $1,000 or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, tenders of Original Notes pursuant to the Exchange Offer
may be withdrawn by written notice (including a facsimile thereof) received by
you from the holder at any time on or prior the Expiration Date.
10. The Company shall not be required to exchange any Original Notes
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Original Notes
tendered shall be given (such notice, if given orally, shall be promptly
confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Original Notes tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer--Conditions of the Exchange Offer" or otherwise,
you shall as soon as practicable after the expiration or termination of the
Exchange Offer return those certificates for unaccepted Original Notes (or
effect the appropriate book-entry transfer of the unaccepted Original Notes),
and return any related required documents and the Letters of Transmittal
relating thereto that are in your possession, to the persons who deposited them.
12. All certificates for reissued Original Notes or for unaccepted or
withdrawn Original Notes shall be forwarded by (a) first-class mail, return
receipt requested, under a blanket surety bond protecting you and the Company
from loss or liability arising out of the non-receipt or non-delivery of such
certificates or (b) by registered mail insured separately for the replacement
value of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or
4
<PAGE>
solicitation fees to any broker, dealer, bank or other persons or to engage or
utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of
Original Notes, and will not be required to and will make no representation as
to the validity, value or genuineness of the Exchange Offer; provided, however,
that in no way will your general duty to act in good faith be discharged by the
foregoing;
(b) shall not be obligated to take any action hereunder other than as
specifically set forth herein to be taken by you, which might in your reasonable
judgment involve any expense or liability, unless you shall have been furnished
with reasonable indemnity;
(c) shall not be liable to the Company for any action taken or
omitted by you, or any action suffered by you to be taken or omitted, without
negligence, misconduct or bad faith on your part, by reason of or as a result of
the administration of your duties hereunder in accordance with the terms and
conditions of this Agreement or by reason of your compliance with the
instructions set forth herein or with any written or oral instructions delivered
to you pursuant hereto, and may conclusively rely on an shall be fully protected
in acting in good faith in reliance upon any certificate, instrument, opinion,
notice, letter, facsimile or other document or security delivered to you and
reasonably believed by you to be genuine and to have been signed by the proper
party or parties;
(d) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and the effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
reasonably believe to be genuine or to have been signed or represented by a
proper person or persons;
(e) may conclusively rely on and shall be fully protected in acting
upon written or oral instructions from any officer of the Company with respect
to the Exchange Offer;
(f) shall not advise any person tendering Original Notes pursuant to
the Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Original Notes; and
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the written opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by you hereunder in good faith and in
accordance with such advice or written opinion of such counsel.
5
<PAGE>
15. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery, or such other forms as may be approved from time
to time by the Company, to all persons requesting such documents and to accept
and comply with telephone request for information relating to the Exchange
Offer, provided that such information shall relate only to the procedures for
accepting (or withdrawing from) the Exchange Offer. The Company will furnish
you with copies of such documents at your request. All other requests for
information relating to the Exchange Offer shall be directed to the Secretary of
the Company at: 1231 Simon Circle, Anaheim, California 92806.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to the Company and Ropes & Gray, counsel for the
Company, and such other person or persons as they may request, weekly, and more
frequently, if reasonably requested, up to and including the Expiration Date, as
to the principal amount of the Original Notes which have been tendered pursuant
to the Exchange Offer and the items received by you pursuant to this Agreement,
separately reporting and giving cumulative totals of the items properly
received, items improperly received and items covered by Notices of Guaranteed
Delivery. You shall also provide the Company or any such other person or
persons as the Company may request from time to time prior to the Expiration
Date with such other information as the Company or such other person may
reasonably request. In addition, you shall grant to the Company and such
persons as the Company may request, access to those persons on your staff who
are responsible for receiving tenders, in order to ensure that immediately prior
to the Expiration Date, the Company shall have received information in
sufficient detail to enable them to decide whether to extend the Exchange Offer.
You shall prepare a list of persons who failed to tender or whose tenders were
not accepted and deliver said list to the Company at least seven days prior to
the Expiration Date. You shall also prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Original Notes tendered
and the aggregate principal amount of Original Notes accepted and deliver said
list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. For services rendered as Exchange Agent hereunder you shall be entitled
to a fee of $5,000 and you shall be entitled to reimbursement of your expenses
(including fees and expenses of your counsel, which fees are expected under
normal circumstances to be not in excess of $5,000) incurred in connection with
the Exchange Offer.
19. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal
6
<PAGE>
attached hereto and further acknowledge that you have examined each of them to
the extent necessary to perform your obligations hereunder. Any inconsistency
between this Agreement, on the one hand, and the Prospectus and the Letter of
Transmittal (as they may be amended from time to time), on the other hand, shall
be resolved in favor of the latter two documents, except with respect to the
duties, liabilities and indemnification of you as Exchange Agent, which shall be
controlled by this Agreement.
20. The Company agrees to indemnify and hold you (and your officers,
directors, employees and agents) harmless in your capacity as Exchange Agent
hereunder against any liability, cost or expense, including reasonable
attorney's fees, arising out of or in connection with the acceptance or
administration of your duties hereunder, including, without limitation, in
connection with any act, omission, delay or refusal made by you in reasonable
reliance upon any signature, enforcement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of Original Notes reasonably believed by you in good
faith to be authorized, and in delaying or refusing in good faith to accept any
tenders or effect any transfer of Original Notes; provided, however, that the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your negligence, willful
breach of this Agreement, willful misconduct or bad faith. In no case shall the
Company be liable under this indemnity with respect to any claim against you
unless the Company shall be notified by you, by letter or cable or by facsimile
confirmed by letter, of the written assertion of a claim against you or of any
other action commenced against you, promptly after you shall have received any
such written assertion or commencement of action. The Company shall be entitled
to participate at its own expense in the defense of any such claim or other
action. You shall not compromise or settle any such action or claim without the
consent of the Company.
21. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts applicable to agreements made and to be performed entirely within
such state, without regard to conflicts of law principles, and shall inure to
the benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
22. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together
constitute one and the same agreement.
23. In case any provision of this Agreement 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.
24. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a
7
<PAGE>
duly authorized representative of the party to be charged. This Agreement may
not be modified orally.
25. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to the Company, to:
Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Facsimile: (714) 630-9438
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Lauren I. Norton, Esq.
Facsimile: (617) 951-7050
If to the Exchange Agent, to:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Earl Dennison
Facsimile: (617) 664-5371
26. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
Paragraphs 18 and 20 shall survive the termination of this Agreement. Except as
provided in Paragraph 17, upon any termination of this Agreement, you shall
promptly deliver to the Company any funds or property (including, without
limitation, Letters of Transmittal and any other documents relating to the
Exchange Offer) then held by you as Exchange Agent under this Agreement.
27. This Agreement shall be binding and effective as of the date hereof.
8
<PAGE>
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
DETAILS, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
Accepted as of the date
first above written:
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
9
