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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO_________
FOR THE YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 333-41187
333-41211
_________________
DDi CAPITAL CORP.
DYNAMIC DETAILS, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0780382
(STATE OR OTHER JURISDICTION 33-0779123
OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1220 SIMON CIRCLE
ANAHEIM, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 92806
(ZIP CODE)
(714) 688-7200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
_________________
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
On December 31, 1998, all of the voting stock of Dynamic Details, Incorporated
was held by DDi Capital Corp. and all of the voting stock of DDi Capital Corp.
was held by DDi Intermediate Holdings Corp. which is wholly owned by DDi
Holdings Corp.
As of December 31, 1998, Dynamic Details, Incorporated had 100 shares of
common stock, par value $.01 per share, outstanding and DDi Capital Corp. had
1,000 shares of common stock, par value $.01 per share, outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference: None
DDi CAPITAL CORP.
AND ITS WHOLLY-OWNED SUBSIDIARY
DYNAMIC DETAILS, INCORPORATED
FORM 10-K INDEX
PART I Page
Item 1 Business 4
Item 2 Description of Property 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II
Item 5 Market for the Registrants' Common Equity and Related 10
Stockholder Matters
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market 26
Risk
Item 8 Financial Statements and Supplementary Data 26
Item 9 Changes in and Disagreements with Accountants on 26
Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrants 27
Item 11 Executive Compensation 31
Item 12 Security Ownership of Certain Beneficial Owners
and Management 39
Item 13 Certain Relationships and Related Transactions 41
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and 44
Reports on Form 8-K
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Except for the historical information contained herein, this Annual Report on
Form 10-K contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed
here. Readers should pay particular attention to the considerations described
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors that May Affect Future Results."
PART I.
ITEM 1. BUSINESS
INTRODUCTION
DDi Capital Corp. (f/k/a Details Capital Corp.)("DDi Capital") is a wholly-
owned subsidiary of DDi Intermediate Holdings Corp. (f/k/a Details Intermediate
Holdings Corp.) ("Intermediate") which is a wholly-owned subsidiary of DDi
Holdings Corp. (f/k/a Details Holdings Corp.) ("Holdings") and Dynamic Details,
Incorporated (f/k/a Details, Inc.) ("DDi") is a wholly-owned subsidiary of DDi
Capital. On November 3, 1997, Holdings organized DDi as a new wholly-owned
subsidiary, and contributed substantially all of its assets, subject to certain
liabilities, to DDi. On November 19, 1997, Holdings organized DDi Capital and on
February 10, 1998, Holdings contributed substantially all of its assets
(consisting primarily of all of the shares of capital stock of DDi), subject to
certain liabilities, to DDi Capital. On July 15, 1998, Holdings organized
Intermediate as a wholly-owned subsidiary and contributed its ownership of DDi
Capital to Intermediate. As used herein, the "Company" means DDi Capital and its
wholly-owned subsidiaries, including DDi, or their predecessor entities as the
context requires. Each registrant has its principal executive offices at 1220
Simon Circle, Anaheim, California and their telephone number is (714) 688-7200.
On December 22, 1997, DDi acquired all of the outstanding shares of common
stock of Colorado Springs Circuits, Inc., a Colorado corporation d/b/a NTI
("NTI"). The acquisition of NTI is described in more detail under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - NTI Acquisition."
On July 23, 1998, DDi acquired all of the outstanding shares of common stock
of Dynamic Circuits, Inc. ("DCI"), a California corporation. The acquisition of
DCI is described in more detail under "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - DCI Acquisition."
The Company believes, based on industry data, that it is a leading designer,
manufacturer and marketer of complex printed circuit boards ("PCBs") for the
time-critical or "quick-turn" segment of the domestic PCB industry, as well as
for longer-lead PCBs, backplanes, and interconnects. 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 and longer-lead PCBs, in prototype and pre-production
quantities, are used in the design, test and launch phases of new electronic
products. The quick-turn and longer-lead markets are characterized by higher
margins, faster growth and greater customer diversity than the mass production
market. Approximately 91% of the Company's sales for the year ended December 31,
1998 are attributable to the design and manufacture of complex quick-turn and
longer-lead PCBs. Complex PCBs are those employing difficult to manufacture
specifications such as high layer counts, dense circuitry designs, and exotic
materials. The Company's advanced engineering capability enables it to produce
boards with up to 40 layers employing leading-edge fabrication technologies. The
Company produces PCBs for over 1,000 customers across a wide range of end-use
markets including the telecommunications, computer, contract manufacturing,
industrial instrumentation, and consumer electronics industries.
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PRODUCTS AND SERVICES
The majority of the Company's business consists of building complex printed
circuit boards for sophisticated electronics products on a quick-turn and
longer-lead 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,
computers and peripherals, 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.
The Company and its affiliates provide 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 and assists in design
changes 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.
The Company believes that the highly specialized equipment it uses is among the
most advanced in the industry.
The Company 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. The
Company also maintains the capability to produce less sophisticated plate-
through-hole circuit ("PTH") boards. The Company's engineering operations
consist of over 200 engineering professionals (including approximately 120
front-end) dedicated to improving the design and functionality of its customers'
products. The Company utilizes state-of-the-art equipment to implement advanced
technologies such as high density interface (microvias), blind and buried vias,
buried capacitors and resistors, electroless gold (wire bond), and controlled
and differential impedance to meet customer specifications. The Company is
qualified under various industry standards for the manufacture of PCBs. Such
qualifications include Bellcore compliance for telecommunications products and
UL (Underwriters Laboratories) approval for electronics. In addition, all of the
Company's PCB manufacturing facilities are ISO-9002 certified. These
certifications require that the Company meet certain standards related to
management, production design, production and quality control, among others.
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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;
Colorado Springs, Colorado; Milpitas, California; Dallas, Texas; Garland, Texas;
Marlborough, Massachusetts; and La Grange, Georgia.
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 200 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 the
Company 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.
SALES AND MARKETING
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. The Company has
focused its marketing efforts on developing long-term relationships with key
customers in high growth segments of the electronics industry.
The Company markets its products and manufacturing services through an
expansive network consisting of 13 representative organizations with
approximately 50 manufacturers' representatives across the country complemented
by a direct sales force of 95 individuals. Approximately 50% of the Company's
net sales in the fiscal year ended December 31, 1998 were generated through
manufacturers' representatives and 50% through its direct sales force. For many
of these representatives, the Company is their largest revenue source and their
exclusive prototype supplier. The Company's representative network covers the
entire United States. The Company is expanding internationally and, in 1997,
opened an office in London, England, now staffed with 4 individuals. 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
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utilizes fully trained sales representatives and its own engineering force to
provide customer service during all aspects of pre-production and prototype
board fabrication.
MARKETS AND CUSTOMERS
The Company believes that it has one of the broadest customer bases in the
industry, with more than 1,000 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
computer companies, as well as medical, semiconductor equipment and
manufacturers. During the year ended December 31, 1998, sales (on a pro-forma
basis, inclusive of the DCI acquisition-see Note 12 to the Consolidated
Financial Statements) to the Company's largest customer, Alcatel, accounted for
approximately 7.9% of the Company's net revenues. Also measured on a pro-forma
basis, sales to the Company's two largest customers accounted for approximately
14.8% of the Company's net revenues during the year ended December 31, 1998 and
sales to its ten largest customers accounted for approximately 36.2% during the
same period. The Company's customer list includes leading manufacturers of
telecommunications equipment, computer workstations and servers, semiconductor
fabrication, industrial products, computer assemblers, and contract
manufacturing firms. The Company has been successful at retaining customers. The
Company's active customer base (defined as customers who have placed orders
within the month of measurement) has grown from December 1994 at a compound
annual growth rate of 49%, inclusive of the growth attributable to the
acquisitions of NTI in 1997 and DCI in 1998, to approximately 600 customers as
of December 1998. 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, 1996 through 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
MARKETS 1996 1997 1998
- ------- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Telecommunications $ 20.5 30% $ 22.8 29% $ 55.3 32%
Computer 25.3 38% 34.2 43% 54.3 31%
Automotive and Industrial 2.7 4% 1.3 2% 8.0 5%
Turnkey 7.0 10% 12.6 16% 42.5 24%
Governmental Aerospace 3.0 4% 4.0 5% 3.3 2%
Test Instruments 1.1 2% 1.7 2% 3.8 2%
Other 7.9 12% 2.2 3% 7.7 4%
------------- ------------- ------------
Total $ 67.5 100% $ 78.8 100% $174.9 100%
============= ============= ============
</TABLE>
The Company's core strategy is focused on serving the domestic quick-turn and
longer-lead PCB market. It has broad national coverage and services customers in
all regions of the country. The Company is also expanding internationally, and
in 1997, opened an office in London, England, which is now staffed
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with 4 individuals. The Company currently has no immediate plans for
international expansion beyond its sales office in London, England.
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. If raw materials become
unavailable, however, it could hurt the Company's ability to provide quick-turn
service to its customers.
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. The Company principally competes with independent and captive
manufacturers of complex circuit boards in the time-critical segment of the PCB
industry. 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 time-critical segment of the 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.
EMPLOYEES
As of December 31, 1998, the Company had approximately 1,800 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.
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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.
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
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.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company conducts its operations within approximately 463,700 square
feet of building space. The Company's significant facilities are as follows:
<TABLE>
<CAPTION>
REMAINING
LOCATION FUNCTION SQUARE FEET ---------
-------- -------- ----------- LEASE
-----
TERM
----
<S> <C> <C> <C> <C>
Anaheim, California Operations 95,000 2 to 7 years (a)
Garland, Texas Operations 84,000 N/A (b)
Milpitas, California Operations 72,000 2 to 3.5 years (c)
Colorado Springs, Colorado Operations 66,000 4.5 years
Dallas, Texas Operations 49,000 3 years
Marlborough, Massachusetts Operations 32,500 6.5 years
La Grange, Georgia Operations 30,000 5 months (c)
Colorado Springs, Colorado Storage 17,000 4.5 years
Milpitas, California Storage 9,000 5 years
Sunnyvale, California Storage 5,000 2 years
Garland, Texas Storage 1,500 N/A (b)
London, England Operations 1,500 4 years
Frederick, Maryland Operations 700 6 months (c)
Golden, Colorado Operations 500 1.5 years
------------------
463,700
</TABLE>
(a) All of these leases have an option to renew or to purchase
the property at fair market value after a specified date
during the lease term.
(b) The Company owns this facility.
(c) All of these leases have an option to renew for a period ranging
from one to ten years.
The Company believes its facilities are currently adequate for its
operating needs.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the fourth quarter of 1998, the stockholders of DDi Capital Corp. and the
stockholders of Dynamic Details, Incorporated voted unanimously to approve
amendments to the Articles of Incorporation of each company adopting their
respective current names.
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PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON STOCK
There is no established trading market for the common stock of DDi or DDi
Capital. As of December 31, 1998, DDi had 100 shares of common stock, par value
$.01 per share, outstanding, all of which were held by DDi Capital, and DDi
Capital had 1,000 shares of Common Stock, par value $.01 per share outstanding,
all of which were held by Intermediate, which is wholly-owned by Holdings. DDi's
ability to pay dividends is limited under an indenture dated as of November 18,
1997 between DDi and State Street Bank & Trust Co. as trustee (the "Senior
Subordinated Note Indenture"), and under the Senior Credit Facilities (as
defined below). DDi Capital's ability to pay dividends is limited under an
indenture dated November 18, 1997, as supplemented by a supplemental indenture
dated February 10, 1998 among Holdings, DDi Capital and State Street Bank &
Trust Co. as trustee (the "Indenture").
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data with respect to the consolidated
statements of operations for the years ended December 31, 1997 and 1998 and the
balance sheet data as of the end of each fiscal year of both DDi Capital and DDi
are derived from the audited financial statements of DDi Capital and DDi. The
selected financial data with respect to the consolidated statements of
operations for each of the three years ended December 31, 1996 and the balance
sheet data as of the end of each such fiscal year are derived from the audited
financial statements of Holdings, as predecessor to each of DDi Capital and DDi.
The following information should be read in conjunction with the consolidated
financial statements and the related notes thereto and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
PRE-RECAPITALIZATION COMPANY DDi DDi
DDi Capital DDi Capital
1994 1995 1996 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
(in thousands)
------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 44,086 $ 59,370 $ 67,515 $ 78,756 $ 78,756 $ 174,853 $ 174,853
Cost of goods sold........................ 20,415 25,156 30,505 38,675 38,675 119,288 119,288
-------- -------- -------- --------- --------- --------- ---------
Gross profit............................ 23,671 34,214 37,010 40,081 40,081 55,565 55,565
Operating expenses:
Compensation to CEO/(1)/................ 412 418 1,055 2,149 2,149 - -
General and administration.............. 1,385 1,789 1,929 2,057 2,057 8,442 8,463
Sales and marketing..................... 3,542 5,293 5,989 7,278 7,278 12,801 12,801
Stock compensation and related
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
bonuses/(2)/............................ -- -- -- 31,271 31,271 -- --
-------- -------- -------- --------- --------- --------- --------
Amortization of intangibles................... -- -- -- -- -- 10,899 10,899
Write-off of acquired in-process research and
development.................................. -- -- -- -- -- 39,000 39,000
-------- -------- -------- --------- --------- --------- --------
Operating income (loss)....................... 18,332 26,714 28,037 (2,674) (2,674) (15,577) (15,598)
Interest expense (net)........................ (168) (328) (9,416) (17,852) (25,196) (27,483) (35,320)
-------- -------- -------- --------- --------- --------- --------
Income (loss) before income taxes
and extraordinary loss....................... 18,164 26,386 18,621 (20,526) (27,870) (43,060) (50,918)
Income tax benefit (expense) /(3)/............ (273) (396) (6,265) 8,030 10,858 (471) 2,675
Extraordinary loss /(4)/...................... -- -- -- (1,588) (1,588) (2,414) (2,414)
-------- -------- -------- --------- --------- --------- --------
Net income (loss)............................. $ 17,891 $ 25,990 $ 12,356 $ (14,084) $ (18,600) $ (45,945) $(50,657)
======== ======== ======== ========= ========= ========= ========
OTHER FINANCIAL DATA:
EBITDA/(5)/................................. $ 19,214 $ 27,768 $ 30,084 $ (106) $ (106) $ 43,534 $ 43,513
Adjusted EBITDA/(6)/........................ 19,626 28,186 31,139 33,314 33,314 45,413 45,393
Depreciation................................ 882 1,054 2,047 2,568 2,568 9,212 9,212
Cash provided by operating activities....... 18,094 26,141 12,158 9,099 9,099 18,899 18,899
Cash flow used in investing activities...... (844) (2,946) (3,577) (44,948) (44,948) (194,813) (194,813)
Cash provided (used in) financing
activities................................ (15,156) (26,409) (8,885) 41,057 41,057 172,442 172,442
Ratio of earnings to fixed charges /(7)/.... 51.5x 46.6x 3.0x - (9) - (9) - (9) - (9)
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................. $ (96) $ (2,264) $ (3,514) $ 20,762 $ 23,589 $ 13,181 13,181
Total assets................................ 12,015 13,081 27,503 102,571 108,862 358,457 362,166
Total debt.................................. 1,316 1,982 94,101 212,550 273,518 369,540 438,345
Equity (net capital deficiency)/(8)/........ 2,806 2,500 (72,674) (136,548) (191,225) (77,948) (137,970)
</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 (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 (as defined) in connection with the Recapitalization.
(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 and 1996-$1,295.
(4) Represents unamortized debt issue costs expensed as a result of the early
extinguishment of the related debt, net of income tax benefit of $1,104 and
$1,480 in 1997 and 1998, respectively.
(5) "EBITDA" is defined herein as earnings 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 and as EBITDA is used as a basis of measurement
under certain credit indenture covenants. 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.
(6) "Adjusted EBITDA" is defined herein as EBITDA adjusted for: (i) certain
items of income which are not expected to be incurred by the Company
subsequent to the Transactions (as described in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations")
(ii) the exclusion of $719 in non-cash expense allocations to the Company
by its parent, Intermediate in 1998. Prior to 1998, these adjustments
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. For 1998, these
adjustments consist primarily of severance compensation to certain
employees terminated in conjunction with the acquisitions of NTI and DCI
(See discussion of SIGNIFICANT TRANSACTIONS in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations")
and approximately $650 in non-cash expense allocations from Intermediate.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense.
(8) The decrease in the net capital deficiency from December 31, 1997 to
December 31, 1998 reflects capital contributions in connection with the DCI
acquisition (see Note 12 to the Consolidated Financial Statements),
partially offset by the net losses incurred by DDi and DDi Capital for the
year ended December 31, 1998. The net capital deficiency as of December 31,
1997 reflects the Recapitalization that took place in October of 1997 and
the net capital deficiency as of December 31, 1996 reflects the Initial
Recapitalization that took place in January of 1996.
(9) Historical earnings were deficient in covering fixed charges for DDi and
DDi Capital by $20.5 million and $27.9 million, respectively in 1997 and by
$43.1 million and $50.9 million, respectively, in 1998. On a pro forma
basis, assuming the Senior Subordinated Notes (as defined) and Discount
Notes (as defined) were outstanding at the beginning of 1997 and after
eliminating the non-recurring stock compensation and related bonuses, the
ratio of earnings to fixed charges would have been 3.2 x and 2.4 x for DDi
and DDi Capital, respectively in 1997. On a pro-forma basis, assuming the
acquisition of DCI was consummated at the beginning of 1998 and after
eliminating the non-recurring $39 million write off of acquired in-process
research and development related to the acquisition of DCI, the ratio of
earnings to fixed charges would have been .8x and .6x for DDi and DDi
Capital, respectively.
-11-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company believes, based on industry data, that it is a leading designer,
manufacturer and marketer of complex PCBs for the time-critical or "quick-turn"
segment of the domestic PCB industry, as well as for longer-lead PCBs,
backplanes, and interconnects. The Company produces PCBs for over 1,000
customers across a wide range of end-use markets including the
telecommunications, computer, contract manufacturing, industrial instrumentation
and consumer electronics industries.
For the year ended December 31, 1998, approximately 91% of the Company's sales
were attributable to the design and manufacture of quick-turn and longer-lead
PCBs. The Company's net sales have grown at a compound annual growth rate
of 41.4%, inclusive of the growth attributable to the acquisitions of NTI in
1997 and DCI in 1998, from $44.1 million in fiscal year ended December 31, 1994
to $174.9 million in the fiscal year ended December 31, 1998.
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, Chase Manhattan Capital, L.P.
("CMC") and its affiliates acquired approximately 40% of the outstanding stock
of the Company in a recapitalization (the "Initial Recapitalization").
On October 28, 1997, the Company was recapitalized (the "Recapitalization")
through the merger (the "Merger") of DI Acquisition Corp. with and into
Holdings. In connection with the Recapitalization, (i) certain stockholders and
optionholders of Holdings received an aggregate amount of cash equal to
approximately $184.3 million (plus future escrow payments of approximately $8.6
million), (ii) CMC retained a portion of its investment in Holdings representing
approximately 7.7%, and certain other stockholders of Holdings retained a
portion of their investments in Holdings representing approximately 2.8%, of the
fully-diluted equity of Holdings (in each case after giving effect to the
Recapitalization and related transactions) (collectively, the "Existing Owner
Rollover"), and (iii) management retained certain shares representing
approximately 11.3%, and certain options to acquire shares of common stock of
Holdings representing approximately 5.8%, of the fully-diluted equity of
Holdings (after giving effect to the Recapitalization and related transactions)
(collectively, the "Management Rollover Equity"). In addition, in connection
with the Recapitalization, management acquired additional shares and options to
acquire additional shares representing 10.4% of the fully-diluted equity of
Holdings (after giving effect to the Recapitalization and related transactions).
After the Recapitalization, management held shares and options representing
approximately 27.5% of the fully diluted equity of Holdings.
Financing for the Recapitalization, and the related fees and expenses,
consisted of (i) $46.3 million of equity capital provided by investment funds
associated with Bain Capital, Inc. (the "Bain Capital Funds"); (ii) $11.2
million of equity capital provided by an affiliate of CMC; (iii) $4.9 million of
equity capital provided by certain other investors (the "Other Investors"); (iv)
the $16.1 million Management Rollover Equity; (v) the $10.5 million Existing
Owner Rollover; (v)
-12-
<PAGE>
a senior subordinated loan facility of $85 million (the "Senior Subordinated
Facility"); (vi) a senior unsecured loan facility of $55 million of Holdings
(the "Holdings Facility" and together with the Senior Subordinated Facility, the
"Bridge Loans"); 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."
On November 3, 1997, Holdings organized DDi and contributed substantially all
of its assets, subject to certain liabilities (other than the Holdings Facility)
to DDi. On November 19, 1997, Holdings formed DDi Capital and on February 10,
1998, Holdings contributed substantially all of its assets (consisting primarily
of all of the shares of capital stock of DDi), subject to certain liabilities,
including the Discount Notes (as defined below), to DDi Capital. The DDi Capital
financial statements as of and for the year ended December 31, 1997 have been
prepared as if the contribution of Holdings' assets and liabilities occurred in
connection with the Recapitalization.
In connection with the Transactions, DDi and DDi Capital incurred
certain nonrecurring charges as follows: (i) fees and interest charges on Bridge
Loans (aggregating $4 million for DDi and $10.5 million for DDi
Capital); (ii) $31.2 million for the accelerated vesting of variable stock
purchase options and related bonuses; (iii) $2.7 million for the early
extinguishment of long-term debt, before income taxes; and (iv) $1.2 million for
the buyout of the former CEO's employment contract. These charges were expected
to generate income tax benefits at an effective rate of approximately 41%.
NTI ACQUISITION
On December 22, 1997, DDi acquired all of the outstanding shares of common
stock of NTI for approximately $38.9 million. The purchase price included the
assumption of approximately $7.4 million of NTI's debt. 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 DDi Term Loan Facilities (the "Acquisition
Facility").
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 and is operated as a wholly-owned subsidiary of the Company.
-13-
<PAGE>
The NTI acquisition was accounted for under the purchase method of accounting.
As a result, the total acquisition cost was allocated to the estimated fair
value of tangible and intangible assets acquired and liabilities assumed. Based
upon management's assessment of the fair value of the assets acquired and
liabilities assumed, the Company recorded approximately $27 million in goodwill,
which is being amortized over a period of twenty-five years. Management
determined the estimated life of goodwill based on the prior operating history
of NTI and the economic factors of NTI's business. NTI has no significant
proprietary products or technology for which an allocation of purchase price
would be made.
DCI ACQUISITION
On July 23, 1998, pursuant to a Stock Contribution and Merger Agreement (the
"Agreement"), the Company consummated the acquisition (the "Transaction") of
Dynamic Circuits, Inc. ("DCI") for aggregate consideration of approximately $250
million which consisted of a partial redemption, by way of a merger, of DCI's
outstanding capital stock for cash with the remaining capital stock being
contributed to Holdings in exchange for shares and options to purchase shares of
the voting common stock of Holdings (estimated value of approximately $73
million). The capital stock of DCI received by Holdings was concurrently
contributed through Intermediate and through DDi Capital to DDi. The Transaction
was financed with a new $300 million DDi senior bank facility (the "New Senior
Credit Facility") and by $33 million of newly issued senior discount notes of
Intermediate. Intermediate contributed the funds generated by the issuance to
DDi Capital, and through DDi Capital to DDi. In connection with the new
financing, DDi used $106.1 million of the proceeds to retire all of its existing
senior term debt, which resulted in an extraordinary loss of $2.4 million, net
of related income taxes of $1.5 million.
DCI is a manufacturer of complex printed circuit boards, backplane assemblies
and electromechanical interconnect devices based in California, Texas, Georgia
and Massachusetts and is operated as a wholly-owned subsidiary of DDi.
The Transaction was accounted for under the purchase method of accounting. As
a result, DDi allocated the purchase price of the acquisition based on the fair
value of the assets acquired and the liabilities assumed. Significant portions
of the DCI purchase price were identified as intangible assets. Valuation
techniques were employed which reflect recent guidance from the Securities and
Exchange Commission on approaches and procedures to be followed in developing
allocations to acquired in-process research and development ("in-process R&D").
The final purchase price allocation includes the identification of $39 million
of in-process R&D. This allocation represents the estimated fair value, based
upon risk-adjusted cash flows, of DCI's in-process R&D projects. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and the R&D in process had no alternative future uses. Accordingly,
these costs were expensed in the year ended December 31, 1998.
The remaining DCI purchase premium was allocated to identifiable intangibles
and goodwill and is being amortized over various periods ranging up to 20 years,
with an average amortization period of 8 years. The following presents a summary
of the significant technologies comprising the acquired in-process R&D
valuation, a summary of valuation assumptions for the in-process R&D, and an
overview of the approach used to assess the fair values and the estimated lives
of the identifiable intangibles and goodwill.
In-Process R&D
- --------------
Since its inception, DCI has rapidly emerged as a highly profitable,
technologically advanced manufacturer of complex printed circuit boards,
pioneering improvements in circuit density, board layering, board features, and
technical performance. DCI's technologies, engineering skills, and advanced
manufacturing capabilities have been used with considerable success in a wide
array of market sectors including networking, telecommunications, and
automotive.
Integral to DCI's achievements has been the creation of extensive design and
manufacturing capabilities and development of important intellectual property.
While DCI's developed technologies have been instrumental to its success, its
offerings (as part of the DDi group of companies) are expected to change
significantly over the coming years. This trend is expected to continue into the
foreseeable future. DCI has competed in market sectors that are characterized by
rapid change, increasingly shorter product life cycles, and intense competitive
pressures. As a result, the company has devoted significant resources toward the
development of new and improved product solutions in order to remain competitive
in the marketplace. Some of these efforts borrow from DCI's existing
technologies, while other developments present a complete departure from
previous technology solutions. The realization of these developments have been
deemed vital to achieving DCI's long-term strategy and survival. As part of the
DDi group of companies, the value of the in-process R&D inherent in the
acquisition is expected to contribute significantly to DDi's total product
capabilities, business model, growth, and financial results over the next
several years.
DCI's R&D projects were focused on the discovery of new, technologically
advanced knowledge and more complete solutions to customer needs, the conceptual
formulation and design of possible alternatives, as well as the testing of
process and product cost improvements. If successful, these efforts would enable
DCI to provide customers with reductions in design cycle times, lower costs, and
improvements in integrated circuit design, product quality and overall
functional performance. Additionally, these efforts would enable DCI to further
penetrate existing markets, pursue new markets effectively and expand the
business, reduce production cycle and lead times and increase manufacturing
throughput.
The in-process R&D projects are time consuming and difficult to complete. As
of the acquisition date, the estimated remaining costs to bring the projects
under development to technological feasibility are over $2 million. These
outlays are expected to occur over a period of approximately twelve to eighteen
months following the acquisition. There is substantial risk associated with the
completion of each project, and there is no assurance that each R&D project will
yield either technological functionality or commercial success. Furthermore, as
is common to R&D efforts, DCI has previously experienced developmental setbacks
where the time required to fully develop critical technology driven steps and to
complete reliability testing have been underestimated. If the R&D projects are
not completed as planned, they will neither satisfy the technological
requirements of a rapidly changing market nor be cost effective.
The following is a description of the significant research and development
projects that were under development at the acquisition date which comprised the
aggregate in-process R&D charge of $39 million:
Maximum Layer Count (Prototypes) -- Prototype PCBs manufactured by DCI, as
well as those of any manufacturer, are subject to a maximum layer count that the
various technologies employed by the manufacturer can accommodate. As the
functionality of electrical components continues to increase, PCBs must be
designed with greater connectivity while maintaining or reducing board size.
Higher layer count is one solution to addressing the need for increased
connectivity. DCI's R&D efforts with regard to increasing its existing layer
count limitation are aimed at addressing each of the technology issues
constraining this maximum. Together, these technology issues affect several of
the primary manufacturing processes. The associated in-process R&D charge for
this technology is $6.5 million.
Line & Space Tolerances -- High output electronic components with fine pitches
require line and space widths to become narrower. Certain tolerances are beyond
the capabilities of existing technology and will require significant changes to
key manufacturing processes. In response to market demands, DCI has been
developing the technological capability to produce PCBs with line and space
tolerances necessitated by certain electronic components. The associated in-
process R&D charge for this technology is $5.9 million.
Specialty Surface Finishes -- DCI uses several standard specialty coatings and
surface finishes to protect and permit solderability on the PCB. To meet the
more exacting product specifications expected by DCI's customers, new specialty
finishes will be required for future products. As of the acquisition date, DCI
was developing next generation surface finish alternatives that will address new
market functionality requirements as well as significantly increase yields and
lower costs. The associated in-process R&D charge for this technology is $5.6
million.
Micro Blind Vias -- This technology represents a revolutionary development in
blind vias, applicable to certain high-frequency product designs. DCI's R&D
efforts are targeted toward providing a broad array of micro blind via
solutions. The associated in-process R&D charge for this technology is $4.6
million.
Specialty Materials -- As components and systems become more functional and
smaller, the assembly of high density chip packages onto PCBs becomes more
technologically challenging. As a result, a more radical array of materials
technology requirements has presented itself for many next generation high
performance electrical products. In response to these market drivers, DCI has
invested significant resources towards the development of materials with high
temperature tolerance, high speed and/or low loss characteristics. The
advantages of certain materials include the ability to tolerate heat and other
stresses, provide cost savings relative to other materials, improve signal
integrity, and provide compatibility with other conventional fabrication
processes. The associated in-process R&D charge for this technology is $4.3
million.
Intelligent Backpanels -- Historically, the backpanel acts as a passive
component of an electrical system. Customer requirements now necessitate the use
of active, intelligent backpanels that serve as an integral part of the logic
design in an electrical system. As of the acquisition date, DCI was developing
the technology to accommodate such requirements. The associated in-process R&D
charge for this technology is $4.1 million.
Flexible Circuits -- Avionics, military, and mobile communication applications
must perform with high reliability under demanding conditions. In order to
provide electrical connections between non-stationary product fixtures,
components and interconnect circuitry, flexible substrates can be utilized. DCI
has developmental efforts in process to evaluate additional flexible substrates,
improve repeatability tests, and address various aspects of the manufacturing
process which had not reached technological feasibility with regard to employing
these materials. The associated in-process R&D charge for this technology is
$3.3 million.
Engineering Systems Automation -- This technology encompasses the objective of
an integrated system incorporating input from equipment suppliers, customers,
and DCI's own sales and manufacturing locations working in a seamless manner. At
the acquisition date, DCI was developing software modules that will facilitate
the integration and automation of the entire workflow process. When complete,
this automation effort will enable DCI to convert customer product designs into
DCI's internal tooling design system in an extremely fast, seamless, and more
efficient manner than prevailing systems in the marketplace. The associated in-
process R&D charge for this technology is $1.7 million.
Embedded Circuitry -- At the acquisition date, DCI had been developing passive
component solutions that can be embedded in the inner layers of a PCB. The
benefits of this technology include savings in surface space, performance
improvements, reduced layer and via counts, increased reliability, and ease of
design. The associated in-process R&D charge for this technology is $1.4
million.
Other projects -- The remaining R&D technologies include a variety of
processes affecting numerous aspects of the manufacturing process. The aggregate
in-process R&D charge for these technologies is $1.6 million.
Basis for In-Process R&D Valuation Assumptions
- ----------------------------------------------
As noted above, the projects in development as of the acquisition date are
expected to reach technological feasibility over a period of approximately
twelve to eighteen months subsequent to the acquisition date. Cash flows from
the sale of PCBs incorporating these technologies are expected to commence in
the year 1999 and are forecasted using a product life cycle approach.
Factors considered in estimating gross margins include historical gross margin
levels, budgeted gross margin levels, expected price declines, in-process R&D
efforts to reduce the costs of manufacturing, DCI's relationship with raw
materials suppliers and industry norms. In general, the estimated margins
utilized in the valuation are reflective of the gross margins historically
realized by DCI. Also reflective of historical experience, the margins are
expected to diminish over the product life cycle. The expectation for future
selling, general and administrative expenses likewise are reflective of
historical experience and the assumptions used in DDi's enterprise valuation
model for DCI, adjusted to reflect the specific economics of each project.
Research and development costs were forecasted for each in-process R&D project
based upon the costs required to bring the product to fruition and the
additional costs associated with maintaining the product technology.
The expected operating margins for the in-process R&D were reduced for charges
for contributory assets, include assessments for capital expenditures and
working capital employed, as well as a return on both the tangible assets
employed and the identified intangibles valued in the purchase price allocation.
Core technology charges and income were also applied to the in-process R&D
valuations. The core technology charges represent an implied royalty charge
that quantifies the cost to the in-process technology for its utilization of the
developed or "core" technology. In effect, the core technology charge reduces
the assumed cash flows attributable to in-process R&D, similar to the reductions
attributable to contributory assets.
In addition to assessments for contributory assets and core technology, the
in-process R&D cash flow assumptions explicitly exclude any contribution from
R&D efforts remaining to be completed as of the acquisition date. The relative
contribution of completed R&D efforts was assessed based upon a variety of
factors. These factors include the development costs incurred to date, relative
time spent on the projects, and an analysis of each of the primary tasks
completed versus the tasks required to complete the efforts and the associated
risks. As of the acquisition date, the stage of completion for the individual
in-process R&D projects ranged from 20% to 90%. The weighted average stage of
completion for all projects, in aggregate, was approximately 75%.
The free cash flows (net of the various charges discussed above) generated by
the in-process technologies in future periods were discounted to their net
present value by applying an appropriate discount rate. The discount rates
applied to the individual technologies ranged from 18% to 24%, depending on the
level of risk associated with a particular technology and the current return on
investment requirements of the market. These discount rates reflect "risk
premiums" of 20% to 60% over the weighted average cost of capital (WACC) of 15%
computed for DCI. The WACC was determined based upon an analysis that considered
several publicly traded companies operating in the printed circuit-board
industry. The WACC represents a blended, after-tax cost of debt and equity, and
was calculated using a capital asset pricing model.
Through the date of this report, there have been no events or changes in
circumstances that suggest the assumptions used in the valuation of the in-
process R&D were not reasonable. DCI (now operating as DDi-Silicon Valley) has
continued its development of the in-process technologies and anticipates
deploying these technologies in end-products in a timeframe and manner
consistent with the projections used for valuation purposes.
Identifiable Intangibles and Goodwill
- -------------------------------------
As discussed above, a portion of the DCI purchase price premium was allocated
to identifiable intangibles and goodwill. Goodwill, which has an assigned value
of approximately $120 million, is being amortized over its estimated useful life
of 20 years on a straight-line basis. This life considers the prior operating
history of DCI, the economic factors of DCI's business, and a review of industry
norms. The identifiable intangibles consist of developed technology, customer
relationships/tradenames, and assembled workforce. The fair value of the
developed technology assets at the date of acquisition was $60 million and
represents the aggregate fair value of individually identified technologies that
were fully developed at the time of acquisition. As with the in-process R&D, the
value of these assets were determined using a future income approach, in context
of the business enterprise value of DCI. The developed technology assets are
being charged to expense over their estimated useful lives of 10 years, using an
accelerated method of amortization, reflective of the relative contribution of
each developed technology in periods following the acquisition date. The
customer relationships/tradenames and assembled workforce assets were assigned
values as of the acquisition date of approximately $21 million and $4 million,
respectively. These assets will be amortized on a straight-line basis over their
estimated useful lives of 18 years and 4 years, respectively.
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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
DDi DDi
DDi CAPITAL DDi CAPITAL
1996 1997 1997 1998 1998
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................................ 45.2% 49.1% 49.1% 68.2% 68.2%
----- ----- ----- ----- ------
Gross profit...................................................... 54.8% 50.9% 50.9% 31.8% 31.8%
Operating expenses:
Stock compensation and related bonuses.......................... -- 39.7% 39.7% -- --
Amortization of intangibles..................................... -- -- -- 6.3% 6.3%
Write-off of acquired in-process research and development....... -- -- -- 22.3% 22.3%
Other operating expenses........................................ 13.3% 14.6% 14.6% 12.1% 12.1%
----- ----- ----- ----- ------
Operating income (loss)........................................... 41.5% (3.4%) (3.4%) (8.9%) (8.9%)
Interest expense (net)............................................ (13.9%) (22.8%) (32.1%) (15.7%) (20.2%)
----- ----- ----- ----- ------
Income (loss) before income taxes and extraordinary loss.......... 27.6% (26.2%) (35.5%) (24.6%) (29.1%)
Income tax benefit (expense)...................................... (9.3%) 10.2% 13.8% (0.3%) 1.5%
Extraordinary loss, net of income tax benefit..................... -- (2.0%) (2.0%) (1.4%) (1.4%)
----- ----- ----- ----- ------
Net income (loss)................................................. 18.3% (18.0%) (23.7%) (26.3%) (29.0%)
===== ===== ===== ===== ======
</TABLE>
1998 COMPARED TO 1997
Net sales increased $96.1 million (122%) to $174.9 million in 1998, from $78.8
in 1997. The increase resulted from two factors: (i) the acquisitions of DCI and
NTI, which added $63.1 million and $27.5 million, respectively, to net sales;
(ii) a 13% increase in the average panel (unit) selling price realized at the
Company's Anaheim facility which was driven by a demand for higher layer count
and more technologically advanced printed circuit boards; and (iii) growth in
volume of units shipped primarily attributable to increased demand from turnkey
(contract manufacturing) customers.
Gross profit increased $15.5 million (39%) to $55.6 million in 1998, from
$40.1 million in 1997. The increase resulted from higher net sales at the
Anaheim facility and from the acquisitions of DCI and NTI, which added $14.2
million and $1.8 million, respectively, to gross profit. The decline in gross
profit as a percent of net sales to 32% from 51% resulted from the acquisitions
of DCI and NTI, which have historically operated at lower gross profit margins,
reflective of the market niche each entity serves.
Other operating expenses (consisting of selling, general and administrative
expenses) increased $9.7 million (84%) to $21.2 million in 1998, from $11.5
million in 1997. The increase resulted from the acquisitions of DCI and NTI,
which added $8.1 million and $3.3 million, respectively, to other operating
expenses. Included in these increases is approximately $.9 million accrued in
1998 for severance-related costs of certain employees of these divisions.
Partially offsetting these increases was the 1997 recognition of $2.1 million in
compensation expense relating to the former CEO.
Amortization of intangibles of $10.9 million in 1998 resulted from the
acquisition of NTI in December 1997 and the acquisition of DCI in July 1998. The
amortization of NTI goodwill in 1997 was immaterial.
Write-off of acquired in-process research and development (IPR&D) totaled
$39 million in 1998. This charge represents the appraised value of the IPR&D
component of the total purchase price paid in the DCI acquisition. See Note 12
to the Consolidated Financial Statements for further information about this
charge.
Interest expense (net) increased $10.1 million to $35.3 million in 1998 for
DDi Capital, compared to $25.2 million in 1997. Interest expense (net) increased
$9.6 million to $27.5 million in 1998 for DDi, compared to $17.9 million in
1997. The increase in interest expense was due primarily to an increase in the
level of borrowings in connection with the Recapitalization and acquisitions of
both NTI and DCI.
The income tax benefit was $2.7 million in 1998 for DDi Capital, compared to a
benefit of $10.9 million in 1997. Income tax expense was $.5 million in 1998 for
DDi, compared to an income tax benefit of $8 million in 1997. In 1998, the
primary difference between the effective tax rate for both DDi and DDi Capital
and the statutory federal income tax rate of 35% is attributable to the non-
deductible acquired in-process research and development charge, for which no
income tax benefit is recorded. See Note 10 to the Consolidated Financial
Statements for a reconciliation of the tax provision (benefit) recorded in each
period to the corresponding amount of income tax determined by applying the U.S.
Federal income tax rate to income (loss) before income taxes.
In both 1998 and 1997, DDi recorded losses on the early extinguishment of debt
resulting from the write-off unamortized debt issue costs. The early
extinguishment of debt in 1997 resulted from the Recapitalization and NTI
acquisition transactions. The extinguishment in 1998 resulted from the DCI
acquisition. These losses are presented as extraordinary losses, net of related
income tax benefit.
For the reasons discussed above, the Company incurred net losses of $50.7
million and $45.9 million for DDi Capital and DDi, respectively, in 1998,
compared to net losses of $18.6 million and $14.1 million, respectively, in
1997. The primary difference between the net losses for DDi Capital and DDi in
both 1998 and 1997 is the interest expense on the Discount Notes reflected in
DDi Capital's results in each of these years, net of income tax benefits.
-14-
<PAGE>
1997 COMPARED TO 1996
Net sales increased $11.3 million or 16.6% to $78.8 million in 1997 from $67.5
million in 1996. The increase was largely due to growth in the volume of units
shipped primarily attributable to increased demand from information technology
customers. During 1997, the Company's two largest customers accounted for 13.0%
and 10.6% of net sales, respectively. During 1996, one customer accounted for
15.7% of net sales.
Gross profit increased $3.1 million to $40.1 million in 1997 from $37.0
million in 1996. As a percentage of net sales, gross profit decreased to 50.9%
in 1997 from 54.8% in 1996. 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.
During 1997, the Board of Directors of Holdings authorized the acceleration of
vesting of all outstanding performance-based stock purchase options under the
1996 Stock Option Plan (as defined) of Holdings in connection with the
Recapitalization. The stock options were treated as variable in nature, and
accordingly, the measurement date for assessing compensation attributable to
such stock options was made at the time both the number of shares and the
exercise price was known. In connection therewith, the Company charged
operations totaling $21.2 million. In addition, the Company paid bonuses
amounting to $10 million to certain option holders for income taxes which were
paid upon the exercise of certain of these stock options. In connection with the
NTI acquisition, Holdings issued to certain employees shares of its common stock
for services resulting in a charge of approximately $52,000.
Other operating expenses increased $2.8 million or 31.1% to $11.8 million in
1997, as compared to $9.0 million in 1996. As a percentage of net sales, other
operating expenses increased to 15.0% in 1997, as compared to 13.3% in 1996. The
increase was due primarily 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, as well as the
$1.2 million buy-out of the former CEO's employment contract, which was
terminated in connection with the Recapitalization. The Company anticipates
operating expenses will continue to increase in proportion to revenue as the
Company expands.
Net interest expense increased $15.8 million to $25.2 million in 1997 for DDi
Capital and $8.4 million to $17.9 million for DDi, compared to $9.4 million in
1996. The increase in interest expense was primarily due to (i) Bridge Loan fees
and expenses of $11.4 million for DDi Capital and $5.0 million for DDi and (ii)
the increased level of borrowings in connection with the Recapitalization and
the NTI acquisition, which resulted in an increase in total debt for DDi Capital
of $179.4 million to $273.5 million and an increase in total debt for DDi of
$118.4 million to $212.5 million at December 31, 1997.
Income tax expense (benefit) was $(10.9) million or 40% of income (loss)
before income taxes for DDi Capital, and $(8.0) million for DDi in 1997. This
included a $1.1 million income tax benefit received in connection with the early
extinguishment of debt. Income tax expense in 1996 was $6.3 million or 33.6% 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 approximately 40% 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.
The Company incurred an extraordinary net loss of $1.6 million net of income
tax benefit of $1.1 million due to the early extinguishment of long-term debt in
connection with the Recapitalization.
For the reasons discussed above, the Company incurred a net loss of $(14.1)
million for DDi and $(18.6) million for DDi Capital in 1997, compared to net
income
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of $12.4 million in 1996. The primary difference between losses in 1997 for DDi
and DDi Capital is due to interest on the Holdings Facility and the Discount
Notes reflected in DDi Capital's results aggregating $7.3 million, net of income
tax benefits.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash provided by operations
and borrowings under various debt agreements. The Company's principal uses of
cash have been to finance the acquisitions of NTI and DCI, to meet debt service
requirements, and to finance capital expenditures. The Company anticipates that
it will continue to use cash in the future to finance possible acquisitions.
Net cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $18.9 million, $9.1 million, and $12.2 million,
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. For 1997, net cash provided by operating activities was
reduced by a $10.0 million cash bonus paid as part of the stock compensation
expenses incurred in connection with the Recapitalization. Both DDi Capital and
DDi reported substantial non-cash charges in 1998, including $39 million for the
write-off of acquired in-process research and development and $10.9 million for
the amortization of intangible assets and goodwill. No comparable non-cash
charges were reported in 1997 or 1996.
Net cash used in investing activities for the years ended December 31, 1998,
1997 and 1996 was $194.8 million, $44.9 million and $3.6 million, respectively.
These activities consist of capital expenditures in each period and cash used in
the acquisitions of NTI and DCI (see Note 12 to the Consolidated Financial
Statements).
The Company's capital expenditures were $18.0 million, $6.6 million and $10.3
million in 1998, 1997 and 1996, respectively, of which approximately $2.1
million, $.6 million and $6.6 million were incurred in 1998, 1997 and 1996,
respectively, under capital lease obligations. The Company anticipates
expenditures will remain below $20 million for 1999.
Net cash provided by (used in) financing activities for the years ended
December 31, 1998, 1997 and 1996 was $172.4 million, $41.1 million, and $(8.9)
million, respectively. Financing activities in 1998 consisted primarily of
repayment of existing debt facilities, borrowings on new debt facilities and
contributions of capital from parent companies in conjunction with the DCI
acquisition (see Note 12 to the Consolidated Financial Statements). Financing
activities in 1997 consisted primarily of increased borrowings under the Senior
Credit Facilities, distributions to shareholders and shareholder transactions in
connection with the Recapitalization. Financing activities in 1996 primarily
consisted of increased distributions to shareholders and shareholder
transactions and increased debt requirements in connection with the Initial
Recapitalization.
As a result of the acquisition of DCI in July 1998 (see Note 12 to the
Consolidated Financial Statements), DDi incurred new indebtedness aggregating
$255 million and used $106 million of the proceeds to retire all of its existing
senior term debt, which resulted in an extraordinary loss of $2.4 million, net
of related income tax benefits of $1.5 million. As of December 31, 1998, DDi
Capital had borrowings of approximately $438.3 million and DDi had borrowings of
approximately $369.5 million, respectively. The Company has $45.0 million
available for borrowing under its Revolving Credit Facility, less amounts which
may be in use from time-to-time. At December 31, 1998, the Company had $7.0
million in borrowings outstanding under its Revolving Credit Facility. The
Company's estimated minimum principal payment obligations under DDi's New Senior
Credit Facility are $10.2 million and $5.9 million for 1999 and 2000,
respectively.
The New Senior Credit Facility (see Note 5 to the Consolidated Financial
Statements) is provided for under a Credit Agreement dated July 23, 1998 as
Amended and Restated as of August 28, 1998, and as further amended by the First
Amendment thereto dated March 10, 1999, among DDi and DDi Capital and various
banks and financial institutions including Chase Manhattan Bank, N.A. ("Chase")
as bank lender and administrative agent, and are (i) jointly and severally
guaranteed by DDi Capital and (ii) secured by all of the stock of DDi and
certain stock of DDi subsidiaries. Future domestic subsidiaries of DDi will also
become guarantors of the New Senior Credit Facility and secure that guarantee
with their tangible and intangible assets. The New Senior Credit Facility
requires DDi to meet certain financial tests. In addition, the New Senior Credit
Facility contains certain negative covenants limiting, among other things,
additional debt, additional liens, transactions with
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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, and customary events of default. Pursuant to the
terms of the New Senior Credit Facility, DDi is required to compute financial
ratios and certify to other covenants on a quarterly basis.
Borrowings under the New Senior Credit Facility bear interest at a floating
rate and may be maintained as ABR Loans (as defined in the Credit Agreement) or
at DDi's option, as Eurodollar Loans. ABR Loans bear interest at either (i)
2.25% to 2.5% per annum plus the rate at which certain Eurodollar deposits are
offered in the interbank Eurodollar market or (ii) 1.25% to 1.5% per annum plus
the higher of (a) the applicable prime lending rate of Chase Manhattan Bank or
(b) the federal reserve reported overnight funds rate plus 1/2 of 1% per annum,
plus the Applicable Margin (as defined in the Credit Agreement). Eurodollar
Loans bear interest at the Eurodollar Rate (as defined in the Credit Agreement)
plus the Applicable Margin. The Applicable Margin is 1.25% in the case of ABR
Loans and 2.25% in the case of Eurodollar Loans for the Tranche A Facility, the
Acquisition Facility and the Revolving Credit Facility, and 1.5% in the case of
ABR Loans and 2.5% in the case of Eurodollar Loans for the Tranche B Facility.
The Applicable Margin for the Tranche A Facility is subject to reduction in
accordance with an agreed upon pricing grid based on decreases in the Company's
consolidated leverage ratio, defined as consolidated total debt to consolidated
EBITDA (earnings before net interest expense, income taxes, depreciation,
amortization and extraordinary or non-recurring expenses). At December 31, 1998,
borrowings outstanding under the Tranche A Facility and Revolving Credit
Facility bore interest at a rate of 7.88% per annum and borrowings outstanding
under the Tranche B facility bore interest at a rate of 8.13% per annum.
Pursuant to its interest rate risk management strategy and to certain
requirements imposed by the Company's New Senior Credit Facility, the Company
entered into two interest rate exchange agreements ("Swap Agreements"),
effective October 1, 1998. The Swap Agreements represent an effective cash flow
hedge of the variable rate of interest (1-month LIBOR) paid under the New Senior
Credit Facility, minimizing exposure to increases in interest rates related to
this debt over its scheduled term. Under the Swap Agreements, the Company
received a variable rate of interest (1-month LIBOR) and paid a fixed rate of
interest (blended annual rate of 5.27%). These rates are applied to a notional
amount ($255 million from October 1 through December 31, 1998) which decreases
at such times, and in such amounts, as to conform with the principle outstanding
under the new term loan through its scheduled maturity in 2005. The Company
anticipates that the Swap Agreements will continue to represent an effective
cash flow hedge over the life of the term loan. Counterparty risk is limited to
amounts to be reflected in the Company's consolidated balance sheet. This risk
is minimized and is expected to be immaterial to the Company's consolidated
results of operations as the Swap Agreements provide for monthly settlement of
the net interest owing. Further, each counterparty to the Swap Agreements
carries at least a "single-A" credit rating. The impact of the Swap Agreements
on the Company's interest expense was not material.
In January 1999, the Company and each counterparty agreed to modify certain
features of the Swap Agreements. In return for a reduction in the blended fixed
rate of interest paid by the Company (to 4.9% per annum), the counterparties was
granted the option to terminate the agreements on January 31, 2002. Unless
terminated at that time, the agreements will continue through their original
maturity. All other terms of the original agreements remain in effect.
Following the Recapitalization, Holdings (as predecessor in interest to DDi
Capital) conducted an offering (the "Discount Note Offering") of its 12 1/2%
Senior Discount Notes due 2007 with an aggregate principal amount at maturity of
$110 million (the "Discount Notes"), and DDi conducted the offering (the "Senior
Subordinated Note Offering" and together with the Discount Note Offering, the
"Offerings") of its 10% Senior Subordinated Notes due 2005 in $100 million
aggregate principal amount (the "Senior Subordinated Notes"), in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Holdings used the net proceeds (after deduction
of related fees and expenses) from the Discount Note Offering of approximately
$57.1 million, together with a portion of the proceeds of the Senior
Subordinated Note Offering, to repay the Holdings Facility, plus accrued
interest and related fees and expenses. The net proceeds of the Senior
Subordinated Note Offering were used to repay the existing Senior Subordinated
Facility, plus accrued interest and related fees and expenses, a portion of the
Holdings Facility and indebtedness under the existing Term Loan Facilities of
approximately $10.3 million.
On March 24, 1998, DDi Capital and DDi consummated exchange offers of Discount
Notes and Senior Subordinated Notes registered under the Securities Act. The
Discount Notes and the notes exchanged therefor are referred to as the "Discount
Notes" and the Senior Subordinated Notes and the notes exchanged therefor are
referred to as the "Senior Subordinated Notes." Interest on the Senior
Subordinated Notes is payable semi-annually in cash. The Company's ability to
incur additional indebtedness is limited under the Discount Notes, the Senior
Subordinated Note and the New Senior Credit Facility. In addition, DDi Capital
is a holding company, and its ability to pay interest on the Discount Notes is
dependent upon the receipt of dividends from its direct and indirect
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subsidiaries. Although the Discount Notes do not require interest payments until
May 2003, DDi Capital does not have, and may not in the future have, any assets
other than the common stock of DDi (which is pledged to secure the obligations
of DDi under the New Senior Credit Facility). Further, the New Senior Credit
Facility and the Senior Subordinated Note Indenture impose substantial
restrictions on DDi's ability to pay dividends to DDi Capital.
In July 1998, Intermediate issued discount notes due 2008. The proceeds of this
issuance amounted to approximately $33 million and were contributed through DDi
Capital to DDi in conjunction with the acquisition of DCI (see Note 12 to the
Consolidated Financial Statements). The discount notes have a stated maturity of
June 30, 2008 and a stated principal amount at maturity of approximately $67
million, although approximately 43% of the stated principal amount of the debt
is due December 2003. The debt is redeemable at Intermediate's option at
specified redemption prices. The Note Purchase Agreement relating to the
Intermediate discount notes also provides that the holders of such notes may
require Intermediate to repurchase the notes upon a qualifying public offering
or a change of control (each as defined in such Note Purchase Agreement) at the
specified prices. As the repayment of the Intermediate discount notes is the
obligation of Intermediate, the carrying amount of the associated liability is
reflected in the books and records of Intermediate and, therefore, not included
in the consolidated financial statements of the Company. Although the
Intermediate discount notes do not require principal or interest payments until
December 2003, Intermediate does not have, and may not in the future have, any
assets other than the common stock of Capital. The net cash flows from the
Company are currently the only source of cash to repay the obligations under the
Intermediate Discount Notes. In addition, these discount notes impose
restrictions on the incurrence of indebtedness by both Intermediate and the
Company. The Note Purchase Agreement contains covenants limiting, among other
things, dividends, asset sales, and transactions with affiliates. These
restrictions apply both to Intermediate and the Company.
Based upon the current level of operations, management believes that cash
generated from operations, available cash and amounts available under its New
Senior Credit Facility 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 to enable the Company to
service its indebtedness. The Company is highly leveraged and its future
operating performance and ability to service or refinance the Discount Notes and
the Senior Subordinated Notes and to extend or refinance the New Senior Credit
Facility 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 Year 2000 issue exists because certain computer programs use only the
last two digits, rather than four, to refer to a year. As a result, computer
programs and systems with time-sensitive technology do not properly recognize a
date of "00" as the year 2000, but rather as the year 1900. The extent of the
potential impact of the Year 2000 problem is not yet know, but it could result
in computer application and system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has developed and is currently executing a plan to ensure that
its information technology (IT) systems, which include computer equipment and
software as well as its non-IT systems, such as fax machines and alarm systems,
will be able to function properly with respect to the Year 2000 and thereafter.
The implementation of all phases of the plan, on a company-wide basis, is
currently in process. The Company has existing personnel who will facilitate the
identification, assessment, testing, renovation and monitoring of Year 2000
compliance issues and initiatives. The Company currently anticipates that its
Year 2000 identification, assessment, testing and renovation efforts, which
began in October 1997, will be completed by April 30, 1999. The Company
anticipates completion of a contingency plan for dealing with the most
reasonably likely worst case scenario by April 30, 1999.
The Company recently completed the identification of its IT and non-IT
systems, and is now in the renovation or validation phases of its IT and non-IT
systems and currently intends to implement these systems by April 30, 1999.
Based upon its identification and assessment efforts to date, most of the
Company's computer equipment and software it currently uses does not require
replacement or modification. This is due to the relatively small size of the
Company's systems and its predominately new hardware, software and operating
systems. The Company estimates that as of December 31, 1998, approximately 80%
of the initiatives scheduled to fully address potential Year 2000 issues have
been completed. Following is a status of the Company's progress, identified by
phase, including the estimated timetable for completion of each remaining phase:
<TABLE>
<CAPTION>
PERCENT
YEAR 2000 COMPLIANCE SCHEDULE TIMING COMPLETE
- ---------------------------- ------ --------
<S> <C> <C>
Phase I: Review system compliance issues. 10/97-1/98 100%
Phase II: Identify and assess system compliance issues. 5/98-11/98 100%
Phase III: Testing of systems. 8/98-1/99 80%
Phase IV: Resolution of system issues detected in Phase III. 10/98-4/99 30%
Phase V: Monitor system compliance on an ongoing basis. Continuous N/A
</TABLE>
In addition to reviewing its internal systems, the Company has polled or is
in the process of polling its outside software and other vendors, customers and
freight carriers to determine whether they are Year 2000 compliant and to
attempt to identify any potential issues. If the Company's customers and vendors
do not achieve Year 2000 compliance before the end of 1999, the Company may
experience a variety of problems which may have a material adverse effect on the
Company. To the extent vendors are not Year 2000 compliant by the end of 1999,
such vendors may fail to deliver ordered materials and products to the Company
and may fail to bill the Company properly and promptly. Consequently, the
Company may experience a shortage or surplus of inventory, affecting its ability
to ship product to its customers as expected. Although the Company does not
currently have a plan for addressing these potential problems, with respect to
its vendors, the Company has alternative sources of supply. The Company's
management does not believe that third party Year 2000 changes will have a
material impact on the operating results or financial condition of the Company,
however, there can be no assurance that the Year 2000 issues of other entities
will not have a material adverse impact on the Company's systems or results of
operations.
The Company believes that the cost of the implementation of its Year 2000
compliance schedule, as well as currently anticipated costs to be incurred by
the Company with respect to Year 2000 issues of third parties, will not be
material to the Company's financial condition or the results of operations. The
costs of the systems implementation and Year 2000 modifications are based upon
management's best estimates, which are derived utilizing numerous assumptions of
future events, including the continued availability of certain resources, and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties. As of December 31, 1998, the cost of bringing the Company's IT
and non-IT systems into Year 2000 compliance is not expected to have a material
effect on the Company's financial condition or result of operations.
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
At December 31, 1998, the Company's balance sheet reflected approximately
$226 million of intangible assets, a substantial portion of the Company's $364
million of total assets at such date. The intangible assets consist of goodwill
and other identifiable intangibles relating to the Company's recent
acquisitions. The balances of these intangible assets may increase in future
periods, principally from the consummation of additional acquisitions.
Amortization of these additional intangibles would, in turn, have a negative
impact on earnings. In addition, the Company continuously evaluates whether
events and circumstances have occurred which would indicate the remaining
balance of intangible assets may not be fully recoverable. When factors indicate
that assets should be evaluated for possible impairment, the Company may be
required to reduce the carrying value of its intangible assets, which could have
a material adverse effect on the results of Company during the periods in which
such a reduction is recognized. There can be no assurance that the Company will
not be required to write down intangible assets in future periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes requirements for reporting and
disclosure of comprehensive income and its components. This statement is
effective for the Company's fiscal year ending December 31, 1998.
Reclassification of prior year financial statements for comparative purposes is
required. At December 31, 1998, the Company has no elements which give rise to
reporting comprehensive income.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of Enterprise and Related Information". SFAS No. 131 modifies the disclosure
requirements for reportable operating segments. This statement is effective for
the Company's fiscal year ending December 31, 1998. Reclassification of prior
year financial statements for comparative purposes is required unless deemed
impractical. This pronouncement currently has had no significant impact on the
reporting practices of the Company since its adoption; and until such time that
the Company diversifies its operations, management believes such pronouncement
will not be applicable.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999 and is effective for the Company beginning
with its fiscal quarter ending March 31, 2000. Based upon the nature of the
financial instruments and hedging activities in effect as of the date of this
filing, this pronouncement would require the Company to reflect the fair value
of its derivative instruments (see Note 6 to the Consolidated Financial
Statements) on the consolidated balance sheet. Changes in fair value of these
instruments will be reflected as a component of comprehensive income.
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<PAGE>
FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Form 10-K are
forward-looking in nature. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may differ materially from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company wishes to caution readers that all statements other than statements
of historical facts included in this Annual Report on Form 10-K 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 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. The Company has attempted to identify, in context, certain of
the factors that it currently believes may cause actual future experience and
results to differ from the Company's current expectations regarding the relevant
matter or subject area. In addition to the items specifically discussed in the
foregoing, the Company's business and results of operations is subject to the
rules and uncertainties described under the headings "Computer Systems and Year
2000" and "Factors That May Affect Future Results" contained herein, however,
the operations and results of the Company's business also may be subject to the
effect of other risks and uncertainties. Such risks and uncertainties include,
but are not limited to, items described from time to time in the Company's
reports filed with the Securities and Exchange Commission.
FACTORS THAT MAY AFFECT FUTURE RESULTS
SUBSTANTIAL LEVERAGE; STOCKHOLDER'S DEFICIT
As a result of the Recapitalization and the NTI and DCI acquisitions, the
Company is highly leveraged. As of December 31, 1998, the Company's indebtedness
was approximately $438.3 million for DDi Capital and $369.5 million for DDi. As
of December 31, 1998, there was $38 million available under the New Senior
Credit Facility for future borrowings for general corporate purposes and working
capital needs. The historical loss before income taxes and extraordinary items
for DDi and DDi Capital in 1998 was ($43.1) million and ($50.9) million,
respectively. These historical earnings were deficient in covering fixed charges
by $43.1 million and $50.9 million, respectively, largely due to the write-off
of $39 million in acquired in-process research and development and amortization
of intangibles in connection with the acquisition of DCI. On a pro-forma basis,
after giving effect to: (i) the elimination of the acquired in-process research
and development write-off and (ii) the impact of the acquisition of DCI as if it
had occurred at the beginning of 1998, the ratio of earnings to fixed charges
for the year ended December 31, 1998 was 0.8:1.0 and 0.6:1.0 for DDi and DDi
Capital, respectively. In addition, subject to the restrictions in the Discount
Notes, Senior Subordinated Notes and New Senior Credit Facility,
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<PAGE>
DDi and its subsidiaries may incur additional indebtedness in an unrestricted
amount from time to time to finance acquisitions or capital expenditures or for
other purposes.
The Company's high degree of leverage could have significant consequences,
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
are contained in the Indenture, the Senior Subordinated Note Indenture and the
New Senior Credit Facility could limit the Company's ability to compete, as well
as its ability to expand, including through acquisitions, and to make capital
improvements; and (iv) the Company is more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage.
In July 1998, Intermediate issued discount notes due 2008. The proceeds of
this issuance amounted to approximately $33 million and were contributed through
DDi Capital to DDi in conjunction with the acquisition of DCI (see Note 12 to
the Consolidated Financial Statements). The discount notes have a stated
maturity of June 30, 2008 and a stated principal amount at maturity of
approximately $67 million, although approximately 43% of the stated principal
amount of the debt is due December 2003. As the repayment of the Intermediate
discount notes is the obligation of Intermediate, the carrying amount of the
associated liability is reflected in the books and records of Intermediate and,
therefore, not included in the consolidated financial statements of the Company.
Although the Intermediate discount notes do not require principal or interest
payments until December 2003, Intermediate does not have, and may not in the
future have, any assets other than the common stock of Capital. The net cash
flows from the Company are currently the only source of cash to repay the
obligations under the intermediate Discount Notes.
The Company's ability to pay principal and interest on it indebtedness 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 New Senior
Credit Facility or successor facilities. The Company anticipates that its
operating cash flow, together with borrowings under the New Senior Credit
Facility, 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 Discount Notes and the Senior Subordinated
Notes), or seeking additional equity capital. There is no assurance that any of
these remedies can be effected on satisfactory terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms of the Company's indebtedness restrict, among other things, DDi
Capital's and DDi's ability to incur additional indebtedness, pay dividends or
make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur indebtedness, 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. DDi
is also required to maintain specified financial ratios and satisfy certain
financial condition tests. DDi's ability to meet those financial ratios and
tests can be affected by events beyond its control, and there can be no
assurance that DDi will meet those tests. A breach of any of these covenants
could result in a default under some or all of the Company's indebtedness
agreements. Upon the occurrence of an event of default, lenders under such
indebtedness could elect to declare all amounts outstanding together with
accrued interest, to be immediately due and payable. If the Company were unable
to repay such amounts, the lenders could proceed against the collateral granted
to them to secure that indebtedness. Substantially all the assets of the Company
and its subsidiaries are pledged as security under the New Senior Credit
Facility.
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<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
including 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.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
During the fiscal year ended December 31, 1998, sales, on a proforma basis,
inclusive of the impact of the DCI acquisition (see Note 12 to the Consolidated
Financial Statements), to the Company's largest customer accounted for
approximately 7.9% of the Company's net revenues. Also measured on a pro-forma
basis, sales to the Company's two largest customers accounted for approximately
14.8% of the Company's net revenues and sales to the Company's ten largest
customers accounted for appproximately 36.2% 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.
-22-
<PAGE>
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.
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 indebtedness and/or
equity capital, and no assurance can be given as to whether, and on what terms,
such additional indebtedness 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.
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 variations 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
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<PAGE>
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 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.
ENVIRONMENTAL MATTERS
The Company's operations are regulated under a number of federal, state, and
local environmental laws and regulations, which govern, among other things, the
discharge of chemicals, solid waste and other hazardous materials into the air
and water as well as the handling, storage and disposal of such materials. The
Company utilizes various chemicals in its plating operations (copper sulfate,
sulfuric acid, nitric acid, hydrochioric 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. 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
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<PAGE>
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.
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition. The Company principally competes with independent and captive
manufacturers of complex quick-turn and longer-lead 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 quick-turn and longer-lead 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.
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 41.4% of the outstanding voting
stock of Holdings, the sole stockholder of DDi Intermediate, which is the sole
stockholder of DDi Capital which, in turn, is the sole stockholder of DDi. 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 and its subsidiaries,
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<PAGE>
to elect a majority of the directors of Holdings and its subsidiaries, and to
exercise control over the business, policies and affairs of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, the Company's debt instruments consisted of certain
obligations which bear a fixed rate of interest and others which bear varying
rates of interest (see Note 5 to the Consolidated Financial Statements).
The Company has entered into interest rate exchange agreements (see Note 6 to
the Consolidated Financial Statements) to fix the rate of interest on its New
Senior Term Facility. Inclusive of the impact of the interest rate exchange
agreements, only amounts borrowed under the Company's revolving credit facility
are anticipated to be affected by changes in interest rates in 1999. Such
changes are not expected to materially impact the Company's earnings or cash
flows during such period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth on pages F-1 to F-20 of
this Annual Report on Form 10-K and is hereby incorporated into this Item 8.
ITEM 9. CHANGES IN ACCOUNTANTS
On December 16, 1997, the Company notified McGladrey & Pullen, LLP that they
would be dismissed as independent accountants of the Company effective December
31, 1997. On January 1, 1998, the Company notified PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP based primarily on the fact that
PricewaterhouseCoopers LLP typically serves as independent accountants 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 audit of the fiscal year 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 for the year ended December 31, 1996, did
not contain any adverse opinion or disclaimer of opinion, nor was it qualified
or modified as to uncertainty, audit scope, or accounting principles. A letter
from McGladrey & Pullen, LLP to that effect is incorporated by reference as
Exhibit 16.1 hereto.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
The following table sets forth certain information regarding the Directors and
executive officers of DDi, DDi Capital and Holdings, including their respective
ages, as of March 1, 1999.
Name Age Position
- ---- --- --------
Bruce D. McMaster.......... 37 President, Chief Executive Officer and
Director of Holdings, President and
Chief Executive Officer of DDi Capital
and DDi
Charles D. Dimick.......... 43 Director and Chairman of Holdings, Director
of DDi Capital and DDi
Joseph P. Gisch............ 42 Chief Financial Officer of Holdings,
DDi Capital and DDi, Director of DDi
Capital and DDi
John Peters................ 45 Vice President of Holdings
Lee W. Muse, Jr............ 42 Vice President, Sales and Marketing of
Holdings, DDi Capital and DDi
Terry L. Wright............ 39 Vice President, Engineering of
Holdings, DDi Capital and DDi
Michael P. Moisan.......... 44 Vice President, Operations of Holdings,
DDi Capital and DDi
Greg Halvorson............. 37 Vice President of Holdings
Eric Naroian............... 36 Vice President of Holdings
David Dominik.............. 42 Director of Holdings, DDi Capital and
DDi
Edward W. Conard........... 42 Director of Holdings
Prescott Ashe.............. 31 Vice President and Director of
Holdings, DDi Capital and DDi
Marshall Haines............ 31 Director of Holdings
Benjamin Hochberg.......... 27 Director of Holdings
Jeremy Schwartz............ 25 Director of Holdings
<PAGE>
Stephen M. Zide 39 Vice President and Director of Holdings
Stephen E. Adamson 41 Director of Holdings
Mark R. Benham 48 Director of Holdings
Sean Brophy 30 Director of Holdings
Christopher Behrens 38 Director of Holdings
Bruce D. McMaster joined the Company in 1985 and has served as President
since 1991 and as a Director since 1997.
Charles D. Dimick joined the Company in 1998 upon the Company's acquisition
of Dynamic Circuits, Inc. He is a Director of Holdings, DDi Capital and DDi and
is the President of Dynamic Details Incorporated, Silicon Valley (formerly known
as Dynamic Circuits, Inc.), a subsidiary of DDi. Mr. Dimick founded Dynamic
Circuits, Inc. in 1991 and served as its President and Chief Executive Officer
until the acquisition of Dynamic Circuits, Inc. by the Company.
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 the Company. Mr. Gisch has not
been responsible for any audit services for the Company since 1991.
John Peters joined the Company in 1998 upon the Company's acquisition of
DCI. He is Vice President of Holdings and Senior Vice President of Sales and
Marketing of DCI. Prior to joining the Company, Mr. Peters served as Vice
President of Sales and Marketing of DCI since 1992.
Lee W. Muse, Jr. joined the Company in 1989 and has served as Vice
President, Sales and Marketing since 1992.
Terry L. Wright joined the Company in 1991 and has served as Vice
President, Engineering since 1995.
Michael P. Moisan has been Vice President, Operations since 1996. Prior to
joining the Company 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.
Greg Halvorson joined the Company in 1998 upon the Company's acquisition
of DCI. He is Vice President of Holdings and Senior Vice President of Operations
of DCI. Prior to joining the Company, Mr. Halvorson served as Vice President of
Operations of DCI since 1995. Prior to joining DCI, Mr. Halvorson spent six
years at Pacific Circuits as plant manager and head of engineering before which
he was manager of computer-aided manufacturing (CAM) at Sigma Circuits.
Eric Naroian joined the Company in 1998 upon the Company's acquisition of
DCI. He is Vice President of Holdings and Vice President, DCI Value Added
Assembly. Prior to joining the Company, Mr. Naroian served as Vice President,
DCI Value Added Assembly since 1997. Prior to joining DCI, Mr. Naroian spent
four years at Sammina Corporation, where he began as Sales Director, Western
Region and completed his final two years as Vice President of Sales.
David Dominik was elected as a Director of Holdings in November 1998 and as
a Director of DDi Capital and DDi in January of 1999. Mr. Dominik has been a
Managing Director of Bain Capital, Inc. since 1990. Previously, Mr. Dominik was
a general partner of Zero Stage Capital, a venture capital firm focused on
early-stage companies, and assistant to
<PAGE>
the chairman of Genzyme Corporation, a biotechnology firm. From 1982 to 1984, he
worked as a management consultant at Bain & Company. Mr. Dominik was elected as
a director of Dynamic Circuits, Inc. in 1996.
Edward W. Conard has served as a Director since 1997. 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.
Prescott Ashe has served as Vice President and a Director since 1997. Mr.
Ashe has been a Principal at Bain Capital, Inc. since June 1998 and was an
Associate at Bain Capital, Inc. from December 1992 to June 1998. Previously, he
worked as an Analyst at Bain Capital, Inc. and as a consultant at Bain &
Company.
Marshall Haines was elected as a Director in November 1998. Mr. Haines has
been an Associate at Bain Capital, Inc. since December 1994. Previously he had
worked as an Analyst at Bain Capital, Inc. since September 1993.
Benjamin Hochberg was elected as a Director in November 1998. Mr. Hochberg
has been an Associate at Bain Capital, Inc. and an Associate at Sankaty Advisors
Inc., an affiliate of Bain Capital, Inc., since July 1998. Previously he had
worked as an Analyst at Bain Capital, Inc. beginning in August 1997, and prior
to that he was an Associate Consultant at Bain & Company starting in July 1995.
Jeremy Schwartz was elected as a Director in November 1998. Mr. Schwartz
has been an Analyst at Bain Capital, Inc. since October 1998. Previously he had
been an Analyst at Trust Company of the West in the special situations and high
yield group since May 1997. Prior to that Mr. Schwartz was an Associate
Consultant at Bain & Company beginning in June 1995.
Stephen M. Zide has served as Vice President and a Director since 1997. Mr.
Zide has been a Managing Director at Pacific Equity Partners since 1998.
Previously he was an Associate at Bain Capital, Inc. beginning in August 1997,
and prior to that he was a partner at the law firm of Kirkland & Ellis from 1992
to 1995. Mr. Zide is also a director of Alliance Laundry Systems, L.L.C.
Stephen E. Adamson was elected as a Director in November 1998. Mr. Adamson
is a Partner of Celerity Partners. Prior to joining Celerity Partners in 1995,
he was a managing director of W.E. Myers & Co., a merchant banking firm. Prior
to W.E. Myers & Co., Mr. Adamson was a managing director with KD Equities, a
private partnership specializing in middle market leveraged buyouts. Mr.
Adamson is a director of Financial Pacific Insurance Group, Inc., Rapid Design
Service, Inc., Hi-Tech Manufacturing Inc. and Constar International, Inc.
<PAGE>
Mark R. Benham was elected as a Director of Holdings in November 1998. Mr.
Benham was a co-founder of Celerity Partners and has been a Partner since 1992.
Previously he was a senior investment officer of Citicorp Venture Capital, Ltd.,
and prior to that he was an advisor to Yamaichi UniVen Co., Ltd., the venture
capital subsidiary of Yamaichi Securities International. Mr. Benham is a
director of SubMicron Systems Corporation, Rapid Design Service, Inc., Hi-Tech
Manufacturing, Inc. and Constar International, Inc.
Sean Brophy was elected as a Director of Holdings in November 1998. Mr.
Brophy has been a Principal at Celerity Partners since September 1996. Prior to
joining Celerity he was an associate at W.E. Myers & Co., a merchant banking
firm.
Christopher Behrens has served as a Director since 1997. He has been a
Principal of Chase Capital Partners ("CCP") since 1994 and a General Partner
since January 1999. Prior to joining CCP, Mr. Behrens was a Vice President in
the Merchant Banking Group of The Chase Manhattan Bank 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, DDi Capital or DDi. Executive officers of Holdings, DDi Capital and
DDi are elected by and serve at the discretion of their respective boards of
directors.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
the fiscal years ended December 31, 1998, 1997 and 1996 of Mr. McMaster, the
Chief Executive Officer of Holdings, DDi Capital and DDi and the four other most
highly compensated executive officers of Holdings, DDi Capital and DDi
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
YEAR ($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce D. McMaster 1998 432,423 69,694 ---(1) --- --- ---
President and Chief 1997 379,326 356,188 4,580,153(2) 241,026(7) 48,205.1 (8) 1,088,558(14)
Executive Officer 23,735(3)
3,808(4)
1996 331,250 300,000 ---(1) --- 781.0 (9) ---
Charles D. Dimick 1998 190,076 31,281 3,000(4) --- 39,008.0(10) 852,490(15)
Chairman, President of 39,684(5) 11,592.5(11) 1,820,887(16)
Dynamic Details 816,721(6) 4,953.3(12)
Incorporated, Silicon 1997 --- --- --- --- --- ---
Valley 1996 --- --- --- --- --- ---
Joseph P. Gisch 1998 269,346 18,967 ---(1) --- 10,000.0(13) ---
Chief Financial 1997 262,847 62,077 651,791(2) 40,171(7) 8,034.2 (8) 155,198(14)
Officer 3,384(3)
2,195(4)
1996 246,693 50,286 ---(1) --- 111.0 (9) ---
Lee W. Muse, Jr. 1998 355,981 69,694 --- (1) --- --- ---
Vice President, 1997 314,769 356,188 3,810,922(2) 187,464(7) 37,492.8 (8) 905,802(14)
Sales and Marketing 19,750(3)
891(4)
1996 254,807 300,000 ---(1) --- 649.0 (9) ---
Terry L. Wright 1998 158,519 14,111 ---(1) --- --- ---
Vice President, 1997 147,208 99,126 957,134(2) 66,952(7) 13,390.3 (8) 227,720(14)
Engineering 4,965(3)
1,227(4)
1996 127,502 75,000 ---(1) --- 162.0 (9) ---
</TABLE>
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<PAGE>
(1) The perquisites and other benefits paid did not exceed the lesser of $50,000
or 10% of the total annual salary and bonus of such Named Executive Officer.
(2) Reflects amounts paid to certain Named Executive Officers to satisfy certain
tax obligations incurred in connection with the exercise of options to
purchase shares of Old Common in connection with the Recapitalization.
(3) Reflects the grant of 4,747.0, 676.8, 3,950.0, and 993.1 shares of Class A
Common to Mr. McMaster, Mr. Gisch, Mr. Muse, and Mr. Wright, respectively,
as compensation for services rendered.
(4) Reflects payments made in connection with the use of a personal automobile.
(5) Represents payments under the Company's Cash Bonus Plan made at the time of
the exercise of options to purchase 25,236.2 shares of Class A Common.
(6) Reflects deferred cash distributions made in connection with the exchange of
options to purchase shares of common stock of DCI for options to purchase
shares of Class A Common and Class L Common in connection with the DCI
acquisition.
(7) Reflects the purchase of 50,620.2, 8,436.7, 39,371.3 and 14,061.2 shares of
restricted Class A Common by Mr. McMaster, Mr. Gisch, Mr. Muse and Mr.
Wright, respectively, at a purchase price of $5.00 per share and the
subsequent repurchase by Holdings from each of Mr. McMaster, Mr. Gisch, Mr.
Muse and Mr. Wright of 2,415.2, 402.5, 1,878.5 and 670.9 shares of
restricted Class A Common, respectively, at a purchase price of $5.00 per
share in connection with the NTI acquisition. These Named Executive Officers
purchased these shares by issuing an interest bearing note to the Company.
The outstanding principal amounts of the interest bearing notes of such
Named Executive Officers were reduced by approximately $12,076, $2,013,
$9,392 and $3,354, respectively, to reflect the repurchase by Holdings of
the shares of restricted Class A Common, as described above, in connection
with the NTI acquisition. In 1998, each of Mr. McMaster and Mr. Muse agreed
to forfeit 1,900 and 1,300 shares, respectively, of restricted Class A
Common, which shares were subsequently issued to certain employees of
Holdings and its subsidiaries, and the outstanding principal amounts of the
interest bearing notes of such Named Executive Officers were reduced by
approximately $9,500 and $6,500, respectively, to reflect the forfeiture.
Additionally, each of Mr. McMaster and Mr. Muse agreed to transfer 5,700 and
4,300 shares, respectively, of restricted Class A Common, to Mr. Gisch and
the outstanding principal amounts of the interest bearing notes of Mr.
McMaster and Mr. Muse were reduced by approximately, $28,500 and $21,500,
respectively, and the outstanding principal amount of the interest bearing
note of Mr. Gisch was increased by approximately $50,000 to reflect the
transfer. See "Certain Relationships and Related Transactions -- Certain
Loans and Payments to Named Executive Officers." The restricted stock vests
in 48 equal monthly installments beginning November 28, 1997. Holdings has
the right to repurchase the unvested 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.
(8) The options represent the net number of options to purchase shares of Class
A Common at an exercise price of $61.17 per share, substantially above the
current fair market value of the Class A Common ($5.00 per share), issued in
connection with the Recapitalization after accounting for the reduction in
the number of shares available upon exercise of the options as described
below. The options vest in 48 equal monthly installments beginning November
28, 1997. In connection with the NTI acquisition, Mr. McMaster, Mr. Gisch,
Mr. Muse and Mr. Wright agreed to permit Holdings to cancel options to
purchase 2,415.2, 402.5, 1,878.5 and 670.9 shares of Class A Common,
respectively, at an exercise price of $61.17 per share. Additionally, in
1998 each of Mr. McMaster and Mr. Muse agreed to permit Holdings to cancel
options to purchase 1,900 and 1,300 shares, respectively, of Class A Common
at an exercise price of $61.17 per share, which options were subsequently
granted by Holdings to certain other employees of Holdings and its
subsidiaries. Additionally, each of Mr. McMaster and Mr. Muse agreed to
permit Holdings to cancel options to purchase 5,700 and 4,300 shares of
Class A Common, respectively, at an exercise price of $61.17 per share,
which options were subsequently granted by Holdings to Mr. Gisch.
(9) The options represent options to purchase shares of Old Common at an
exercise price of $2,179 per share. In connection with the Recapitalization:
(i) unvested options to purchase approximately 630.6, 89.6, 523.5, and 130.7
shares of Old Common at an exercise price of $2,179 held by Mr. McMaster,
Mr. Gisch, Mr. Muse, and Mr. Wright, respectively, became vested and were
exercised, and (ii) as part of the
<PAGE>
Management Rollover Equity, unvested options to purchase approximately
150.5, 21.4, 125.2 and 31.5 shares of Old Common at an exercise price of
$2,179 held by Mr. McMaster, Mr. Gisch, Mr. Muse and Mr. Wright,
respectively, became vested and converted into options to purchase
approximately 34,012.3, 4,849.2, 28,302.0 and 7,115.2 shares of Class A
Common, respectively, at an exercise price of $0.96 per share and options
to purchase approximately 4,203.8, 599.3, 3,498.0 and 879.4 shares of Class
L Common, respectively, at an exercise price of $70.19 per share. The fair
market value of the Old Common on the date of the Recapitalization was
$11,800 per share.
(10) The options represent options to purchase shares of Class A Common at an
exercise price equal to $1.58 per share issued to replace options to
purchase shares of DCI common stock in connection with the DCI
acquisition..
(11) The options represent options to purchase shares of Class A Common at an
exercise price equal to $61.17 per share issued to replace options to
purchase shares of DCI common stock in connection with the DCI
acquisition..
(12) The options represent options to purchase shares of Class L Common at an
exercise price equal to $364.09 per share issued to replace options to
purchase shares of DCI common stock in connection with the DCI acquisition.
(13) The options represent options to purchase shares of Class A Common at an
exercise price of $61.17 issued to Mr. Gisch after each of Mr. McMaster and
Mr. Muse agreed to permit Holdings to cancel options to purchase 5,700 and
4,300 shares of Class A Common, respectively, at an exercise price of
$61.17 per share.
(14) Reflects bonuses earned by certain of the Named Executive Officers in
connection with the Recapitalization that are payable on the third
anniversary of the Recapitalization whether or not such Named Executive
Officer is still employed by the Company.
(15) Reflects deferred cash distributions payable in connection with the
exchange of options to purchase shares of common stock of DCI for options
to purchase shares of Class A Common and Class L Common in connection with
the DCI acquisition.
(16) Represents amounts payable under the Company's Cash Bonus Plan in
connection with the exercise of outstanding options to purchase shares of
Class A Common and Class L Common.
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase common stock of Holdings made to the Named Executive Officers during
the fiscal year ended December 31, 1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
PERCENT
OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT
SECURITIES GRANTED TO EXERCISE ASSUMED ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES IN PRICE PER PRICE APPRECIATION FOR OPTION
OPTIONS FISCAL 1998 SHARE EXPIRATION TERM (7)
NAME GRANTED (#) (%)(6) ($) DATE 5% ($) 10% ($) X%
($)
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce D. McMaster --- --- --- --- --- --- ---
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Charles D. Dimick(1) 39,008.0(2) 15.7 1.58 8/19/2006 226,530 356,453 ---
11,592.5(3) 4.7 61.17 8/19/2006 --- --- 0(8)
4,953.3(4) 12.9 364.09 8/19/2006 861,066 2,062,402 ---
Joseph P. Gisch 10,000(5) 4.1 61.17 10/28/2007 --- --- 0(9)
Lee W. Muse, Jr. --- --- --- --- --- --- ---
Terry L. Wright --- --- --- --- --- --- ---
</TABLE>
__________________________
(1) In connection with the DCI acquisition, options to purchase 213,200 shares
of common stock of DCI at an exercise price of $0.05 per share held by Mr.
Dimick were converted, as part of the management rollover equity, into the
right to receive a cash payment equal to $2,743,901, options to purchase
approximately 39,008.0 shares of Class A Common at an exercise price of
$1.58 per share, options to purchase approximately 2,127.3 shares of Class
A Common at an exercise price of $61.17 per share and options to purchase
approximately 4,953.3 shares of Class L Common at an exercise price of
$364.09 per share. Under Mr. Dimick's employment agreement, Mr. Dimick is
entitled to receive a cash bonus equal to approximately $1,860,571 that
vests in accordance with the vesting schedule for the options described
above and becomes payable under certain circumstances set forth in
Holdings's Cash Bonus Plan.
(2) Represents shares of Class A Common. Of this total, approximately
26,888.8 were vested as of December 31, 1998. The remaining approximately
12,119.2 options vest in 22 equal monthly installments beginning January
28, 1999.
(3) Represents shares of Class A Common. Of this total, approximately
10,931.6 were vested as of December 31, 1998. The remaining approximately
660.9 options vest in 22 equal monthly installments beginning January 28,
1999.
(4) Represents shares of Class L Common. Of this total, approximately 3,414.4
were vested as of December 31, 1998. The remaining approximately 1,538.9
options vest in 22 equal monthly installments beginning January 28, 1999.
(5) Represents shares of Class A Common. Of this total, approximately 2,916.7
were vested as of December 31, 1998. The remaining approximately 7,083.3
options vest in 34 equal monthly installments beginning January 28, 1999.
(6) Percentages are based upon the total number of options to purchase shares
of Class A Common or Class L Common, as the case may be, granted to
employees in fiscal 1998.
(7) There is currently no market for the Class A Common or the Class L Common
of Holdings. For purposes of the calculations in this table, the fair
market value of the Class A Common ($5.00 per share) and the Class L
Common ($364.09 per share) was determined by the Board of Directors based
upon arms length sales of shares of Class A Common and shares of Class L
Common. There have been no arms length sales of the Class A Common or the
Class L Common since October 28, 1998. In accordance with the rules of
the Securities and Exchange Commission, the amounts shown on this table
represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based
on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration
date. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the Holdings' common stock, the optionholder's
continued employment through the option period, and the date on which the
options are exercised.
(8) 36.8% reflects the percentage appreciation, compounded annually from the
date of grant to the expiration date, by which the exercise price exceeded
the fair market value at the date of grant.
(9) 32.1% reflects the percentage appreciation, compounded annually from the
date of grant to the expiration date, by which the exercise price exceeded
the fair market value at the date of grant.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options awarded
under the Company's 1996 Stock Option Plan, the 1997 Details, Inc. Equity
Incentive Plan, the Details Holdings Corp-Dynamic Circuits 1996 Stock Option
Plan and the Details Holdings Corp-Dynamic Circuits 1997 Stock Option Plan,
including the number and aggregate value of unexercised options outstanding on
December 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON EXERCISE VALUE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
NAME (#) ($)(2) (#) ($)(2)
<S> <C> <C> <C> <C>
Bruce D. McMaster --- --- 11,843.2/28,761.9(3) ---
4,203.8/0(4) 1,235,497/0
Charles D. Dimick 25,236.2(1) 86,308 1,652.6/12,119.2(5) 5,652/41,448
10,931.6/660.9(6) ---
3,414.4/1,538.9(7) ---
Joseph P. Gisch --- --- 5,260.0/12,774.2(3) ---
599.3/0(4) 176,134/0
Lee W. Muse, Jr. --- --- 9,229.1/22,413.7(3) ---
3,498.0/0(4) 1,028,062/0
Terry L. Wright --- --- 3,905.5/9,484.8(3) ---
879.4/0(4) 258,456/0
</TABLE>
_____________________
(1) Represents shares of Class A Common purchased at an exercise price of
$1.58 per share.
(2) Value is based on the difference between the option exercise price and
the fair market value at December 31, 1998. The fair market value of
the Class A Common ($5.00 per share) and the Class L Common ($364.09
per share) was determined by the Board of Directors based upon arms
length sales of shares of Class A Common and shares of Class L Common.
There have been no arms length sales of the Class A Common or the Class
L Common since October 28, 1998.
(3) Represents options to purchase shares of Class A Common at an exercise
price of $61.17 per share. The options vest in 48 equal monthly
installments beginning November 28, 1997.
(4) Represents options to purchase shares of Class L Common at an exercise
price of $70.19 per share. The options to purchase such shares of Class
L Common replaced options to purchase shares of Old Common that were
rolled over in connection with the Recapitalization as part of the
Management Rollover Equity and converted into options to purchase
shares of Class A Common and shares of Class L Common.
(5) Represents options to purchase shares of Class A Common at an exercise
price of $1.58 per share. The options to purchase such shares of Class
A Common replaced options to purchase shares of common stock of DCI
that were rolled over in connection with the DCI acquisition and
converted into options to purchase shares of Class A Common and shares
of Class L Common.
<PAGE>
(6) Represents options to purchase shares of Class A Common at an exercise
price of $61.17 per share. The unvested options vest in 22 equal
monthly installments beginning January 28, 1999. The options to
purchase such shares of Class A Common replaced shares and options to
purchase shares of common stock of DCI that were rolled over in
connection with the DCI acquisition and converted into shares and
options to purchase shares of Class A Common and shares of Class L
Common.
(7) Represents options to purchase shares of Class L Common at an exercise
price of $364.09 per share. The options to purchase such shares of
Class L Common replaced options to purchase shares of common stock of
DCI that were rolled over in connection with the DCI acquisition and
converted into options to purchase shares of Class A Common and shares
of Class L Common.
STOCK OPTION PLANS AND RELATED TRANSACTIONS
Immediately after the Recapitalization, the Board of Directors adopted, and
the stockholders of Holdings approved, the 1997 Details, Inc. Equity Incentive
Plan (the "1997 Stock Option Plan"), which authorized 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 2,710 shares of Class A Common available for
grant under the 1997 Stock Option Plan.
In connection with the DCI acquisition, the Board of Directors adopted, and
the stockholders of Holdings approved, the Details Holdings Corp.-Dynamic
Circuits 1996 Stock Option Plan and the Details Holdings Corp.-Dynamic Circuits
1997 Stock Option Plan (together the "DCI Stock Option Plans"), which authorized
the granting of stock options and the sale of Class A Common and Class L Common
in connection with the DCI acquisition. The terms applicable to options issued
under the DCI Stock Option Plans are substantially similar to the terms
applicable to the options to purchase shares of DCI outstanding immediate prior
to the DCI acquisition. These terms include vesting from the date of acquisition
through 2002. An optionholder's scheduled vesting is dependent upon continued
employment with the Company. Upon termination of employment, any unvested
options as of the termination date are forfeited.
In connection with the DCI acquisition, Holdings converted each DCI stock
option award into the right to receive a cash payment and an option to purchase
shares of Class A Common and shares of Class L Common. The options granted bear
exercise prices of either $1.58 ($1.58 Options) or $61.17 ($61 Options) for the
purchase of Class A shares or $364.09 for Class L Shares. The Board is
authorized to sell or otherwise issue Class A Common and Class L Common at any
time prior to the termination of the applicable DCI 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 222,600 shares of Class A Common
and 28,300 shares of Class L Common, in the case of the Details Holdings Corp.-
Dynamic Circuits 1996 Stock Option Plan, and 46,000 shares of Class A Common and
5,850 shares of Class L Common in the case of the Details Holdings Corp.-Dynamic
Circuits 1997 Stock Option Plan (in each case, 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).
Under the terms of the DCI Stock Option Plans, however, no options may be
granted after the acquisition date. Accordingly, there are currently no options
to purchase shares of Class A Common and no options to purchase shares of
Class L Common available for grant under the DCI Stock Option Plans. As of
December 31, 1998, all options outstanding under the DCI Stock Option Plans had
weighted average remaining contractual lives of approximately eight years.
-36-
<PAGE>
In 1998, each of Mr. McMaster and Mr. Muse agreed to permit Holdings to
cancel options to purchase 7,600 and 5,600 shares, respectively, of Class A
Common at an exercise price of $61.17 per share, which options were subsequently
granted by Holdings to certain other employees of Holdings and its subsidiaries.
COMPENSATION OF DIRECTORS
DDi, DDi Capital and Holdings currently pay no compensation to their
independent directors, and pay no additional remuneration to their employees or
to executives of DDi, DDi Capital or Holdings for serving as directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
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 4,747.0
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 the agreement. In
addition, Mr. McMaster will be entitled to receive an additional bonus of
$1,088,558 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. Dimick is currently employed as Chairman of the Company and President
of Dynamic Details Incorporated, Silicon Valley pursuant to an agreement dated
July 23, 1998. Under this agreement, Mr. Dimick is entitled to receive salary at
an annual rate of $420,000 in 1998 and approximately $444,700 in 1999. In
addition, Mr. Dimick is eligible for an annual bonus based upon the achievement
of EBITDA targets and received an award, pursuant to the agreement, of 39,008
Class A Cash Bonus Units valued at $1.5725 per Unit and 4,953.3 Class L Cash
Bonus Units valued at $363.2381 per Unit, which Cash Bonus Units vest on the
same schedule applicable to the vesting of the options to purchase shares of
Class A Common and shares of Class L Common granted in connection with the DCI
acquisition and are payable in accordance with the terms of the Cash Bonus Plan.
Mr. Dimick also entered into a Non-Compete Agreement with the Company which
contains customary confidentiality provisions and a non-compete clause effective
for the duration of the term of the agreement.
<PAGE>
Mr. Gisch is currently employed as Chief Financial Officer of the Company
pursuant to an agreement dated September 1, 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 676.8
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 $155,198
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 3,950.0 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
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 993.1
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 $227,720
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.
Base salaries for Mr. McMaster, Mr. Dimick, Mr. Gisch, Mr. Muse and Mr.
Wright on or after January 1, 2000 will be established by the Company at a level
that equals or exceeds base salaries for 1999.
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report has been submitted by the Compensation Committee of
the Board of Directors of Holdings:
The Compensation Committee is responsible for reviewing the recommendations
of the Chief Executive Officer on compensation levels of all other officers,
adopting and changing compensation policies and practices of Holdings, and
reporting its recommendations to the full Board. In addition, the Compensation
Committee is responsible for the administration of the Company's stock plans.
In reviewing the Company's compensation programs, the Compensation Committee
intends to adhere to a compensation philosophy that (i) attracts and retains
qualified executives who will add to the long-term success of the Company, (ii)
relates to the achievement of operational and strategic objectives, and (iii) is
commensurate with each executive's performance, level of responsibility and
overall contribution to the success of the Company. In making its
recommendations to the full Board concerning adjustments to compensation levels,
the Compensation Committee intends to consider the financial condition and
operational performance of the Company during the prior year. The Compensation
Committee expects the Company's executive compensation program to consist of
three principal components: (i) base salary; (ii) annual bonus; and (iii) long-
term equity incentives.
The compensation for Mr. McMaster, the Chief Executive Officer of Holdings,
for the year ended December 31, 1998 was established pursuant to the terms of
his employment agreement with Holdings. The terms of this agreement were
determined through arms-length negotiations with representatives of Bain
Capital, Inc. in conjunction with the Recapitalization, prior to the formation
of the Compensation Committee.
Under their respective employment agreements, certain executives of
Holdings receive an annual bonus based on the company's achievement of targeted
operating results, which are established at the beginning of each year by the
Compensation Committee. The Company achieved such levels in 1998. The level
of bonus that each such executive officer is eligible to earn is also
established by the Compensation Committee at the beginning of each year. The
annual bonus was equal to a specified percentage of each such executive's annual
salary.
The foregoing report has been approved by all members of the Compensation
Committee.
Edward Conard
David Dominik
Prescott Ashe
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
<PAGE>
The Compensation Committee was established by the Board of Directors of
Holdings in 1998, and is currently comprised of Edward Conard, David Dominik and
Prescott Ashe. Mr. Ashe is a Vice President of Holdings, however he receives no
compensation from Holdings or any of its subsidiaries for his services as such.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All of DDi Capital's issued and outstanding capital stock is owned by
Intermediate which is wholly-owned by Holdings. As of March 1, 1999, the
outstanding equity securities of Holdings consisted of 3,443,985.4 shares of
Class A Common and 391,700.8 shares of Class L Common. The Class A Common
consists of six separate classes (A-1 through A-7), 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-7, which is nonvoting. The Class L
Common is identical to the Class A Common except that the Class L Common 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 shares ($364.09) 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 March 1, 1999
regarding the beneficial ownership of (i) each class of voting securities of
Holdings 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 such stockholder 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.
<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) 1,404,107.0 37.8% 172,464.5 39.8%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Celerity Circuits, L.L.C.(2) 285,051.7 7.7 34,643.2 8.0
c/o Celerity Partner, L.L.C.
11111 Santa Monica Boulevard
Suite 1127
Los Angeles, California 90025
Chase Manhattan Capital, L.P.(3) 457,122.8 12.3 56,498.3 12.8
380 Madison Avenue
12th Floor
New York, New York 10017
KB Mezzanine Fund II, L.P. 214,149.4 5.8 25,786.9 6.0
c/o Equinox Investment Partners LLC
405 Lexington Avenue
21st Floor
New York, New York 10174
DIRECTORS AND EXECUTIVE OFFICERS:
Bruce D. McMaster(4) 210,216.0 5.7 18,494.5 4.3
Charles D. Dimick(5) 210,419.9 5.7 25,570.1 5.9
John Peters(6) 74,296.2 2.0 8,946.4 2.1
Joseph P. Gisch(7) 46,145.5 1.2 2,554.9 0.6
Lee W. Muse(8) 152,688.8 4.1 12,963.5 3.0
Greg Halverson(9) 36,712.3 1.0 4,491.2 1.0
Eric Naroian(10) 58,224.1 1.6 6,007.9 1.4
Terry L. Wright(11) 43,811.6 1.2 3,016.6 0.7
Michael Moisan(12) 4,770.7 0.1 558.7 0.1
Christopher Behrens(13) 457,122.8 12.3 56,498.3 12.8
Edward Conard(14) 366,780.9 9.9 45,163.5 10.4
David Dominik(14) 366,780.9 9.9 45,163.5 10.4
Stephen M. Zide(15) 366,780.9 9.9 45,163.5 10.4
Prescott Ashe(15) 366,780.9 9.9 45,163.5 10.4
Marshall Haines(15) 366,780.9 9.9 45,163.5 10.4
Benjamin Hochberg(15) 366,780.9 9.9 45,163.5 10.4
Jeremy Schwartz(15) 366,780.9 9.9 45,163.5 10.4
Mark R. Benham(16) 285,051.7 7.7 34,643.2 8.0
Stephen E. Adamson(16) 285,051.7 7.7 34,643.2 8.0
Sean Brophy --- --- --- ---
All Directors and executive officers as
a group (20 persons)(17) 837,285.1 22.6 82,603.8 19.1
</TABLE>
<PAGE>
(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").
Does not include shares owned by other stockholders that are subject to the
Stockholders Agreement. See "Certain Relationships and Related
Transactions -- Stockholders Agreement."
(2) Consists of shares owned by Celerity Circuits, L.L.C., Celerity Details,
L.L.C. and Celerity Liquids, L.L.C. Celerity Partners, L.L.C. and its
managing members control each of such entities. Accordingly, Celerity
Circuits, L.L.C. may be deemed to beneficially own shares owned by Celerity
Details, L.L.C. and Celerity Liquids, L.L.C. Celerity Circuits, L.L.C.
disclaims beneficial ownership of any such shares in which it does not have
a pecuniary interest.
(3) Consists of shares owned by CMC, Chase Securities Inc. and DI Investors,
L.L.C. CMC and Chase Securities Inc. are affiliate of The Chase Manhattan
Bank. 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 Chase Securities Inc. and DI Investors,
L.L.C. CMC disclaims beneficial ownership of any such shares in which it
does not have a pecuniary interest.
(4) The shares of Class A Common included in the table include 25,680.2 shares,
which are subject to vesting and 15,226.9 shares that can be acquired upon
the exercise of outstanding options. 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 14,907.9 shares
that can be acquired upon the exercise of outstanding options. The shares
of Class L Common included in the table include 3,694.2 shares that can be
acquired upon the exercise of outstanding options.
(6) The shares of Class A Common included in the table include 4,440.2 shares
that can be acquired upon the exercise of outstanding options. The shares
of Class L Common included in the table include 927.6 shares that can be
acquired upon the exercise of outstanding options.
(7) The shares of Class A Common included in the table include 10,895.7 shares,
which are subject to vesting and 6,762.8 shares that can be acquired upon
the exercise of outstanding options. The shares of Class L Common included
in the table include 599.3 shares that can be acquired upon the exercise of
outstanding options.
(8) The shares of Class A Common included in the table include 20,054.0 shares,
which are subject to vesting and 11,959.8 shares that can be acquired upon
the exercise of outstanding options. 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.
(9) The shares of Class A Common included in the table include 4,179.0 shares
that can be acquired upon the exercise of outstanding options. The shares
of Class L Common included in the table include 4,491.2 shares that can be
acquired upon the exercise of outstanding options.
(10) The shares of Class A Common included in the table include 21,900.6 shares
that can be acquired upon the exercise of outstanding options. The shares
of Class L Common included in the table include 2,591.2 shares that can be
acquired upon the exercise of outstanding options.
(11) The shares of Class A Common included in the table include
8,090.0 shares, which are subject to vesting and 5,021.4 shares that can be
acquired upon the exercise of outstanding options. The shares of Class L
Common included in the table include 879.4 shares that can be acquired upon
the exercise of outstanding options.
(12) The shares of Class A Common included in the table include 4,770.7 shares
that can be acquired upon the exercise of outstanding options. The shares
of Class L Common included in the table include 558.7 shares that can be
acquired upon the exercise of outstanding options.
(13) Mr. Behrens is a General Partner 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.
(14) The shares of Class A Common and Class L Common included in the table
represent shares held by BCIP and BCIP Trust. Messrs. Conard and Dominik
are each Managing Directors of Bain Capital, Inc. and are each general
partners of BCIP and 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
<PAGE>
address of each such person is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116.
(15) The shares of Class A Common and Class L Common included in the table
represent shares held by BCIP and BCIP Trust. Mr. Zide is a Managing
Director of Pacific Equity Partners and was formerly an Associate
of Bain Capital, Inc. Mr. Ashe is a Principal of Bain Capital, Inc. and
Messrs. Haines, Hochberg and Schwartz are each Associates of Bain Capital,
Inc. Each such persons are partners of BCIP and 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.
(16) Mr. Benham and Mr. Adamson are each Managing Members of Celerity Partners,
L.L.C., and control each of Celerity Details, L.L.C., Celerity Liquids,
L.L.C. and Celerity Circuits, L.L.C. and, accordingly, may be deemed to
beneficially own shares owned by Celerity Details, L.L.C., Celerity
Liquids, L.L.C. and Celerity Circuits, L.L.C. 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 Celerity
Partners, 11111 Santa Monica Boulevard, Suite 1127, Los Angeles, California
90025.
(17) Excludes shares deemed to be beneficially owned by Messrs. Conard, Dominik,
Ashe, Haines, Hochberg, Schwartz, Zide, Behrens, Benham and Adamson.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following summary of the Stock Contribution and Merger Agreement, the
Stockholders Agreement and the Management Agreement is a description of the
material provisions of those agreements and is subject to, and qualified in its
entirety by reference to, those agreements, each of which has been previously
filed with the Securities and Exchange Commission (the "Commission").
STOCK CONTRIBUTION AND MERGER AGREEMENT
The Stock Contribution and Merger Agreement dated as of July 23, 1998
contains customary provisions for such agreements, including representations and
warranties with respect to the condition and operations of the business of each
of DDI and DCI, covenants with respect to the conduct of their respective
businesses prior to the DCI acquisition closing and various closing conditions,
including the obtaining of financing and the continued accuracy of
representations and warranties.
The Stock Contribution and Merger Agreement contains indemnification
provisions binding on the Company after the closing of the transactions
contemplated therein (subject to certain limitations set forth therein).
Specifically, Holdings has agreed to indemnify: (a) each of the former DCI
stockholders and their agents and affiliates against any and all liabilities
resulting from (i) any misrepresentation or breach of warranty made by Holdings
or any of its subsidiaries in the Stock Contribution and Merger Agreement and
(ii) any breach or default in performance by Holdings or any of its subsidiaries
of any covenant or agreement contained in the Stock Contribution and Merger
Agreement, prior to the DCI acquisition and (b) each of the stockholders of
Holdings immediately prior to the DCI acquisition closing and their agents and
affiliates against any and all liabilities resulting from (i) any
misrepresentation or breach of warranty by DCI in the Stock Contribution and
Merger Agreement and (ii) any breach or default in performance by DCI or any of
its subsidiaries of any covenant or agreement contained in the Stock
Contribution and Merger Agreement, prior to the DCI acquisition.
Immediately prior to the consummation of the DCI acquisition, certain
stockholders of Holdings owned approximately 1,796,664 shares of common stock of
DCI, representing approximately 20% of the outstanding common stock of DCI on a
fully diluted basis.
STOCKHOLDERS AGREEMENT
In connection with the Recapitalization, the Bain Capital Funds,
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 elect a sufficient number of directors to maintain a
majority of the board of directors of Holdings, each of Celerity Circuits,
L.L.C. and management will be entitled to elect two directors, and CMC will be
entitled to elect one director.
In connection with the DCI acquisition, all former stockholders of DCI
that received equity securities of Holdings became party to the Stockholders
Agreement.
MANAGEMENT AGREEMENT
<PAGE>
Pursuant to a management agreement among Bain Capital Partners V, L.P.
("Bain"), Holdings and Details (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
in connection with an acquisition, recapitalization or refinancing transaction
(including assumed debt). In connection with the Recapitalization, NTI
acquisition and DCI acquisition, Bain was paid fees of approximately $3.1
million, approximately $380,000, and approximately $2.7 million, respectively.
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 Swenson Family Trust, a trust controlled by the Company's founder and former
shareholder, James I. Swenson, and his wife. Under the terms of these leases,
the Company paid approximately $108,000 per month in 1998 as base rent subject
to applicable adjustment based upon changes in the consumer price index. The
leases have a remaining term of 7 years with an option to renew for an
additional 10 years or to purchase the property at fair market value upon
expiration. See "Description of Property."
CERTAIN LOANS AND PAYMENTS TO NAMED EXECUTIVE OFFICERS
In connection with the exercise of options to purchase shares of Class A
Common granted in connection with the Recapitalization at an exercise price of
$0.96 per share and the purchase of shares of restricted Class A Common at a
price of $5.00 per share, Holdings accepted as payment from each Named Executive
Officer purchasing such shares a note bearing interest at 5.57% per annum. Mr.
McMaster, Mr. Gisch, Mr. Muse and Mr. Wright received loans of approximately
$285,885, $46,856, $224,137 and $77,164, respectively. The principal amounts of
such notes were reduced to approximately $273,806, $44,844, $214,742, and
$73,810, respectively, in connection with the repurchase by Holdings of certain
shares of restricted Class A Common at a price of $5.00 per share in connection
with the NTI acquisition. 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.
In addition, in connection with the exercise of options to purchase shares
of Class L Common, the Company has agreed to pay certain Named Executive Officer
an amount sufficient
<PAGE>
to satisfy certain of such Named Executive Officer's tax obligations arising out
of the exercise of such options and the receipt of such payment from the
Company.
In 1998, each of Mr. McMaster and Mr. Muse agreed to forfeit 1,900 and
1,300 shares, respectively, of restricted Class A Common, which shares were
subsequently issued to certain employees of Holdings and its subsidiaries, and
the outstanding principal amounts of the interest bearing notes of such Named
Executive Officers were reduced by approximately $9,500 and $6,500,
respectively, to reflect the forfeiture. Additionally, each of Mr. McMaster and
Mr. Muse agreed to transfer 5,700 and 4,300 shares, respectively, of restricted
Class A Common, to Mr. Gisch and the outstanding principal amounts of the
interest bearing notes of Mr. McMaster and Mr. Muse were reduced by
approximately, $28,500 and $21,500, respectively, and the outstanding principal
amount of the interest bearing note of Mr. Gisch was increased by approximately
$50,000 to reflect the transfer.
OTHER RELATED PARTY PAYMENTS
In connection with the DCI acquisition and related transactions, Celerity
Partners, L.L.C. and its affiliates were paid fees and expenses aggregating
approximately $1.7 million. Celerity Partners, L.L.C. and its managing members
control Celerity Details, L.L.C., Celerity Liquids, L.L.C. and Celerity
Circuits, L.L.C., which are each stockholders of Holdings.
The Bain Capital Funds, the controlling shareholders of Holdings, were
shareholders of DCI prior to the Company's July 1998 acquisition of DCI. In
conjunction with the acquisition, the Bain Capital Funds received approximately
$22.9 million for the redemption of certain shares of DCI common stock held
prior to consummation of the acquisition.
CMC, a shareholder of Holdings, is an affiliate of The Chase Manhattan Bank
("Chase"). In conjunction with the acquisition of DCI, Chase acted as
collateral, co-syndication, and administrative agent with regard to the
establishment of the New Senior Credit Facility. In this capacity, Chase
received approximately $2.4 million in fees. Chase also participates as a lender
in the syndication, and is a counterparty to one of the Company's interest rate
exchange agreements, under terms similar to those of the other participants and
counterparties.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PricewaterhouseCoopers LLP Report of Independent Accountants F-1
McGladrey & Pullen LLP Independent Auditor's Report F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended December 31, F-4
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity (Deficit) for the F-5
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended F-6
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules.
Not applicable.
(a)(3) Exhibits.
</TABLE>
Certain of the following exhibits have been previously filed with the
Commission pursuant to the requirements of the Securities Act. Such exhibits are
identified by the parenthetical references following the listing of each such
exhibit and are incorporated herein by reference.
-46-
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
3.1 DDi Capital Corp. Articles of Incorporation, as amended. (Previously
filed as Exhibit 3.1 to Registration Statement No. 333-41187, as
amended)
3.1.1 Amendment to the Articles of Incorporation of DDi Capital Corp. dated
December 15, 1998.
3.2 DDi Capital Corp. By-laws. (Previously filed as Exhibit 3.2 to
Registration Statement No. 333-41187, as amended)
3.3 Dynamic Details, Incorporated Articles of Incorporation, as amended.
(Previously filed as Exhibit 3.1 to Registration Statement No. 333-
41211, as amended)
3.3.1 Amendment to the Articles of Incorporation of Dynamic Details,
Incorporated dated December 15, 1998.
3.4 Dynamic Details, Incorporated By-laws. (Previously filed as Exhibit 3.2
to Registration Statement No. 333-41211, as amended)
4.1 Indenture dated as of November 18, 1997. (Previously filed as Exhibit
4.1 to Registration Statement No. 333-41187, as amended)
4.2 Supplemental Indenture dated as of February 10, 1998. (Previously filed
as Exhibit 4.2 to Registration Statement No. 333-41187, as amended)
4.3 Exchange and Registration Rights Agreement dated as of November 18,
1997. (Previously filed as Exhibit 4.3 to Registration Statement No.
333-41187, as amended)
4.4 Indenture dated as of November 18, 1997. (Previously filed as Exhibit
4.1 to Registration Statement No. 333-41211)
4.5 Exchange and Registration Rights Agreement dated as of November 18,
1997. Previously filed as Exhibit 4.2 to Registration Statement No. 333-
41211, as amended)
10.1 Stock Contribution and Merger Agreement dated July 23, 1998 by and among
Details Holding Corp. and Dynamic Circuits Inc. and the Stockholders of
Dynamic Circuits Inc. (Previously filed as Exhibit 2.1 to Form 8-K dated
July 23, 1998)
10.2 Credit Agreement dated as of July 23, 1998, as Amended and Restated
as of August 28, 1998, and as further amended by the First Amendment
thereto dated March 10, 1999.
10.3 Credit Agreement dated as of July 23, 1998. (Previously filed as Exhibit
4.1 to Form 8-K dated July 23, 1998.
10.4 First Amendment dated as of December 5, 1997 to Credit Agreement dated
as of October 28, 1997. (Previously filed as Exhibit 10.1 to
Registration Statement No. 333-41187, as amended)
10.5 Credit Agreement dated as of October 28, 1997, as Amended and Restated
as of December 5, 1997. (Previously filed as Exhibit 10.2 to
Registration Statement NO. 333-41187, as amended)
10.6 Details Holdings Corp. -- Dynamic Circuits 1996 Stock Option Plan dated
as of July 23, 1998.
10.7 Details Holdings Corp. -- Dynamic Circuits 1997 Stock Options Plan dated
as of July 23, 1998.
10.8 Details Holdings Corp. Bonus Plan dated as of July 23, 1998.
10.9 Management Agreement dated October 28, 1997. (Previously filed as
Exhibit 10.6 to Registration Statement No. 333-41187, as amended)
10.10 Amended and Restated Recapitalization Agreement dated as of October 4,
1997. (Previously filed as Exhibit 10.2 to Registration Statement No.
333-41187, as amended)
10.11 Stockholders Agreement dated October 28, 1997. (Previously filed as
Exhibit 10.3 to Registration Statement No. 333-41187, as amended)
10.12 1997 Details, Inc. Equity Incentive Plan. (Previously filed as Exhibit
10.7 to Registration Statement No. 333-41187, as amended)
10.13 1996 Employee Stock Option Plan dated December 31, 1996. (Previously
filed as Exhibit 10.8 to Registration Statement No. 333-41187, as
amended)
10.14 1996 Performance Stock Option Plan dated December 31, 1996. (Previously
filed as Exhibit 10.9 to Registration Statement No. 333-41187, as
amended)
10.15 Real Property Master Lease Agreement dated January 1, 1996. (Previously
filed as Exhibit 10.4 to Registration Statement No. 333-41187, as
amended)
10.16 Personal Property Master Lease Agreement dated January 1, 1996.
(Previously filed as Exhibit 10.5 to Registration Statement No. 333-
41187, as amended)
10.17 McMaster Employment Agreement dated September 1, 1995, as amended
October 28, 1997. (Previously filed as Exhibit 10.10 to Registration
Statement No. 333-41187, as amended)
10.18 Gisch Employment Agreement dated September 19, 1995 as amended October
28, 1997. (Previously filed as Exhibit 10.11 to Registration Statement
No. 333-41187, as amended)
10.19 Muse Employment Agreement dated September 1, 1995, as amended October
28, 1997. (Previously filed as Exhibit 10.12 to Registration Statement
No. 333-41187, as amended)
-47-
<PAGE>
10.20 Wright Employment Agreement dated September 1, 1995, as amended
October 28, 1997. (Previously filed as Exhibit 10.13 to Registration
Statement No. 333-41187, as amended)
10.21 Dimick Employment Agreement dated July 23, 1998.
10.22 Halvorson Employment Agreement dated July 23, 1998.
10.23 Peters Employment Agreement dated July 23, 1998.
10.24 Naroian Employment Agreement dated July 23, 1998.
10.25 Employee Incentive Compensation Plan dated January 2, 1997 between
Details, Inc. and Michael P. Moisan. (Previously filed as Exhibit 10.20
to Registration Statement No. 333-41187, as amended)
10.26 NTI Stock Purchase Agreement dated December 19, 1997. (Previously filed
as Exhibit 10.4 to Registration Statement No. 333-41187, as amended)
10.27 NTI Real Property Lease Agreement dated as of June 15, 1994. (Previously
filed as Exhibit 10.16 to Registration Statement No. 333-41187, as
amended)
10.28 NTI Real Property Lease Agreement dated as of June 15, 1994. (Previously
filed as Exhibit 10.17 to Registration Statement No. 333-41187, as
amended)
10.29 NTI Real Property Lease Agreement dated as of June 15, 1994. (Previously
filed as Exhibit 10.18 to Registration Statement No. 333-41187, as
amended)
10.30 DCI Real Property Lease Agreement dated as of July 22, 1991.
10.31 DCI Real Property Lease Agreement dated as of March 20, 1997.
10.32 DCI Real Property Lease Agreement dated as of November 12, 1997.
10.33 DCI Real Property Lease Agreement dated as of August 18, 1998.
10.34 Cuplex Real Property Lease Agreement dated as of April 14, 1998.
10.35 Cuplex Real Property Lease Agreement dated as of May 13, 1996.
10.36 Cuplex Real Property Lease Agreement dated as of November 2, 1995.
12.1 DDi Capital Corp. and Dynamic Details, Incorporated statement re:
computation of ratio of earnings to fixed charges.
16.1 Letter of McGladrey & Pullen LLP re: change of accountant. (Previously
filed as Exhibit 16.1 to Registration Statement No. 333-41187, as
amended)
21.1 Subsidiaries of the Registrants
24.1 Power of Attorney dated March 15, 1999 relating to signing of Form 10-K.
25.1 Statement of Eligibility on Form T-1 of State Street Bank and Trust
Company as Trustee. (Previously filed as Exhibit 25.1 to Registration
Statement No. 333-41187, as amended)
25.2 Statement of Eligibility on Form T-1 of State Street Bank and Trust
Company as Trustee. (Previously filed as Exhibit 25.1 to Registration
Statement No. 333-41211, as amended)
27.1 Dynamic Details, Incorporated Financial Data Schedule.
27.2 DDi Capital Corp. Financial Data Schedule.
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the last
quarter of the period covered by this report.
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act:
No annual report covering the Registrants' last fiscal year or any proxy
material with respect to a meeting of securityholders has been sent to any of
the Registrants' securityholders.
-48-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DDi Capital Corp. has duly caused this annual report
to be signed on its behalf by the undersigned, thereto duly authorized, in the
city of Anaheim, state of California, on the 30th day of March, 1999.
DDi CAPITAL CORP.
By: /s/ Bruce D. McMaster
---------------------------
Name: Bruce D. McMaster
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Bruce D. McMaster President (principal
executive officer)
Joseph P. Gisch Vice President and Chief
Financial Officer
(principal financial and
accounting officer)
Charles D. Dimick Director
Stephen M. Zide Vice President and
Director
Edward Conard Director
David Dominik Director
Prescott Ashe Director
</TABLE>
/s/ Joseph P. Gisch
-------------------
By: Joseph P. Gisch
as Attorney-in-Fact
March 30, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Dynamic Details, Incorporated has duly caused this annual
report to be signed on its behalf by the undersigned, thereto duly authorized,
in the city of Anaheim, state of California, on the 30th day of March, 1999.
DYNAMIC DETAILS, Incorporated
By: /s/ Bruce D. McMaster
----------------------------
Name: Bruce D. McMaster
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Bruce D. McMaster President (principal
executive officer)
Joseph P. Gisch Vice President and Chief
Financial Officer
(principal financial and
accounting officer)
Charles D. Dimick Director
Stephen M. Zide Vice President and
Director
Edward Conard Director
David Dominik Director
Prescott Ashe Director
/s/ Joseph P. Gisch
-----------------------
By: Joseph P. Gisch
As Attorney-in-Fact
March 30, 1999
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
DDi Capital Corp. and
Dynamic Details, Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 on page 46 present fairly, in all material respects, the
financial position of DDi Capital Corp. ("DDi Capital") and its subsidiary, and
Dynamic Details, Incorporated and subsidiaries ("DDi") (collectively, the
"Company") at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
March 16, 1999
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Details, Inc.
Anaheim, California
We have audited the accompanying consolidated statements of operation,
stockholders' equity (deficit) and cash flows of Details, Inc. and Subsidiaries
for the year ended December 31, 1996. These consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, and the results of their operations and cash
flows of Details, Inc. and Subsidiaries for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Anaheim, California
February 14, 1997
F-2
<PAGE>
DDi CAPITAL AND DDi
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1997 1997 1998 1998
------------- ------------- ------------- -------------
DDi DDi CAPITAL DDi DDi CAPITAL
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,377 $ 5,377 $ 1,905 $ 1,905
Trade receivables, net of allowance for
doubtful accounts of $399 and $1,428
in 1997 and 1998, respectively 15,643 15,643 34,764 34,764
Inventories 4,330 4,330 12,615 12,615
Prepaid expenses and other 525 525 1,236 1,236
Income tax receivable 8,537 9,363 3,793 3,793
Deferred tax asset 6,239 8,240 4,816 4,816
--------- --------- --------- ---------
Total current assets 40,651 43,478 59,129 59,129
--------- --------- --------- ---------
Property, plant and equipment, net 26,132 26,132 61,018 61,018
Debt issue costs, net 9,619 13,083 11,458 15,167
Goodwill and other intangibles, net 26,071 26,071 226,286 226,286
Other 98 98 566 566
--------- --------- --------- ---------
$ 102,571 $ 108,862 $ 358,457 $ 362,166
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 2,450 $ 2,450 $ 4,390 $ 4,390
Revolving credit facility -- -- 7,000 7,000
Accounts payable 7,609 7,609 14,612 14,612
Accrued salaries and related benefits 1,671 1,671 2,929 2,929
Accrued interest payable 1,760 1,760 1,438 1,438
Accrued expenses 6,399 6,399 8,891 8,891
Current maturities of deferred notes payable -- -- 2,788 2,788
Escrow payable to redeemed stockholders -- -- 3,900 3,900
--------- --------- --------- ---------
Total current liabilities 19,889 19,889 45,948 45,948
--------- --------- --------- ---------
Escrow payable to redeemed stockholders 8,600 8,600 -- --
Long-term debt and capital lease obligations 210,100 271,068 358,150 426,955
Deferred notes payable -- -- 3,743 3,743
Deferred tax liability 530 530 27,878 22,804
Other -- -- 686 686
--------- --------- --------- ---------
Total liabilities 239,119 300,087 436,405 500,136
--------- --------- --------- ---------
Commitments and contingencies
Stockholders' deficit:
Common stock 1 1 1 1
Additional paid-in-capital 138,744 88,583 245,531 194,737
Accumulated deficit (275,293) (279,809) (323,480) (332,708)
--------- --------- --------- ---------
Total stockholders' deficit (136,548) (191,225) (77,948) (137,970)
--------- --------- --------- ---------
$ 102,571 $ 108,862 $ 358,457 $ 362,166
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
DDi CAPITAL AND DDi (*)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1996 1997 1997 1998 1998
-------------------- ------------- ------------- ------------- -------------
PRE-RECAPITALIZATION
COMPANY DDi DDi CAPITAL DDi DDi CAPITAL
<S> <C> <C> <C> <C> <C>
Net sales $67,515 $ 78,756 $ 78,756 $174,853 $174,853
Cost of goods sold 30,505 38,675 38,675 119,288 119,288
------- -------- -------- -------- --------
Gross profit 37,010 40,081 40,081 55,565 55,565
Operating expenses
Compensation to former CEO 1,055 2,149 2,149 -- --
General and administration 1,929 2,057 2,057 8,442 8,463
Sales and marketing 5,989 7,278 7,278 12,801 12,801
Stock compensation and related bonuses -- 31,271 31,271 -- --
Amortization of intangibles -- -- -- 10,899 10,899
Write-off of acquired in-process
research and development -- -- -- 39,000 39,000
------- -------- -------- -------- --------
Operating income (loss) 28,037 (2,674) (2,674) (15,577) (15,598)
Interest expense (net), including interest
paid to former stockholder of $774,
$756 and $781 in 1996, 1997 and 1998,
respectively (9,416) (17,852) (25,196) (27,483) (35,320)
------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss 18,621 (20,526) (27,870) (43,060) (50,918)
Income tax benefit (expense) (6,265) 8,030 10,858 (471) 2,675
------- -------- -------- -------- --------
Income (loss) before extraordinary loss 12,356 (12,496) (17,012) (43,531) (48,243)
Extraordinary loss - early extinguishment of
debt, net of income tax benefit of $1,104
and $1,480 in 1997 and 1998, respectively -- (1,588) (1,588) (2,414) (2,414)
------- -------- -------- -------- --------
Net income (loss) $12,356 $(14,084) $(18,600) $(45,945) $(50,657)
======= ======== ======== ======== ========
Pro forma income tax expense adjustment $(1,295)
=======
Pro forma net income $11,061
=======
</TABLE>
(*) For the periods prior to October 28, 1997 (date of Recapitalization), DDi
Capital and DDi were identical (see Note 1).
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
DDi CAPITAL AND DDi (*)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK
--------------------------- ------------
PRE-RECAPITALIZATION COMPANY SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 -- $ -- 15,300 $ 15
Retirement of common stock -- -- (8,162) (8)
Transfer common stock subject
to put option -- -- (6,959) (7)
Issuance of common stock -- -- 2,509 5,148
Issuance of preferred stock 6,671 13,685 -- --
Transfer of preferred stock to
common stock (70) (153) 70 153
Issuance of redeemable common
stock warrants -- -- -- --
Net income -- -- -- --
Accretion of temporary stockholders'
equity to estimated fair value -- -- -- --
Dividends declared -- -- -- --
------------- ------------ ---------- ---------
Balance, December 31, 1996 6,601 13,532 2,758 5,301
------------- ------------ ---------- ---------
DDi
Balance, January 1, 1997 6,601 13,532 2,758 5,301
Accretion of temporary equity to fair value -- -- -- --
Compensation expense on vesting
of options -- -- -- --
Equity exchanges, cancelations and
distributions to stockholders (6,601) (13,532) (2,758) (5,301)
Issuance of common stock and contribution
of capital by Holdings -- -- 100 1
Net loss -- -- -- --
------------- ------------ ---------- ---------
Balance, December 31, 1997 -- -- 100 1
------------- ------------ ---------- ---------
Capital contibution from parent, net -- -- -- --
Dividends paid -- -- -- --
Net loss -- -- -- --
------------- ------------ ---------- ---------
Balance, December 31, 1998 -- $ -- 100 $ 1
============= ============ ========== =========
DDi CAPITAL
Balance, January 1, 1997 6,601 13,532 2,758 5,301
Accretion of temporary equity to fair value -- -- -- --
Compensation expense on vesting
of options -- -- -- --
Equity exchanges, cancelations and
distributions to stockholders (6,601) (13,532) (2,758) (5,301)
Issuance of common stock and contribution
of capital by Holdings -- -- 1,000 1
Net loss -- -- -- --
------------- ------------ ---------- ---------
Balance, December 31, 1997 -- -- 1,000 1
------------- ------------ ---------- ---------
Capital contribution from parent, net -- -- -- --
Dividends paid -- -- -- --
Net loss -- -- -- --
------------- ------------ ---------- ---------
Balance, December 31, 1998 -- $ -- 1,000 $ 1
============= ============ ========== =========
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
PRE-RECAPITALIZATION COMPANY CAPITAL DEFICIT) TOTAL
------- ------- -----
<S> <C> <C> <C>
Balance, December 31, 1995 $ -- $ 2,485 $ 2,500
Retirement of common stock -- (104,992) (105,000)
Transfer common stock subject
to put option -- (14,967) (14,974)
Issuance of common stock -- -- 5,148
Issuance of preferred stock -- -- 13,685
Transfer of preferred stock to
common stock -- -- --
Issuance of redeemable common
stock warrants -- -- --
Net income -- 12,356 12,356
Accretion of temporary stockholders'
equity to estimated fair value -- (25,832) (25,832)
Dividends declared -- (2,662) (2,662)
---------- ---------- ----------
Balance, December 31, 1996 -- (133,612) (114,779)
---------- ---------- ----------
DDi
Balance, January 1, 1997 -- (133,612) (114,779)
Accretion of temporary equity to fair value -- (41,244) (41,244)
Compensation expense on vesting
of options 21,220 -- 21,220
Equity exchanges, cancelations and
distributions to stockholders (21,220) (86,353) (126,406)
Issuance of common stock and contribution
of capital by Holdings 138,744 -- 138,745
Net loss (14,084) (14,084)
---------- ---------- ----------
Balance, December 31, 1997 138,744 (275,293) (136,548)
Capital contribution from parent, net 106,787 -- 106,787
Dividends paid -- (2,242) (2,242)
Net loss -- (45,945) (45,945)
---------- ---------- ----------
Balance, December 31, 1998 $ 245,531 $ (323,480) $ (77,948)
========== ========== ==========
DDi CAPITAL
Balance, January 1, 1997 -- (133,612) (114,779)
Accretion of temporary equity to fair value -- (41,244) (41,244)
Compensation expense on vesting
of options 21,220 -- 21,220
Equity exchanges, cancelations and
distributions to stockholders (21,220) (86,353) (126,406)
Issuance of common stock and contribution
of capital by Holdings 88,583 -- 88,584
Net loss -- (18,600) (18,600)
---------- ---------- ----------
Balance, December 31, 1997 88,583 (279,809) (191,225)
Capital contribution from parent, net 106,154 -- 106,154
Dividends paid -- (2,242) (2,242)
Net loss -- (50,657) (50,657)
---------- ---------- ----------
Balance, December 31, 1998 $ 194,737 $ (332,708) $ (137,970)
========== ========== ==========
<CAPTION>
TEMPORARY STOCKHOLDERS' EQUITY
REDEEMABLE COMMON STOCK
PRE-RECAPITALIZATION COMPANY COMMON STOCK WARRANTS TOTAL
------------ -------- -----
<S> <C> <C> <C>
Balance, December 31, 1995 $ -- $ -- $ --
Retirement of common stock -- -- --
Transfer common stock subject
to put option 14,974 -- 14,974
Issuance of common stock -- -- --
Issuance of preferred stock -- -- --
Transfer of preferred stock to
common stock -- -- --
Issuance of redeemable common
stock warrants -- 1,300 1,300
Net income -- -- --
Accretion of temporary stockholders'
equity to estimated fair value 23,932 1,900 25,832
Dividends declared -- -- --
-------------- ---------- ----------
Balance, December 31, 1996 38,906 3,200 42,106
-------------- ---------- ----------
DDi
Balance, January 1, 1997 38,906 3,200 42,106
Accretion of temporary equity to fair value 38,094 3,150 41,244
Compensation expense on vesting
of options -- -- --
Equity exchanges, cancelations and
distributions to stockholders (77,000) (6,350) (83,350)
Issuance of common stock and contribution
of capital by Holdings -- -- --
Net loss -- -- --
-------------- ---------- ----------
Balance, December 31, 1997 -- -- --
-------------- ---------- ----------
Capital contribution from parent, net -- -- --
Dividends paid -- -- --
Net loss -- -- --
-------------- ---------- ----------
Balance, December 31, 1998 $ -- $ -- $ --
============== ========== ==========
DDi CAPITAL
Balance, January 1, 1997 38,906 3,200 42,106
Accretion of temporary equity to fair value 38,094 3,150 41,244
Compensation expense on vesting
of options -- -- --
Equity exchanges, cancelations and
distributions to stockholders (77,000) (6,350) (83,350)
Issuance of common stock and contribution
of capital by Holdings -- -- --
Net loss -- -- --
-------------- ---------- ----------
Balance, December 31, 1997 -- -- --
-------------- ---------- ----------
Capital contribution from parent, net -- -- --
Dividends paid -- -- --
Net loss -- -- --
-------------- ---------- ----------
Balance, December 31, 1998 $ -- $ -- $ --
============== ========== ==========
</TABLE>
(*) For the periods prior to October 28, 1997 (date of Recapitalization), DDi
Capital and DDi were identical (see Note 1). The accompanying notes are an
integral part of these consolidated financial statements.
F-5
<PAGE>
DDi CAPITAL AND DDi(*)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1996 1997 1997 1998 1998
-------------------- ------------- ------------- ------------- -------------
PRE-RECAPITALIZATION DDi DDi CAPITAL DDi DDi CAPITAL
COMPANY
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 12,356 $ (14,084) $ (18,600) $ (45,945) $ (50,657)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Write-off of acquired in-process
research and development - - - 39,000 39,000
Expense allocation from Parent - - - 719 719
Depreciation 2,047 2,568 2,568 9,212 9,212
Amortization of debt issuance costs
and discount 845 6,629 13,972 5,689 13,527
Amortization of goodwill and intangible assets - - - 10,899 10,899
Deferred income taxes (690) (1,875) (3,834) (419) (3,565)
Stock compensation expense - 21,271 21,271 - -
Change in operating assets and liabilities, net of
acquisitions:
Trade receivables (2,589) (2,249) (2,249) 196 196
Inventories (363) (397) (397) 5 5
Current income taxes - (7,889) (8,757) 4,744 4,744
Prepaid expenses and other (880) (905) (905) 3,622 3,642
Accounts payable 280 1,106 1,106 (3,943) (3,943)
Accrued expenses 1,152 4,924 4,924 (4,880) (4,880)
---------- ----------- ----------- ---------- ----------
Net cash provided by operating activities 12,158 9,099 9,099 18,899 18,899
---------- ----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (3,576) (6,000) (6,000) (15,925) (15,925)
Acquisition of NTI, less cash acquired - (38,948) (38,948) - -
NTI acquisition-related expenditures - - - (218) (218)
Acquisition of DCI, less cash acquired - - - (178,670) (178,670)
---------- ----------- ----------- ---------- ----------
Net cash used in investing activities (3,576) (44,948) (44,948) (194,813) (194,813)
---------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Bridge Loans - 85,000 140,000 - -
Repayment of Bridge Loans - (85,000) (140,000) - -
Proceeds from issuance of long-term debt 95,000 216,400 276,455 255,000 255,000
Payments on long-term debt (7,982) (99,300) (99,300) (106,089) (106,089)
Net borrowings on the revolving credit facility - - - 7,000 7,000
Payments of debt issuance and capital costs (3,920) (12,995) (19,469) (7,529) (7,529)
Payments of deferred note payable - - - (1,611) (1,611)
Principal payments on capital lease
obligations (365) (459) (459) (809) (809)
Cash dividends paid (6,618) (128) (128) (2,242) (2,242)
Proceeds from issuance of Old Common Stock
and convertible preferred stock 20,000 - - - -
Redemption of Old Common Stock (105,000) (188,143) (188,143) - -
Capital contribution from Parent, net - 125,682 72,101 32,822 32,822
Payments of escrow payable to
redeemed shareholders - - - (4,100) (4,100)
---------- ----------- ----------- ---------- ----------
Net cash provided by (used in)
financing activities (8,885) 41,057 41,057 172,442 172,442
---------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash (303) 5,208 5,208 (3,472) (3,472)
Cash and cash equivalents, beginning of year 472 169 169 5,377 5,377
---------- ----------- ----------- ---------- ----------
Cash and cash equivalents, end of year $ 169 $ 5,377 $ 5,377 $ 1,905 $ 1,905
---------- ----------- ----------- ---------- ----------
</TABLE>
* For the periods prior to October 28, 1997 (date of Recapitalization),
DDi Capital and DDi were identical (see Note 1 to the Consolidated Financial
Statements).
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DDi CAPITAL AND DDi
Notes To Consolidated Financial Statements
_____________________________________________________________________________
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The consolidated financial statements for the years ended December 31, 1998
and 1997 include the accounts of DDi Capital Corp. (f/k/a Details Capital
Corp.) ("DDi Capital") and its wholly-owned subsidiary Dynamic Details,
Incorporated and subsidiaries (f/k/a Details, Inc.) ("DDi"). As used herein,
the "Company" means DDi Capital and its wholly owned subsidiaries including
DDi or their predecessor entity as the context requires. The consolidated
financial statements of DDi include the accounts of its wholly owned
subsidiaries Colorado Springs Circuits Inc. (d/b/a NTI ("NTI")) commencing on
December 22, 1997 (date of acquisition) and Dynamic Circuits, Inc. ("DCI")
commencing on July 23, 1998 (date of acquisition). All intercompany
transactions have been eliminated in consolidation. DDi Capital became wholly
owned by DDi Holdings Corp., formerly Details Holdings Corp. ("Holdings"), by
virtue of a series of transactions related to the financing of the
recapitalization (the "Recapitalization") which are described below. In
connection with the acquisition of DCI as described in Note 12, DDi Capital
became a wholly owned subsidiary of DDi Intermediate Holdings Corp. ("DDi
Intermediate" or "Parent"), a wholly owned subsidiary of Holdings. The
December 31, 1996 consolidated financial statements represent the
consolidated financial statements of Holdings (the "Pre-Recapitalization
Company").
In connection with the Recapitalization, Details, Inc. changed its name to
Details Holdings Corp., incorporated Details as a wholly owned subsidiary and
contributed substantially all of its assets, subject to certain liabilities,
to Details. On November 19, 1997, Holdings organized Details Capital as a
wholly-owned subsidiary, and on February 10, 1998, contributed substantially
all its assets (including all of the shares of common stock of Details),
subject to certain liabilities, including the senior discount notes (as
described in Note 5, the "Discount Notes"), to Details Capital. Other than
the Discount Notes, related debt issue costs and deferred tax assets, all the
assets and liabilities of Details are those of Details Capital. The
transactions above were between entities under common control, and
accordingly, the historical basis of the assets and liabilities of Holdings,
Details Capital and Details were not affected. In addition, the Details
Capital consolidated financial statements have been prepared as if the
contribution of Holdings' assets and liabilities to Details Capital in
exchange for its common stock occurred in connection with the
Recapitalization.
Initial Recapitalization
On January 31, 1996, the Company was initially recapitalized (the "Initial
Recapitalization") through the redemption of 53% of its common stock for $105
million. The Company funded the redemption through the issuance of $95
million in debt and $20 million in equity securities. Chase Manhattan
Capital, L.P. and its affiliates ("CMC") was a significant shareholder
immediately after the Initial Recapitalization.
Recapitalization
On October 28, 1997, the Recapitalization of Holdings took place as follows:
(i) DI Acquisition Corp. ("DIA"), a transitory merger corporation, was
capitalized with a $62.4 million investment from (a) investment funds
associated with Bain Capital, Inc. ($46.3 million), (b) CMC ($11.2 million)
and (c) other investors ($4.9 million); (ii) DIA, which had no operations and
was formed solely for the purpose of effecting the Recapitalization, merged
with and into Holdings with Holdings surviving the merger; (iii) certain
stockholders and option holders of Holdings received an aggregate amount of
cash equal to approximately $184.3 million (plus future escrow payments of
approximately $8.6 million); (iv) CMC retained approximately 7.7% of the
fully diluted equity of Holdings, and certain other stockholders of Holdings
retained approximately 2.8%, of the fully-diluted equity of Holdings (in each
case after giving effect to the Recapitalization and related transactions);
(v) management retained approximately 17.1% (including certain options to
acquire shares of common stock of Holdings) of the fully-diluted equity of
Holdings and acquired additional shares and options to acquire additional
shares representing 10.4% of the fully-diluted equity of Holdings (in each
case after giving effect to the Recapitalization and related transactions);
(vi) the Company obtained $140 million of bridge loans and (vii) the Company
obtained borrowings under DDi's senior term facility (as described in Note 5,
the "Senior Term
F-7
<PAGE>
DDi CAPITAL AND DDi
Notes To Consolidated Financial Statements
_____________________________________________________________________________
Facility") of $91.4 million. The existing shareholders prior to the
Recapitalization retained in excess of 20% of the fully diluted common stock
of Holdings after the Recapitalization and, accordingly, push-down accounting
was not reflected in the accompanying consolidated financial statements as
permitted by Staff Accounting Bulletin No. 54 of the Securities and Exchange
Commission. The merger of DIA referred to above was reflected in the
accompanying consolidated financial statements as a Recapitalization and,
accordingly, the historical bases of the Company's assets and liabilities
were not affected.
NATURE OF BUSINESS
The Company designs, manufactures and sells printed circuit boards ("PCBs")
primarily to the domestic electronics industry. A significant portion of the
Company's sales are for the "quick-turn" and longer-lead segment of the PCB
industry. The Company also manufactures and markets backplanes and other
interconnects.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents - Management defines cash and cash equivalents as
highly liquid deposits with a remaining maturity of 90 days or less. The
Company maintains cash and cash equivalents balances at certain financial
institutions in excess of amounts insured by federal agencies. Management
does not believe that as a result of this concentration it is subject to any
unusual financial risk beyond the normal risk associated with commercial
banking relationships.
Inventories - Inventories include freight-in, materials, labor and
manufacturing overhead costs and are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) method.
Property, plant and equipment - Property, plant and equipment are stated at
cost or in the case of property, plant and equipment acquired through
business combinations, at fair value based upon allocated purchase price at
the acquisition date. Depreciation is provided over the estimated useful
lives of the assets, generally not exceeding 10 years, using both the
straight-line and accelerated methods. For leasehold improvements,
amortization is provided over the shorter of the estimated useful lives of
the assets or the lease term and included in the caption depreciation
expense.
Debt issue costs and debt discounts - The Company deferred certain debt issue
costs relating to the establishment of the Senior Term Facility, Senior
Acquisition Facility and New Senior Credit Facility (as described in Note 5),
the issuance of senior subordinated notes (as described in Note 5, the
"Senior Subordinated Notes") and the issuance of the Discount Notes. These
costs are capitalized and amortized over the expected term of the related
indebtedness using the effective interest method.
In 1997, the Company issued the Discount Notes at a discount. Discounts are
reflected in the accompanying balance sheets as a reduction of face value and
are amortized over the expected term of the related indebtedness using the
effective interest method. Amortization of the Discount Notes included as
interest expense of DDi Capital amounted to approximately $900,000 and $7.8
million for the years ended December 31, 1997 and 1998, respectively.
Goodwill - The Company amortizes the goodwill recorded as a result of the
acquisitions of NTI and DCI (see Note 12) on a straight-line basis over 25
years and 20 years, respectively from the acquisition date. Management
believes that the estimated useful lives established at the dates of each
such acquisitions were reasonable based on the economic factors applicable to
each of the businesses.
Identifiable intangibles - Identifiable intangibles represent assets acquired
through business combinations, and are stated at their fair values based upon
purchase price allocations as of the acquisition date. At December 31, 1998,
these assets are primarily comprised of developed technologies, customer
relationships/tradenames, and assembled workforce. The developed technology
assets are being charged to income over their estimated useful lives of 10
years, using an accelerated method of amortization, reflective of the
relative contribution of each developed technology in periods following the
acquisition date. The customer relationships/tradenames and assembled
workforce assets will be amortized on a straight-line basis over their
estimated useful lives of 18 years and 4 years, respectively.
F-8
<PAGE>
DDi CAPITAL AND DDi
Notes To Consolidated Financial Statements
_____________________________________________________________________________
Revenue recognition - The Company recognizes revenue from the sale of its
products upon shipment 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.
Concentration of Credit Risk - Financial instruments which potentially expose
the Company to concentration of credit risk consist principally of trade
accounts receivable. To minimize this risk, the Company performs ongoing
credit evaluations of customers' financial condition and maintains reserves;
the Company, however, generally does not require collateral. On a pro forma
basis (assuming the acquisition of DCI occurred at the beginning of 1998) for
the year ended December 31, 1998, no individual customer accounted for 10% or
more of the Company's net sales; and as of December 31, 1998, no individual
customer accounted for 10% or more of the Company's total accounts
receivable. In 1997 and 1996, a significant portion of the Company's sales
were made to two customers. One of these customers accounted for 13% of the
Company's total sales in 1997, with the second customer accounting for 10%.
For 1996, the same customers accounted for 16% and 9%, respectively, of the
Company's total sales. Accounts receivable from these two customers (on a
combined basis) accounted for approximately 35% of the Company's total
accounts receivable at December 31, 1997.
Environmental Matters - The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations and
from which no current or future benefit is discernible. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Company determines its
liability on a site by site basis and records a liability at the time when it
is probable and can be reasonably estimated. To date, such costs have not
been material (see Note 11).
Income taxes - The Company accounts for income taxes utilizing the asset and
liability method (see Note 10). The asset and liability method requires the
Company to record in its balance sheet deferred tax assets and liabilities
for expected future tax consequences of events that have been recognized in
different periods for financial statements versus tax returns. Management
provides a valuation allowance for net deferred tax assets when it is more
likely than not that a portion of such net deferred tax assets will not be
recovered through future operations. Subsequent to the Recapitalization, the
Company is included as part of the consolidated tax return filed by Holdings.
For financial statement purposes, each of DDi and DDi Capital has provided
for income taxes as if it were filing separately throughout the year.
Long-lived assets - The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Adoption of the standard
did not have any impact on the Company's financial condition, results of
operations, or cash flows. SFAS No. 121 requires that long-lived assets,
including goodwill, be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluates potential impairment by measuring the
carrying amount of the assets against the estimated undiscounted cash flows
associated with them.
Derivative Financial Instruments-The Company has only limited involvement
with derivative financial instruments. As of December 31, 1998, the Company
had entered into an interest rate exchange agreement to reduce the risk of
fluctuations in interest rates applicable to its New Senior Term Facility
(see Note 5). Amounts to be paid to/(received from) counterparties under
these agreements are reflected as increases/(decreases) to periodic interest
expense (see Note 6).
F-9
<PAGE>
DDi CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock Options - The Company has adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which establishes a fair value based method of
accounting for compensation cost related to stock option plans and other
forms of stock-based compensation plans. The Company has elected to provide
the pro forma disclosures as if the fair value based method had been
applied. In accordance with SFAS No. 123, the Company applies the intrinsic
value based method of accounting defined under Accounting Principles Board
Opinion No. 25 ("APB Opinion No. 25"), and accordingly, does not recognize
compensation expense for its plans to the extent employee options are issued
at exercise prices equal to or greater than the fair market value at the
date of grant.
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.
Reclassifications - Certain prior year amounts have been reclassified to
conform with the 1998 presentation.
Recently Issued Accounting Standards - In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes requirements for reporting
and disclosure of comprehensive income and its components. This statement
is effective for the Company's fiscal year ending December 31, 1998. At
December 31, 1998, the Company has no elements which give rise to reporting
comprehensive income.
In June 1997, the FASB also issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 modifies the
disclosure requirements for reportable operating segments. This statement
is effective for the Company's fiscal year ending December 31, 1998. This
pronouncement currently has had no significant impact on the reporting
practices of the Company since its adoption.
In addition, in June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and is effective for
the Company beginning with its fiscal quarter ending March 31, 2000. Based
upon the nature of the financial instruments and hedging activities in
effect as of the date of this filing, this pronouncement would require the
Company to reflect the fair value of its derivative instruments (see Note 6)
on the consolidated balance sheet. Changes in fair value of these
instruments will be reflected as a component of comprehensive income. The
Company will adopt SFAS No. 133 effective January 1, 2000.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
-------- --------
<S> <C> <C>
Raw materials $ 1,440 $ 6,628
Work-in-process 2,674 4,406
Finished goods 216 1,581
-------- --------
$ 4,330 $ 12,615
======== ========
</TABLE>
F-10
<PAGE>
DDi CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1998
-------- --------
(in thousands)
<S> <C> <C>
Building and leasehold improvements $ 7,611 $ 15,712
Machinery and equipment 24,859 61,441
Office furniture and equipment 3,795 8,352
Vehicles 156 240
Land -- 3,778
Deposits on equipment -- 2,712
-------- --------
36,421 92,235
Less: accumulated depreciation (10,289) (31,217)
-------- --------
$ 26,132 $ 61,018
======== ========
</TABLE>
Buildings and leasehold improvements include capital leases of
approximately $5.1 million with related accumulated depreciation of $964,000
and $1.5 million at December 31, 1997 and 1998, respectively. Machinery and
equipment includes capital leases of approximately $2.1 million and $4.2
million with related accumulated depreciation of $424,000 and $1.1 million
at December 31, 1997 and 1998, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
----------------- -----------------
DDi DDi Capital DDi DDi Capital
-------- ----------- -------- -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Senior Term Facility $ 81,089 $ 81,089 $ -- $ --
Senior Acquisition Facility 25,000 25,000 -- --
New Senior Term Facility -- -- 255,000 255,000
10.0% Senior Subordinated Notes 100,000 100,000 100,000 100,000
12.5% Discount Notes, face
amount $110,000 net of
unamortized discount of $49,032
and $41,195 at December 31,
1997 and 1998, respectively -- 60,968 -- 68,805
Other 23 23 -- --
-------- --------- -------- --------
206,112 267,080 355,000 423,805
Less: current maturities (1,939) (1,939) (3,263) (3,263)
-------- --------- -------- --------
$204,173 $ 265,141 $351,737 $420,542
======== ========= ======== ========
</TABLE>
SENIOR TERM FACILITY
Under the Senior Term Facility, $91.4 million was advanced to DDi in
connection with the Recapitalization on October 28, 1997. In November 1997,
$10.3 million was repaid with a portion of the proceeds from the Senior
Subordinated Notes. In July 1998, this facility was retired in connection
with the acquisition of DCI (see Note 12).
SENIOR ACQUISITION FACILITY
Under the Senior Acquisition Facility, $25.0 million was advanced to DDi in
connection with the NTI acquisition (see Note 12) on December 22, 1997. In
July 1998, this facility was retired in connection with the acquisition of
DCI (see Note 12).
NEW SENIOR CREDIT FACILITY
In connection with the acquisition of DCI (see Note 12), DDi entered into an
agreement with a co-syndication of banks, including Chase Manhattan Bank,
N.A. and Bankers Trust Company. Borrowings under this agreement consist of
the New Senior Term Facility and the Revolving Credit Facility
(collectively, the "New Senior Credit Facility"). Under the terms of this
agreement, DDi must comply with certain restrictive covenants, which include
the requirement that DDi meet certain financial tests. In addition, DDi is
restricted from making certain payments, including dividend payments to its
stockholders. The New Senior Credit Facility is jointly and severally
guaranteed by Intermediate and DDi Capital, and is pledged by substantially
all of the capital stock of DDi and certain of its subsidiaries. The New
Senior Credit Facility expires in April 2005.
New Senior Term Facility
------------------------
Under the New Senior Term Facility, $255 million ($105 million under Tranche
A and $150 million under Tranche B) was advanced to DDi in connection with
the acquisition of DCI (see Note 12) on July 23, 1998. Scheduled principal
and interest payments are due quarterly beginning June 30, 1999 (other than
with respect to the last installment, which is due on July 22, 2004 and
April 22, 2005 for Tranche A and Tranche B, respectively). Borrowings under
the New Senior Term Facility bear interest at a floating rate at DDi's
option at a rate equal to either (1) 2.25%, for Tranche A, and 2.50%, for
Tranche B, per annum plus the applicable LIBOR rate or (2) 1.25%, for
Tranche A, and 1.50%, for Tranche B, per annum plus the higher of (a) the
applicable prime lending rate of Chase Manhattan Bank (8.5% at December 31,
1998) or (b) the federal reserve reported overnight funds rate plus 1/2 of
1% per annum (the "Index Rate"). The applicable margin of 2.25% for Tranche
A is subject to reduction in accordance with an agreed upon pricing grid
based on decreases in the Company's consolidated leverage ratio, defined as
consolidated total debt to consolidated EBITDA (earnings before net interest
expense, income taxes, depreciation, amortization and extraordinary or non-
recurring expenses). As of December 31, 1998, the Company elected the LIBOR
rate (5.6% at December 31, 1998), reset monthly.
Revolving Credit Facility
-------------------------
DDi also has a $45.0 million Revolving Credit Facility which expires on July
22, 2004. Advances under the Revolving Credit Facility bear interest at
DDi's option at a rate equal to either (1) 2.25% per annum plus the
applicable LIBOR rate or (2) 1.25% per annum plus the Index Rate. In
addition, DDi is required to pay a fee of 1/2 of 1% per annum on the average
unused commitment under the Revolving Credit Facility. At December 31, 1998,
DDi had borrowings outstanding of $7.0 million on this Revolving Credit
Facility. The Company intends to paydown the balance from time-to-time,
therefore it is classified as current in the accompanying consolidated
balance sheet. As of December 31, 1998, the Company elected the LIBOR rate
(5.6% at December 31, 1998), reset monthly.
F-11
<PAGE>
DDI CAPITAL AND DDi
Notes To Consolidated Financial Statements
______________________________________________________________________________
SENIOR SUBORDINATED NOTES
Subsequent to the Recapitalization, on November 18, 1997, DDi issued $100
million of Senior Subordinated Notes. The Senior Subordinated Notes bear
interest at 10% per annum, payable semi-annually in arrears on each May
15 and November 15 of each year, through the maturity date on November
15, 2005.
Except as described below, DDi may not redeem the Senior Subordinated
Notes prior to November 15, 2001. Prior to November 15, 2000, however, up
to 40% of the Senior Subordinated Notes, at a redemption price of 110% of
the principal amount thereof, plus accrued and unpaid interest, may be
redeemed at DDi's option with the net proceeds of the sale in public
offerings of common stock of Holdings (provided that at least 60% of the
original principal amount of the Subordinated Notes remains outstanding
immediately after such redemption). On or after November 15, 2001, the
Senior Subordinated Notes may be redeemed at the option of DDi, in whole
or in part from time to time, at redemption prices ranging from 105% of
principal amount in the year ended November 15, 2001 to 100% of principal
amount subsequent to November 15, 2004, plus accrued and unpaid interest.
The Senior Subordinated Notes are guaranteed, on a senior subordinated
basis, jointly and severally, by DDi Capital and its wholly-owned
subsidiaries (the "Guarantors"). The Senior Subordinated Note indenture
also contains covenants that restrict the Guarantors from incurring
additional indebtedness and from making certain payments, including
dividend payments to its stockholders.
DISCOUNT NOTES
In 1997, subsequent to the Recapitalization, DDi Capital issued $110
million face amount at maturity (net proceeds of $60.1 million) of
Discount Notes of DDi Capital, as successor in interest to Holdings, were
issued. The Discount Notes are unsecured, senior obligations and will be
effectively subordinated to all future indebtedness and liabilities of
DDi Capital's subsidiaries. The Discount Notes begin bearing cash
interest of 12.5% at November 15, 2002, payable each May 15 and November
15 in arrears, through the maturity date of November 15, 2007.
F-12
<PAGE>
DDi CAPITAL AND DDi
Notes To Consolidated Financial Statements
_____________________________________________________________________________
Except as described below, DDi Capital may not redeem the Discount Notes
prior to November 15, 2002. Prior to November 15, 2000, however, up to
40% of the Discount Notes, at a redemption price of 112.5% of the
accreted principal amount thereof, plus accrued and unpaid interest, may
be redeemed at DDi Capital's option with the net proceeds of the sale in
public offerings of common stock of Holdings (provided that at least 60%
of the original principal amount of the Discount Notes remains
outstanding immediately after such redemption). On or after November 15,
2002, the Discount Notes may be redeemed at the option of DDi Capital, in
whole or in part from time to time, at redemption prices ranging from
106.25% of accreted principal amount in the year ended November 15, 2002
to 100% of accreted principal amount subsequent to November 15, 2005,
plus accrued and unpaid interest.
The Discount Note indenture also contains covenants that restrict the
Company from incurring additional indebtedness and from making certain
payments, including dividend payments to its stockholders.
DEBT ISSUE COSTS
In connection with obtaining the Senior Subordinated Notes and New Senior
Credit Facility, DDi incurred approximately $12.8 million in fees which
have been capitalized as debt issue costs. Additionally, in connection
with the issuance of the Discount Notes, DDi Capital incurred
approximately $3.5 million in debt issue costs. Accumulated amortization
as of December 31, 1998 and 1997 for DDi was approximately $1.4 million
and $208,000, respectively and for DDi Capital was approximately $1.5
million and $252,000, respectively. During 1997, certain debt was retired
and the net carrying amount of the related debt issue costs was written
off, resulting in an extraordinary loss of $1.6 million, net of related
income taxes of $1.1 million. During 1998, the Senior Term Facility and
the Senior Acquisition Facility were retired and the net carrying amount
of the related debt issue costs were written off, resulting in an
extraordinary loss of $2.4 million, net of related income taxes of $1.5
million.
CHANGE OF CONTROL
Upon a change in control, as defined in the Senior Subordinated Note and
the Discount Note indentures, DDi or DDi Capital may redeem the Senior
Subordinated Notes or the Discount Notes, respectively, in whole, but not
in part, before November 15, 2002 at 100% of principal in the case of the
Senior Subordinated Notes, or 100% of the accreted value in the case of
the Discount Notes, plus the applicable premium, as defined in the Senior
Subordinated Note and the Discount Note indentures, and accrued and
unpaid interest as of the date of redemption. In the event the Company
does not elect to redeem the notes prior to such date, each holder of the
Subordinated Notes and Discount Notes may require DDi or DDi Capital,
respectively, to repurchase all or a portion of such holder's notes at a
cash purchase price equal to 101% of the principal amount or the accreted
value, plus accrued and unpaid interest if any, to the date of
repurchase. The New Senior Credit Facility provides that the occurrence
of such a change in control constitutes an event of default, which could
require the immediate repayment of New Senior Credit Facility.
EXCHANGE OFFER
On March 24, 1998, DDi Capital and DDi consummated exchange offers of
previously unregistered Discount Notes and Senior Subordinated Notes
for registered notes (with terms identical in all material respects) on
Form S-4 under the Securities Act of 1933, as amended.
RELATED PARTY PAYMENTS
In connection with the Recapitalization and related transactions
subsequent thereto, CMC, a shareholder of Holdings, and its affiliates
Chase Manhattan Bank, N.A. ("Chase") and Chase Securities Inc. were paid
fees and expenses aggregating approximately $16 million and CMC and Chase
received common stock purchase warrants valued at approximately $3.4
million.
In conjunction with the acquisition of DCI, Chase acted as collateral,
co-syndication, and administrative agent with regard to the establishment
of the new credit agreement. In this capacity, Chase received $2.4
million in fees. Chase also participates as a lender in the syndication,
and is a counterparty to one of the Company's interest rate exchange
agreements, under terms similar to those of the other participants and
counterparties.
F-13
<PAGE>
DETAILS CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FUTURE PAYMENTS
As of December 31, 1998, the scheduled future annual principal payments of
long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DDi
DECEMBER 31, DDi CAPITAL
------------- --------
(in thousands)
<S> <C> <C>
1999 $ 3,263 $ 3,263
2000 5,925 5,925
2001 19,838 19,838
2002 25,875 25,875
2003 32,175 32,175
Thereafter 267,924 377,924
-------- --------
$355,000 $465,000
======== ========
</TABLE>
6. DERIVATIVES
Pursuant to its interest rate risk management strategy and to certain
requirements imposed by the Company's New Senior Credit Facility (see Note
5), the Company entered into two interest rate exchange agreements ("Swap
Agreements"), effective October 1, 1998. Together these agreements
represent an effective cash flow hedge of the variable rate of interest (1-
month LIBOR) paid under the New Senior Term Facility, minimizing exposure
to increases in interest rates related to this debt over its scheduled
term. Under the Swap Agreements, the Company received a variable rate of
interest (1-month LIBOR) and paid a fixed rate of interest (blended annual
rate of 5.27%). These rates are applied to a notional amount ($255 million
from October 1 through December 31, 1998) which decreases at such times,
and in such amounts, as to conform with the principle outstanding under the
New Senior Term Facility through its scheduled maturity in 2005. The
Company anticipates that the Swap Agreements will continue to represent an
effective cash flow hedge over the life of the term loan. Counterparty risk
is limited to amounts to be reflected in the Company's consolidated balance
sheet. This risk is minimized and is expected to be immaterial to the
Company's consolidated results of operations as the Swap Agreements provide
for monthly settlement of the net interest owing. Further, each
counterparty to the Swap Agreements carries at least a "single-A" credit
rating. The impact of the Swap Agreements on the Company's interest expense
was not material.
In January 1999, the Company and each counterparty agreed to modify certain
features of the Swap Agreements. In return for a reduction in the blended
fixed rate of interest paid by the Company (to 4.96% per annum), the
counterparties were granted the option to terminate their respective
agreements on January 31, 2002. Unless terminated at that time, the
agreements will continue through their original maturity. All other terms
of the original agreements remain in effect.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments including cash, accounts
receivable, accounts payable, accrued liabilities and variable rate debt
approximate book value as of December 31, 1997 and 1998. The carrying value
for the fixed rate Senior Subordinated Notes and the Discounts Notes was
established based on market conditions at the time the debt was issued and
through December 31, 1997, such market conditions had not changed
significantly. As of December 31, 1998, the fair value of the Company's
Senior Subordinated Notes, Discount Notes and interest rate swaps were
different from their carrying values. The fair values of the Company's
Senior Subordinated Notes and Discount Notes are estimated based on their
quoted market prices. The fair value of the Company's interest rate swaps
is based on the difference between the Company's interest rate as
determined by the Swap Agreements and the market interest rate for swaps
with the same contractual terms as of December 31, 1998.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------ ------------------
(in thousands)
<S> <C> <C> <C> <C>
Variable rate debt:
Revolving Credit Facility $ -- $ -- $ 7,000 $ 7,000
Senior Term Facility $ 81,089 $ 81,089 $ -- $ --
Senior Acquisition Facility $ 25,000 $ 25,000 $ -- $ --
New Senior Term Facility $ -- $ -- $255,000 $255,000
Fixed rate debt:
10% Senior Subordinated Notes $100,000 $100,000 $100,000 $ 96,000
12 1/2% Discount Notes $ 60,968 $ 60,968 $ 68,805 $ 61,600
Swap Agreements $ -- $ -- $ -- $ (1,081)
</TABLE>
8. CAPITAL LEASE OBLIGATIONS
The Company leases certain facilities and equipment under capital lease
obligations bearing implicit interest rates ranging from 8% to 12%. The
terms of the lease require monthly payments of approximately $152,000
including interest at December 31, 1998. Certain leases contain an option
for the Company to renew for an additional term at the end of the initial
term and an option to purchase the facilities and equipment at their fair
values at the end of the initial term and at the end of the second term.
FUTURE PAYMENTS
Aggregate annual maturities of capital lease obligations are as follows:
<TABLE>
<CAPTION>
PRESENT
TOTAL LESS AMOUNT VALUE OF NET
YEAR ENDING MINIMUM LEASE REPRESENTING MINIMUM LEASE
DECEMBER 31, PAYMENTS INTEREST PAYMENTS
(in thousands)
<S> <C> <C> <C>
1999 $ 1,831 $ 704 $ 1,127
2000 1,831 723 1,108
2001 1,831 582 1,249
2002 1,520 616 904
2003 1,298 475 823
Thereafter 2,719 390 2,329
----------- ----------- ----------
$ 11,030 $ 3,490 $ 7,540
=========== =========== ==========
</TABLE>
9. STOCKHOLDERS' EQUITY
Common Stock, Preferred Stock and Additional Paid-in Capital of
Pre-Recapitalization Company
On January 31, 1996, the Company redeemed 8,162 shares of its common stock
("Old Common") from its sole stockholder for $105 million in connection
with its Initial Recapitalization. The Company funded this redemption
through the issuance of $95 million of senior debt, the issuance of
6,671 shares of convertible preferred stock and 2,509 shares of Old Common.
As part of
F-14
<PAGE>
DETAILS CAPITAL AND DDi
Notes To Consolidated Financial Statements
_______________________________________________________________________________
the senior debt issuance, $15 million of subordinated debt and warrants
to acquire 706 shares of Old Common at a nominal price were issued (the
warrants were valued at $1.3 million at the time of issuance and recorded as
a discount on the subordinated debt). The warrants contained a "clawback"
provision which required the holders of the warrants to surrender up to 282
shares of common stock underlying 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 canceled warrants to purchase 141 shares of Old
Common stock. After five years, the warrant holders had the right to have the
Company redeem shares of common stock underlying the warrants at fair
value. In addition, the sole stockholder had the right to put back to the
Company, for cash, his remaining 6,959 shares of Old Common at fair value
upon the earlier of January 2002 or 90 days after the full payment of the
senior debt. Due to the existence of the put option, for both the common
shares and common stock purchase warrants, the estimated fair value of these
shares was accreted to estimated fair value and was classified as temporary
stockholders' equity. On January 31, 1996, the estimated fair value of the
Old Common was approximately $2,179 per share, at December 31, 1996 was
approximately $5,590 per share and at the date of the Recapitalization was
approximately $11,308.
At December 31, 1996 and immediately prior to the Recapitalization, the
Company's stockholders' equity consisted of the following: (i) 100,000
authorized shares of no par value Old Common with approximately 9,717 shares
outstanding (includes 6,959 redeemable Old Common shares classified as
temporary stockholders' equity); (ii) 100,000 authorized shares of no par
value convertible preferred stock with approximately 6,601 shares
outstanding. The Old Common, preferred stock and common stock purchase
warrants were canceled as part of the Recapitalization.
Stock options
Prior to the Recapitalization, the Company had two stock option plans, the
1996 Performance Stock Option Plan (the "1996 Stock Option Plan") and the
1996 Employee Stock Option Plan (the "1996 Employee Plan"), together the
"1996 Option Plans." The term of the options under these plans is ten years
from the date of grant. Under the 1996 Option Plans, the Board granted
options to acquire approximately 1,950 shares of Old Common, at an exercise
price of approximately $2,179 per share. All stock options issued under these
plans were accounted for as variable awards. Accordingly, the difference
between the exercise price and the estimated market price of the stock was
recorded as compensation when the number of shares was known. Although there
was 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. Immediately prior to the Recapitalization, Holdings
accelerated the vesting of all outstanding options (totaling approximately
1,950 shares) to purchase shares of its Old Common making all such options
immediately exercisable. In connection therewith, the Company recorded $21.2
million of compensation expense in 1997 based on the difference between the
estimated fair value of underlying Old Common and the option exercise price
and $10 million of compensation expense for bonuses payable to employees to
cover the employees' taxes upon the exercise of these options in conjunction
with the Recapitalization.
During 1997 and 1998, there were no grants, exercises, forfeitures, or
expirations of options under either the 1996 Stock Option Plan or the 1996
Employee Plan. As of December 31, 1998, the options outstanding under both of
these plans had remaining weighted-average contractual terms of approximately
eight years.
In 1997, Holdings adopted its 1997 Details, Inc. Equity Incentive Plan (the
"1997 Employee Stock Option Plan"), authorizing the grant of options to
certain management of the Company to purchase 235,000 shares of Class A
Common. The term of the options under this plan is ten years from the date of
grant. Options granted under this plan vest in equal monthly amounts over
four years, with immediate vesting upon a change in control or sale of all of
the assets of the Company. Under this plan, the Board authorized an aggregate
of 235,000 options to purchase shares of Class A Common. Of this amount,
117,500 options have an exercise price of $5.00 ("$5 Options"), with the
remaining 117,500 options having an exercise price of $61.17 ("$61 Options").
In 1997, 116,145 of the $5 Options and 116,145 of the $61 Options were
granted. For all options granted under this plan in 1997, the exercise prices
were in excess of estimated fair value. All of the $5 Options and none of the
$61 Options were exercised in 1997. None of the granted options were
forfeited or expired in 1997. As of December 31, 1998, 1,355 of the $5
Options and the $61 Options each remained ungranted. During 1998, there were
no grants, exercises, forfeitures, or expiration of options under this plan.
As of December 31, 1998, the options outstanding under this plan had a
remaining weighted-average contractual term of approximately 9 years.
Had compensation costs for the stock options issued under the 1996 Stock
Option Plan, 1996 Employee Plan and the 1997 Employee Stock Option Plan been
determined based on the grant date fair values as required by SFAS No. 123,
there would have been no significant effect on the Company's reported net
income (loss) for the periods presented. Fair value was estimated using the
minimum-value method, a risk-free interest rate of 7.1% and 6.5% for 1996
and 1997, respectively,
F-15
<PAGE>
DETAILS CAPITAL AND DDi
Notes To Consolidated Financial Statements
_____________________________________________________________________________
and an expected life of five years. No dividends were assumed to be
declared. The weighted average fair value per option (computed using the
minimum-value method) of the stock options granted in 1996 and 1997 was nil.
In connection with the DCI acquisition (see Note 12), the Board of Directors
adopted, and the stockholders of Holdings approved, the Details Holdings
Corp.-Dynamic Circuits 1996 Stock Option Plan ("DCI 1996 Plan") and the
Details Holdings Corp.-Dynamic Circuits 1997 Stock Option Plan ("DCI 1997
Plan"), together the "DCI Stock Option Plans", which authorized the granting
of stock options and the sale of Class A Common and Class L Common in
connection with the DCI acquisition. The terms applicable to options issued
under the DCI Stock Option Plans are substantially similar to the terms
applicable to the options to purchase shares of DCI outstanding immediately
prior to the DCI acquisition. These terms include vesting from the date of
acquisition through 2002. An optionholder's scheduled vesting is dependent
upon continued employment with the Company. Upon termination of employment,
any unvested options as of the termination date are forfeited. During 1998,
the Company recorded no compensation expense relating to the granting of
options under the DCI Stock Option Plans.
In connection with the DCI acquisition, Holdings converted each DCI stock
option award into the right to receive a cash payment and an option to
purchase shares of Class A Common and shares of Class L Common. The options
granted bear exercise prices of either $1.58 ("$1.58 Options"), $61.17 ("$61
Options") for the purchase of Class A shares, and $364.09 for Class L Shares
("Class L Options"). The Board is authorized to sell or otherwise issue
Class A Common and Class L Common at any time prior to the termination of
the applicable DCI 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 222,600 shares of Class A Common and 28,300 shares of Class
L Common, in the case of the DCI 1996 Plan, and 46,000 shares of Class A
Common and 5,850 shares of Class L Common in the case of the DCI 1997 Plan
(in each case, 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). Under the terms
of the DCI Stock Option Plans, however, no options may be granted after the
acquisition date. Accordingly, there are currently no options to purchase
shares of Class A Common and no options to purchase shares of Class L Common
available for grant under the DCI Stock Option Plans. The maximum term of
the options under the DCI 1996 Plan is August 2006 and under the DCI 1997
Plan is March 2008. As of December 31, 1998, all options outstanding under
the DCI Stock Option Plans had weighted average remaining contractual lives
of approximately eight years.
Stock option activity for the period July 23, 1998 (date of DCI acquisition)
through December 31, 1998 is as follows:
<TABLE>
<CAPTION>
$1.58 Options $61 Options Class L Options
-------------------- -------------------- --------------------
Exercise Number of Exercise Number of Exercise Number of
Price Shares Price Shares Price Shares
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 23, 1998 (date of acquisition) $ 1.58 255,778 $ 61.17 13,948 $ 364.09 32,479
Granted - - - - - -
Exercised $ 1.58 (116,953) - - - -
Forfeited $ 1.58 (3,318) $ 61.17 (190) $ 364.09 (442)
-------- --------- -------- --------- -------- ---------
Balance at December 31, 1998 $ 1.58 135,507 $ 61.17 13,758 $ 364.09 32,037
======== ========= ======== ========= ======== =========
Options exercisable as of December 31, 1998 14,770 7,183 16,726
========= ========= =========
</TABLE>
Pro-forma information regarding net income or loss has been determined for
the Company as if compensation costs for the stock options issued under the
DCI Stock Option Plans had been determined based upon the grant date fair
values. Fair value was estimated using the minimum-value method, a risk-free
interest rate of 5.6% and an expected life of 3 months for $1.58 Options or
two years for both $61 Options and Class L Options. No dividends were
assumed to be declared. The weighted-average fair value per option of the
stock options granted under the DCI Stock Option Plans in 1998 was as
follows:
<TABLE>
<CAPTION>
Value per
Option category Option
--------------- ---------
<S> <C>
$1.58 Options $0.18
$61 Options Nil
Class L Options $38.58
</TABLE>
The Company's 1998 pro-forma net loss before extraordinary items is as
follows (amount in millions):
<TABLE>
<CAPTION>
DDi
DDi Capital
----------------
<S> <C> <C>
As Reported $(43.5) $(48.2)
Pro-forma $(43.9) $(48.6)
</TABLE>
Recapitalization
In connection with the Recapitalization, Holdings accelerated the vesting of
all outstanding options to purchase shares of its Old Common and made such
options immediately exercisable. Certain members of management then
exercised approximately 1,374 options granted under the 1996 Stock Option
Plan, to purchase an equal number of shares of Old Common. In addition, the
convertible preferred stock and the Old Common purchase warrants were
converted into 565 shares of Old Common. Holdings then: (i) redeemed and
canceled approximately 16,232 shares of Old Common and options to purchase
64 shares of Old Common options granted under the 1996 Employee Plan at a
redemption price of approximately $11,308 per share, plus future escrow
payments estimated at $508 per share or $8.6 million in the aggregate at
December 31, 1997, payable by March 31, 1999; (ii) canceled all remaining
options authorized but ungranted under the 1996 option plans; (iii)
converted the remaining approximately 1,938 shares of Old Common into
approximately 438,326 shares and approximately 54,175 shares of Class A
Common and Class LsCommon, respectively, of Holdings and (iv) converted the
remaining approximately 513 unexercised options to purchase shares of Old
Common into options to purchase approximately 116,158 shares and
approximately 14,357 shares of Class A Common and Class L Common,
respectively, of Holdings. The escrow payment described above represents the
distribution by the Company to all shareholders of record as of the
Recapitalization date, the income tax benefit received by the Company as a
result of the compensation expense recorded for the accelerated vesting of
options to purchase shares of Old Common.
Common stock and additional paid-in capital
Subsequent to the above shareholder transactions, Holdings incorporated
DDi with 100 shares and contributed capital of $138.7 million,
consisting primarily of the assets of Holdings, subject to certain
liabilities, excluding the Discount Notes and related financing fees. In
addition, subsequent to the Recapitalization, Holdings incorporated DDi
Capital with 1,000 shares of common stock and contributed capital of $88.6
million, consisting primarily of all of the shares of capital stock of
DDi subject to certain liabilities, including the Discount Notes and
related financing fees of Holdings. Included in contributed capital above
are shares of Holdings common stock issued to certain employees in
connection with the NTI acquisition, valued at approximately $52,000. At
December 31, 1998 and 1997, DDi and DDi Capital had 100 and 1,000 shares,
respectively, of $0.01 par value common stock, authorized, issued and
outstanding.
Capital contributions
Concurrent with Holdings' acquisition of DCI (see Note 12), Holdings
contributed the capital stock of DCI to DDi. Accordingly, DDi recorded a
capital contribution of approximately $106 million in 1998 representing the
$73 million in equity consideration provided by Holdings in the acquisition,
plus the $33 million generated by Intermediate's issuance of senior discount
notes.
10. 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 was imposed at a 1.5% rate. The Company's stockholder terminated this
election effective on February 1, 1996.
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.
F-16
<PAGE>
DETAILS CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The provision (benefit) for income taxes in 1996, 1997 and 1998 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- -------------------------- -------------------------
PRE-RECAPITALIZATION DDi DDi
COMPANY DDi CAPITAL DDi CAPITAL
-------------------- -------------------------- -------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 6,955 $ (4,397) $ (5,224) $ -- $ --
State -- -- -- 666 666
Foreign -- 150 150 -- --
-------- -------- -------- ----- -------
6,955 (4,247) (5,074) 666 666
-------- -------- -------- ----- -------
Deferred:
Federal (690) (2,226) (3,657) (76) (2,509)
State -- (1,557) (2,127) (119) (832)
Foreign -- -- -- -- --
-------- -------- -------- ----- -------
(690) (3,783) (5,784) (195) (3,341)
-------- -------- -------- ----- -------
$ 6,265 $ (8,030) $(10,858) $ 471 $(2,675)
======== ======== ======== ===== =======
</TABLE>
In connection with the acquisitions of NTI and DCI, the Company acquired
certain net deferred tax assets of approximately $1.2 and $1.3 million,
respectively.
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- -------------------------
DDi DDi
DDi CAPITAL DDi CAPITAL
-------------------------- -------------------------
(in thousands)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,416 $ 4,060 $ 2,784 $ 4,354
Trade receivables 159 159 1,930 1,930
Deferred compensation 3,007 3,007 5,485 5,485
AMT credits 327 327 327 327
Accrued liabilities 268 268 2,843 6,347
Amortization -- 357 27 27
Other 62 62 172 172
------- ------- -------- --------
6,239 8,240 13,568 18,642
Deferred tax liabilities -
Property, plant and equipment (530) (530) (2,289) (2,289)
Intangible assets -- -- (34,341) (34,341)
------- ------- -------- --------
(530) (530) (36,630) (36,630)
------- ------- -------- --------
Net deferred tax assets/(liabilities) $ 5,709 $ 7,710 $(23,062) $(17,988)
======= ======= ======== ========
</TABLE>
The tax effect related to the extraordinary item (see Note 12) is deferred U.S.
tax and it approximates the U.S. Statutory tax rate.
F-17
<PAGE>
DETAILS CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The income tax provision (benefit) differs from the amount of income tax
determined by applying the U.S. Federal income tax rate to income (loss)
before income taxes due to the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
-------------------- ----------------------- -----------------------
(in thousands)
PRE-RECAPITALIZATION DDi DDi
COMPANY DDi CAPITAL DDi CAPITAL
<S> <C> <C> <C> <C> <C>
Computed "expected" tax expense (benefit) $6,517 $(6,979) $ (9,476) $(15,071) $(17,821)
Increase (decrease) in income taxes
resulting from:
State taxes, net of credits 981 (1,135) (1,591) 356 (108)
Effect of change in tax status (297) -- -- -- --
Income not subject to Federal corporate tax (996) -- -- -- --
Goodwill amortization -- -- -- 1,320 1,320
In-process research and development write-off -- -- -- 13,650 13,650
Other 60 84 209 216 284
------ ------- -------- -------- --------
$6,265 $(8,030) $(10,858) $ 471 $ (2,675)
====== ======= ======== ======== ========
</TABLE>
The Company has Federal, California and Colorado net operating loss ("NOL")
carryforwards of approximately $10.2 million, $16 million and $5.3 million,
respectively, at December 31, 1998. The Federal NOL carryforwards begin to
expire in 2012, the California NOL carryforwards begin to expire in 2002,
and the Colorado NOL carryforwards begin to expire in 2012. If certain
substantial changes in the Company's ownership should occur, there would be
an annual limitation on the amount of the carryforwards which can be
utilized.
11. Commitments and Contingencies
Environmental matters - The Company's operations are regulated under a
number of federal, state, and local 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.
Employment Agreements - Pursuant to certain employment agreements dated
September 1, 1995, as amended, effective until October 28, 2000, certain
members of senior management are entitled to receive future annual base
salaries in the aggregate amount of $1.3 million in 1999. The base salaries
on or after January 1, 2000 will be established by DDi at a level that
equals or exceeds base salaries for 1999. These employees are eligible for
annual bonuses based upon the achievement of EBITDA targets. These
employees also received an aggregate of 10,367 shares of Class A Common of
Holdings on the Recapitalization closing date. In connection with this
stock bonus, the Company recorded compensation expense of approximately
$52,000, based upon a fair market value per share of Class A Common of
Holdings of $5 per share. In addition, these employees will be entitled to
receive an additional bonus in the aggregate amounts of $2.4 million in
consideration of prior services which will be payable on the third
anniversary of the Recapitalization whether or not such employee is still
employed by the Company. The Company accrued these bonuses at their present
value and the charge was included in the results of operations during the
year ended December 31, 1997.
In addition, pursuant to an employment agreement dated July 23, 1998, a
certain key employee is entitled to receive a salary of approximately
$445,000 in 1999. In addition, this key employee is eligible to receive an
annual bonus based upon achievement of EBITDA targets. During 1998, this
key employee received an award, pursuant to the agreement, of 39,008 Class
A Cash Bonus units valued at $1.5725 per unit and 4,953.3 Class L Cash
Bonus units valued at $363.2381 per unit. The cost of this award was
classified as goodwill as part of the purchase price allocation in the
acquisition of DCI (see Note 12).
F-18
<PAGE>
DETAILS CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Management Agreement - Pursuant to a management agreement among Bain
Capital Partners V, L.P. ("Bain"), Holdings and DDi (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 is entitled to receive a fee equal to approximately 1% of the gross
purchase price of any senior financing transaction in connection with an
acquisition, recapitalization or refinancing transaction (including assumed
debt). In connection with the Recapitalization, NTI acquisition and DCI
acquisition, Bain was paid fees of approximately $3.1 million,
approximately $380,000, and approximately $2.7 million, respectively. The
Management Agreement continues 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.
Operating Leases - The Company has entered into various operating leases
principally for office space and equipment that expire at various dates
through 2006. Future annual minimum lease payments under all non-cancelable
operating leases with initial or remaining terms of one year or more
consist of the following at December 31, 1998):
YEAR ENDING
DECEMBER 31, (in thousands)
1999 $ 2,145
2000 2,146
2001 1,972
2002 1,344
2003 914
Thereafter 976
----------
Future minimum lease payments $ 9,497
==========
Rent expense for 1998 was approximately $1.5 million and was not
significant in 1997 and 1996.
Litigation - 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, results of operations or cash flows.
Retirement Plans - The Company has adopted a 401(k) plan which became
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. In 1997, no employer matching contributions were required to
be made by the Company. In 1998, the Company amended the plan to match
employee contributions at $0.25 per $1.00 contributed, subject to a maximum
of $750 per employee participant. For plan year ended December 31, 1998
employer contributions totaled $145,000.
12. ACQUISITIONS
On December 22, 1997, the Company acquired all of the outstanding shares of
common stock of NTI and on July 23, 1998, pursuant to a Stock Contribution
and Merger Agreement, the Company consummated the acquisition of DCI ("DCI
Acquisition"). Both acquisitions were accounted for as purchases in
accordance with Accounting Principles Board Opinion No. 16 and accordingly,
the results of operations since the dates of acquisition are included in
the accompanying consolidated financial statements.
NTI was purchased for approximately $38.9 million including the assumption
of approximately $7.4 million of NTI's debt. 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 the $25 million Senior Acquisition Facility borrowing under the Senior
Term Facility in place at that time. The outstanding borrowing under this
facility was retired in connection with the acquisition of DCI. The NTI
purchase price was allocated to assets acquired and liabilities assumed and
the excess purchase price of approximately $27 million was allocated to
goodwill. Accumulated amortization as of December 31, 1997 and 1998 was
$25,000 and $1.1 million, respectively.
The DCI Acquisition was completed for aggregate consideration of
approximately $250 million, including the assumption of approximately
$72.3 million of DCI's debt, and consisted of a partial redemption, by
way of a merger, of DCI's outstanding capital stock for cash with the
remaining capital stock being contributed to Holdings in exchange for
shares and options to purchase shares of the voting common stock of
Holdings (estimated value of approximately $73 million). The capital stock
of DCI received by Holdings was concurrently contributed through
Intermediate and through DDi Capital to DDi. The DCI Acquisition was
financed with a new $300 million senior bank facility (New Senior Credit
Facility) and by $33 million of newly issued senior discount notes of
Intermediate. In connection with the new financing, DDi used $106 million
of the proceeds to retire all of its existing senior term debt, which
resulted in an extraordinary loss of $2.4 million, net of related income
taxes of $1.5 million.
The DCI purchase price was allocated to tangible assets (aggregating
approximately $65 million) acquired and liabilities assumed (aggregating
approximately $30 million), with the remaining purchase price consisting
primarily of goodwill, identifiable intangible assets, and acquired in-
process research and development ("in-process R&D").
Significant portions of the DCI purchase price were identified as
intangible assets. Valuation techniques were employed which reflect recent
guidance from the Securities and Exchange Commission on approaches and
procedures to be followed in developing allocations to in-process R&D. At
the date of acquisition, technological feasibility of the in-process R&D
projects had not been reached and the technology had no alternative future
uses. Accordingly, the Company expensed the portion of the purchase price
allocated to in-process R&D of $39 million, in accordance with generally
accepted accounting principles, in the year ended December 31, 1998.
The in-process R&D is comprised of a number individual technological
development efforts, focusing on the discovery of new, technologically
advanced knowledge and more complete solutions to customer needs, the
conceptual formulation and design of possible alternatives, as well as the
testing of process and product cost improvements. Specifically, these
technologies include efforts to: increase maximum PCB layer count, reduce
line and space tolerances, develop specialty surface finishes and
materials, use new and innovative applications of micro blind vias,
embedded circuitry, and flexible circuit applications, develop
"intelligent" (active) backpanels, and develop automation to integrate and
automate the entire workflow process.
The amount of the purchase price allocated to in-process R&D was determined
by estimating the stage of completion of each in-process R&D project at the
date of acquisition, estimating cash flows resulting from the future
release of products employing these technologies, and discounting the net
cash flows back to their present values.
The weighted average stage of completion for all projects, in aggregate,
was approximately 75% as of the acquisition date. As of that date, the
estimated remaining costs to bring the projects under development to
technological feasibility are over $2 million. The cash flow estimates
from sales of products incorporating those technologies commence in the
year 1999, with revenues increasing for several years following the
acquisition, followed by declines in subsequent periods as other new
products are expected to be introduced and represent a larger proportion of
the total product offering. Revenues forecasted in each period are reduced
by related expenses, capital expenditures, the cost of working capital, and
an assigned contribution to the core technologies serving as a foundation
for the research and development. The discount rates applied to the
individual technology's net cash flows ranged from 18% to 24%, depending on
the level of risk associated with a particular technology and the current
return on investment requirements of the market. These discount rates
reflect "risk premiums" of 20% to 60% over the estimated weighted average
cost of capital of DCI of 15%.
As discussed above, a portion of the DCI purchase price premium was
allocated to identifiable intangibles and goodwill. The identifiable
intangibles consist primarily of developed technologies, customer
relationships/tradenames, and assembled workforce. The fair value of the
developed technology assets at the date of acquisition was $60 million and
represents the aggregate fair value of individually identified technologies
that were fully developed at the time of acquisition. As with the in-
process R&D, the developed technologies were valued using a future income
approach, in context of the business enterprise value of DCI. The customer
relationships/tradenames and assembled workforce assets were assigned
values as of the acquisition date of approximately $21 million and $4
million, respectively.
Goodwill generated in the acquisition of DCI has an assigned value of
approximately $120 million. As of December 31, 1998, the accumulated
amortization related to this goodwill and identifiable intangibles acquired
in the acquisition of DCI was approximately $9.8 million.
Certain investment funds associated with Bain Capital, Inc. (the "Bain
Capital Funds"), the controlling shareholders of Holdings, were
shareholders of DCI prior to the Company's July 1998 acquisition of DCI. In
conjunction with the acquisition, the Bain Capital Funds received $22.9
million for the redemption of the DCI common stock it held prior to
consummation of the acquisition.
In connection with the DCI acquisition and related transactions, Celerity
Partners, L.L.C. and its affiliates were paid fees and expenses aggregating
approximately $1.7 million. Celerity Partners, L.L.C. is the general
partner of Celerity Partners I, L.P., which is the managing member of
Celerity Details, L.L.C., Celerity Liquids, L.L.C. and Celerity Circuits,
L.L.C., which are each stockholders of Holdings.
F-19
<PAGE>
DETAILS CAPITAL AND DDi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. Unaudited Pro Forma Information
The accompanying unaudited condensed consolidated statements of operations
include: (a) the accounts of NTI which was acquired in December 1997, and
the effects of the Recapitalization for the year ended December 31, 1997
and (b) the accounts of DCI for the period July 24, 1998 through December
31, 1998. The following pro forma information for the years ended December
31, 1998 and 1997 presents net sales and net loss before extraordinary item
for each of these periods as if these transactions were consummated at the
beginning of each period. In addition, the actual results of operations for
the year ended December 31, 1998 include a $39 million write-off of
acquired in-process research and development related to the acquisition of
DCI. This one time charge has been excluded from pro forma results.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
December 31, 1998 December 31, 1997
----------------- -----------------
(in millions) (in millions)
<S> <C> <C>
Net Sales:
-DDi $261 $254
-DDi Capital $261 $254
Net Loss Before Extraordinary Item:
-DDi $ (7) $ (6)
-DDi Capital $(12) $(10)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
actual results which have been realized had the acquisition actually
occurred at the beginning of each respective periods.
14. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1997 1998 1998
----------------------- ----------- ------------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
PRE-RECAPITALIZATION DDi DDi DDi DDi
CASH PAYMENTS FOR: COMPANY CAPITAL CAPITAL
Income taxes $ 7,639 $ -- $ -- $ 1,743 $ 1,743
=========== =========== ============= =========== ========
Interest $ 7,774 $11,552 $11,552 $ 25,773 $ 25,773
=========== =========== ============= =========== ========
SUPPLEMENTAL SCHEDULE OF INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred for
acquisition of property and equipment $ 6,615 $ 646 $ 646 $ 1,864 $ 1,864
----------- ----------- ------------- ---------- --------
Value of warrants issued in consideration
of debt financing $ 1,300 $ -- $ 3,420 $ -- $ --
----------- ----------- ------------- ---------- --------
Equity contribution from parent $ -- $ -- $ -- $ 73,246 $ 73,246
----------- ----------- ------------- ---------- --------
</TABLE>
Recapitalization - As part of the Recapitalization (see Notes 1 and 5): (i)
the existing shareholders of the Pre-Recapitalization Company exchanged
their shares of Old Common (recorded value of $8.0 million) for Class A and
L common stock of Holdings (aggregate fair value of $21.9 million), and
(ii) certain executives of the Pre-Recapitalization Company exchanged their
options to purchase shares of Old Common (recorded value of $5.0 million)
for replacement options to purchase Class A and L common stock of Holdings
(aggregate fair value of $5.0 million).
15. Supplemental Guarantor Condensed Consolidated Financial Data
Subsequent to the Recapitalization, on November 15, 1997, Dynamic Details,
Incorporated, issued $100 million aggregate principal amount of 10% Senior
Subordinated Notes due in 2005 (see Note 5). The Senior Subordinated Notes
are fully and unconditionally guaranteed on a senior subordinated basis,
jointly and severally, by Dynamic Details, Incorporated (the "Issuer") and
all of its wholly-owned subsidiaries (the "Subsidiary Guarantors").
The condensed financial data of the Issuer is presented below and should be
read in conjunction with the Consolidated Financial Statements of DDi.
Separate financial data of the Subsidiary Guarantors are not presented
because (i) the Guarantors are wholly-owned and have fully and
unconditionally guaranteed the Notes on a joint and several basis and (ii)
the Company's management has determined such separate financial data are
not material to investors and believes the condensed financial data of the
Issuer presented is more meaningful in understanding the financial position
of the Company.
<TABLE>
<CAPTION>
SUPPLEMENTAL DYNAMIC DETAILS, INCORPORATED CONDENSED FINANCIAL DATA
(in thousands)
CONDENSED BALANCE SHEETS
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Current assets $ 39,357 $ 20,755
Non-current assets 58,302 287,619
--------- --------
Total assets $ 97,659 $308,374
========= ========
Current liabilities $ 15,507 $ 37,372
Non-current liabilities 218,700 348,950
--------- --------
Total liabilities $ 234,207 $386,322
--------- --------
Total stockholders' deficit $(136,548) $(77,948)
Total liabilities and
stockholder's deficit $ 97,659 $308,374
========= ========
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net sales $ 77,988 $ 83,560
Cost of sales 37,929 43,759
-------- --------
Gross profit 40,059 39,801
Operating Expenses 42,770 9,682
-------- --------
Income (loss) from operations (2,711) 30,119
Interest expense, net (17,738) (27,216)
-------- --------
Income (loss) before
taxes and extraordinary loss (20,449) 2,903
Income tax benefit 8,030 280
-------- --------
Income (loss) before
extraordinary loss (12,419) 3,183
Extraordinary loss, net of income
tax benefit (1,588) (2,414)
Equity in loss of subsidiaries (77) (46,714)
-------- --------
Net loss $(14,084) $(45,945)
======== ========
</TABLE>
F-20
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
DETAILS CAPITAL CORP.
The undersigned certifies that:
1. He is the vice president and the secretary of Details Capital Corp., a
California corporation (the "Corporation").
2. Article One of the Articles of Incorporation of the Corporation is amended
to read:
The name of the corporation is "DDi Capital Corp."
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of the sole shareholder in accordance with
Section 902 of the California Corporation Code. The total number of
outstanding shares of the corporation entitled to vote is 1000 shares of
Common Stock, $.01 par value. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding shares of the Common Stock.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Executed at Anaheim, California
December 15, 1998
/s/ JOSEPH P. GISCH
-------------------------------
Joseph Gisch, Vice President
/s/ JOSEPH P. GISCH
-------------------------------
Joseph Gisch, Secretary
<PAGE>
EXHIBIT 3.3.1
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
DETAILS, INC.
The undersigned certifies that:
1. He is the vice president and the secretary of Details, Inc., a California
corporation (the "Corporation").
2. Article One of the Articles of Incorporation of the Corporation is amended
to read:
The name of the corporation is "Dynamic Details, Incorporated".
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of the sole shareholder in accordance with
Section 902 of the California Corporation Code. The total number of
outstanding shares of the corporation entitled to vote is 100 shares of
Common Stock, $.01 par value. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding shares of the Common Stock.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Executed at Anaheim, California
December 15, 1998
/s/ JOSEPH P. GISCH
-------------------------------
Joseph Gisch, Vice President
/s/ JOSEPH P. GISCH
-------------------------------
Joseph Gisch, Secretary
<PAGE>
EXHIBIT 10.2
================================================================================
DETAILS CAPITAL CORP.
DETAILS, INC.
DYNAMIC CIRCUITS, INC.
__________________________________
CREDIT AGREEMENT
_________________
dated as of
July 23, 1998
__________________________________
BANKERS TRUST COMPANY,
as Documentation and Co-Syndication Agent
THE CHASE MANHATTAN BANK,
as Collateral, Co-Syndication and Administrative Agent
____________________________
[LOGO OF THE CHASE MANHATTAN BANK]
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
SECTION 1. DEFINITIONS............................................................. 1
1.1 Defined Terms.............................................................. 1
1.2 Other Definitional Provisions.............................................. 22
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS......................................... 23
2.1 Term Loan Commitments...................................................... 23
2.2 Procedure for Term Loan Borrowing.......................................... 23
2.3 Repayment of Term Loans.................................................... 23
2.4 Revolving Credit Commitments............................................... 25
2.5 Procedure for Revolving Credit Borrowing................................... 25
2.6 Swing Line Commitment...................................................... 26
2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans.......... 26
2.8 Commitment Fees, etc....................................................... 27
2.9 Termination or Reduction of Commitments.................................... 28
2.10 Optional Prepayments...................................................... 28
2.11 Mandatory Prepayments and Commitment Reductions........................... 28
2.12 Conversion and Continuation Options....................................... 30
2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches................. 30
2.14 Interest Rates and Payment Dates.......................................... 30
2.15 Computation of Interest and Fees.......................................... 31
2.16 Inability to Determine Interest Rate...................................... 31
2.17 Pro Rata Treatment and Payments........................................... 32
2.18 Requirements of Law....................................................... 33
2.19 Taxes..................................................................... 34
2.20 Indemnity................................................................. 36
2.21 Change of Lending Office.................................................. 36
2.22 Replacement of Lenders under Certain Circumstances........................ 37
SECTION 3. LETTERS OF CREDIT....................................................... 37
3.1 L/C Commitment............................................................ 37
3.2 Procedure for Issuance of Letter of Credit................................ 37
3.3 Commissions, Fees and Other Charges....................................... 38
3.4 L/C Participations........................................................ 38
3.5 Reimbursement Obligation of the Borrowers................................. 39
3.6 Obligations Absolute...................................................... 39
3.7 Letter of Credit Payments................................................. 40
3.8 Applications.............................................................. 40
SECTION 4. REPRESENTATIONS AND WARRANTIES.......................................... 40
4.1 Financial Condition....................................................... 40
4.2 No Change................................................................. 41
4.3 Corporate Existence; Compliance with Law.................................. 41
4.4 Corporate Power; Authorization; Enforceable Obligations................... 41
4.5 No Legal Bar.............................................................. 42
4.6 No Material Litigation.................................................... 42
4.7 No Default................................................................ 42
4.8 Ownership of Property; Liens.............................................. 42
</TABLE>
<PAGE>
<TABLE>
Page
----
<S> <C>
4.9 Intellectual Property..................................................... 42
4.10 Taxes.................................................................... 43
4.11 Federal Regulations...................................................... 43
4.12 Labor Matters............................................................ 43
4.13 ERISA.................................................................... 43
4.14 Investment Company Act; Other Regulations................................ 44
4.15 Subsidiaries............................................................. 44
4.16 Use of Proceeds.......................................................... 44
4.17 Environmental Matters.................................................... 44
4.18 Accuracy of Information, etc............................................. 45
4.19 Security Documents....................................................... 45
4.20 Solvency................................................................. 46
4.21 Senior Indebtedness...................................................... 46
4.22 Regulation H............................................................. 46
4.23 Year 2000 Matters........................................................ 46
4.24 Senior Indebtedness...................................................... 47
SECTION 5. CONDITIONS PRECEDENT.................................................... 47
5.1 Conditions to Initial Extension of Credit................................. 47
5.2 Condition to Loans on the Second Closing Date............................. 50
5.3 Conditions to Each Extension of Credit.................................... 50
SECTION 6. AFFIRMATIVE COVENANTS................................................... 50
6.1 Financial Statements...................................................... 51
6.2 Certificates; Other Information........................................... 51
6.3 Payment of Obligations.................................................... 53
6.4 Conduct of Business and Maintenance of Existence, etc..................... 53
6.5 Maintenance of Property; Insurance........................................ 53
6.6 Inspection of Property; Books and Records; Discussions.................... 53
6.7 Notices................................................................... 53
6.8 Environmental Laws........................................................ 54
6.9 Interest Rate Protection.................................................. 54
6.10 Additional Collateral, etc............................................... 54
6.11 DCI Drop Down............................................................ 56
SECTION 7. NEGATIVE COVENANTS...................................................... 57
7.1 Financial Condition Covenants............................................. 57
7.2 Limitation on Indebtedness................................................ 58
7.3 Limitation on Liens....................................................... 59
7.4 Limitation on Fundamental Changes......................................... 60
7.5 Limitation on Sale of Assets.............................................. 61
7.6 Limitation on Dividends................................................... 61
7.7 Limitation on Capital Expenditures........................................ 62
7.8 Limitation on Investments, Loans and Advances............................. 63
7.9 Limitation on Optional Payments and Modifications of Debt Instruments,
etc.
7.10 Limitation on Transactions with Affiliates............................... 65
7.11 Limitation on Sales and Leasebacks....................................... 65
7.12 Limitation on Changes in Fiscal Periods.................................. 65
7.13 Limitation on Negative Pledge Clauses.................................... 65
7.14 Limitation on Restrictions on Subsidiary Distributions................... 66
7.15 Limitation on Lines of Business.......................................... 66
</TABLE>
-ii-
<PAGE>
<TABLE>
Page
----
<S> <C>
7.16 Limitation on Amendments to Transaction Documents........................ 66
7.17 Limitation on Activities of the Company.................................. 66
SECTION 8. EVENTS OF DEFAULT....................................................... 66
SECTION 9. THE ADMINISTRATIVE AGENT................................................ 70
9.1 Appointment............................................................... 70
9.2 Delegation of Duties...................................................... 70
9.3 Exculpatory Provisions.................................................... 70
9.4 Reliance by Administrative Agent.......................................... 71
9.5 Notice of Default......................................................... 71
9.6 Non-Reliance on Agents and Other Lenders.................................. 71
9.7 Indemnification........................................................... 72
9.8 Administrative Agent in Its Individual Capacity........................... 72
9.9 Successor Administrative Agent............................................ 73
9.10 Authorization to Release Liens........................................... 73
SECTION 10. GUARANTEE.............................................................. 73
10.1 Guarantee................................................................ 73
10.2 No Subrogation, Contribution, Reimbursement or Indemnity................. 74
10.3 Amendments, etc. with respect to the DCI Obligations..................... 74
10.4 Guarantee Absolute and Unconditional..................................... 75
10.5 Reinstatement............................................................ 75
10.6 Payments................................................................. 75
SECTION 11. MISCELLANEOUS.......................................................... 75
11.1 Amendments and Waivers................................................... 75
11.2 Notices.................................................................. 76
11.3 No Waiver; Cumulative Remedies........................................... 77
11.4 Survival of Representations and Warranties............................... 78
11.5 Payment of Expenses and Taxes............................................ 78
11.6 Successors and Assigns; Participations and Assignments................... 78
11.7 Adjustments; Set-off..................................................... 81
11.8 Counterparts............................................................. 82
11.9 Severability............................................................. 82
11.10 Integration............................................................. 82
11.11 GOVERNING LAW........................................................... 82
11.12 Submission To Jurisdiction; Waivers..................................... 82
11.13 Acknowledgements........................................................ 83
11.14 WAIVERS OF JURY TRIAL................................................... 83
11.15 Confidentiality......................................................... 83
</TABLE>
-iii-
<PAGE>
CREDIT AGREEMENT, dated as of July 23, 1998, among DETAILS CAPITAL
CORP., a California corporation (the "Company"), DETAILS, INC., a California
-------
corporation ("Details"), DYNAMIC CIRCUITS, INC., a Delaware corporation ("DCI",
-------
---
and collectively with Details, the "Borrowers", and individually, a "Borrower"),
--------- --------
the several banks and other financial institutions or entities from time to time
parties to this Agreement (the "Lenders"), BANKERS TRUST COMPANY, as
-------
documentation and co-syndication agent, and THE CHASE MANHATTAN BANK, as
collateral, co-syndication and administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
-------------
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per
----------
annum publicly announced from time to time by the Administrative Agent as its
prime rate in effect at its principal office in New York City (the Prime Rate
not being intended to be the lowest rate of interest charged by the
Administrative Agent in connection with extensions of credit to debtors); and
"Federal Funds Effective Rate" shall mean, for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Administrative Agent
from three federal funds brokers of recognized standing selected by it. Any
change in the ABR due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"Accepting Lenders": as defined in Section 2.17(d).
-----------------
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Administrative Agent": The Chase Manhattan Bank, together with its
--------------------
affiliates, as the arranger of the Commitments and as the collateral, co-
syndication and administrative agent for the Lenders under this Agreement and
the other Loan Documents, together with any of its successors.
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise. In addition, for the purpose of this Agreement, an Affiliate of Bain
Capital shall include any Bain Investor or any investment fund under common
control with the Bain Investors. Notwithstanding the foregoing, none of the
Lenders or any of their respective affiliates shall be deemed to be Affiliates
of the Company or its Subsidiaries.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
<PAGE>
2
"AHYDO Payment": the payment of $427.16 for each $1,000 of accreted
-------------
principal amount of the New Intermediate Holdco Notes on December 31, 2003.
"Alternative Note": as defined in Section 11.6(f)(ii).
----------------
"Alternative Noteholder": as defined in Section 11.6(f)(ii).
----------------------
"Applicable Margin": for each Type of Loan, the rate per annum set
-----------------
forth under the relevant column heading below:
<TABLE>
<CAPTION>
Eurodollar
ABR Loans Loans
--------- ----------
<S> <C> <C>
Revolving Credit Loans and
Swing Line Loans 1.25% 2.25%
Tranche A Term Loans 1.25% 2.25%
Tranche B Term Loans 1.50% 2.50%
</TABLE>
; provided, that on and after the first Adjustment Date occurring after the
--------
completion of two full fiscal quarters of Details after the Closing Date, the
Applicable Margin with respect to Revolving Credit Loans, the Swing Line Loans,
and Tranche A Term Loans will be determined pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
-----------
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Approved Fund": with respect to any Lender that is a fund that
-------------
invests in commercial loans, any other fund that invests in commercial loans and
is managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"Asset Sale": any Disposition of Property or series of related
----------
Dispositions of Property (excluding any such Disposition permitted by clause
(a), (b), (c), (d) or (e) of Section 7.5) which yields gross proceeds to the
Company or any of its Subsidiaries (valued at the initial principal amount
thereof in the case of non-cash proceeds consisting of notes or other debt
securities and valued at fair market value in the case of other non-cash
proceeds) in excess of $500,000.
"Assignee": as defined in Section 11.6(c).
--------
"Assignor": as defined in Section 11.6(c).
--------
"Available Revolving Credit Commitment": as to any Revolving Credit
-------------------------------------
Lender at any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment over (b) such Lender's Revolving Extensions of
----
Credit.
"Bain Affiliates": any Bain Investor or Affiliate of Bain Capital,
---------------
provided that, for purposes of the definition of "Change of Control", the term
- --------
Bain Affiliate shall not include (x) any portfolio company of either Bain
Capital or any Affiliate of Bain Capital or (y) any officer or director of the
Company or any of its Subsidiaries that is not also a partner, principal or
stockholder of Bain Capital.
"Bain Capital": Bain Capital, Inc., a Delaware corporation.
------------
"Bain Investor": Bain Capital Fund V, L.P., Bain Capital Fund V-B,
-------------
L.P., BCIP Associates, BCIP Trust Associates, L.P and RGIP, LLC.
"Base CapEx Amount": as defined in Section 7.7.
-----------------
<PAGE>
3
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower" or "Borrowers": as defined in the preamble.
-------- ---------
"Borrowing Date": any Business Day specified by the relevant Borrower
--------------
as a date on which such Borrower requests the relevant Lenders to make Loans
hereunder.
"Business": as defined in Section 4.17.
--------
"Business Day": (i) for all purposes other than as covered by cause
------------
(ii) below, a day other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in Dollar deposits in the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures (other than expenditures constituting an
investment described in Section 7.8(i)) by such Person and its Subsidiaries for
the acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized repairs
and improvements during such period) which should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
-------------------------
such Person under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of one year or less from the date of acquisition
issued by any Lender or by any commercial bank organized under the laws of the
United States of America or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-2 by Standard & Poor's Ratings Services or P-2 by Moody's Investors
Service, Inc., or carrying an equivalent rating by a nationally recognized
rating agency, if both of the two named rating agencies cease publishing ratings
of commercial paper issuers generally, and maturing within one year from the
date of acquisition; (d) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, rated at least A-2 by
Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc.;
and (e) investments in money market funds substantially all the assets of which
are comprised of securities of the types described in clauses (a) through (d)
above.
"Change of Control": any of the following events:
-----------------
<PAGE>
4
(a) prior to the date of an initial registered public offering by Holdings of
its common stock, (i) Bain Capital and Bain Affiliates shall cease to own
(on a fully diluted basis) at least 15% of the economic and voting
interests in the Capital Stock of Holdings or (ii) the Permitted Holders
shall cease to "control" (as such term is defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) Holdings; or
(b) from and after the date of an initial registered public offering by
Holdings of its common stock, (i) any Person or "group" (within the meaning
of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as in
effect on the Closing Date) shall own a greater percentage of the voting
and/or economic interest in the Capital Stock of Holdings than that owned
by Bain Capital and/or the Bain Affiliates or (ii) the Board of Directors
of Holdings shall cease to consist of a majority of Continuing Directors.
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, which date shall be no later than
August 20, 1998.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"Colorado Springs Acquisition": the acquisition by Details of all of
----------------------------
the Capital Stock of Colorado Springs Circuits, Inc.
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
----------
Commitment, the Tranche B Term Loan Commitment and the Revolving Credit
Commitment of such Lender.
"Commitment Fee Rate": 1/2 of 1% per annum; provided, that on and
------------------- --------
after the first Adjustment Date occurring after the completion of two full
fiscal quarters of Details after the Closing Date, the Commitment Fee Rate will
be determined pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with Details within the meaning of Section 4001 of
ERISA or is part of a group which includes Details and which is treated as a
single employer under Section 414 of the Code.
"Company": as defined in the preamble.
-------
"Company Indenture": the Indenture, dated as of November 18, 1997,
-----------------
entered into by Holdings and subsequently assumed by the Company in connection
with the issuance of the Company Zeros, together with all instruments and other
agreements entered into by Holdings and subsequently contributed to the Company
or any of its Subsidiaries in connection therewith, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with Section
7.9.
"Company Zeros": the senior unsecured discount notes of the Company
-------------
issued pursuant to the Company Indenture.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated July 1998 prepared by Details with respect to the Facilities.
<PAGE>
5
"Consolidated Current Assets": at a particular date, all amounts
---------------------------
(other than cash and Cash Equivalents) which would, in conformity with GAAP, be
set forth opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of Details and its Subsidiaries at such date.
"Consolidated Current Liabilities": at a particular date, all amounts
--------------------------------
which would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet of
Details and its Subsidiaries at such date, but excluding (a) the current portion
of any Funded Debt of Details and its Subsidiaries, (b) without duplication of
clause (a) above, all Indebtedness consisting of Revolving Credit Loans to the
extent otherwise included therein and (c) the current portion of the Deferred
Payment Amounts.
"Consolidated EBITDA": for any period, Consolidated Net Income for
-------------------
such period plus, (a) without duplication and to the extent reflected as a
----
charge in the statement of such Consolidated Net Income for such period, the sum
of (i) total income tax expense, (ii) total interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions, discounts and
other fees and charges associated with Indebtedness (including the Loans), (iii)
depreciation and amortization expense, (iv) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (v) any
extraordinary or non-recurring expenses or losses (including, whether or not
otherwise includable as a separate item in the statement of such Consolidated
Net Income for such period, losses on sales of assets outside of the ordinary
course of business), (vi) charges for the write-off of any step-up in basis in
inventory required in a transaction which is accounted for under the purchase
method of accounting, (vii) any other non-cash charges and (viii) all management
fees paid to Bain Capital and the Bain Affiliates permitted by Section 7.10,
minus, (b) to the extent included in the statement of such Consolidated Net
- -----
Income for such period, the sum of (i) interest income, (ii) any extraordinary
or non-recurring income or gains (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for such
period, gains on the sales of assets outside of the ordinary course of business)
and (iii) any other non-cash income (other than non-cash income resulting from
Details' accrual method of accounting in accordance with past practice);
provided that, for purposes of determining Consolidated EBITDA at a time when
- --------
less than four full fiscal quarters of Details have begun after and fully
elapsed since the Closing Date, Consolidated EBITDA for the relevant period
shall be deemed to be the sum of (x) the aggregate Consolidated EBITDA of
Details for those fiscal quarters which have begun after and fully elapsed since
the Closing Date and (y) the aggregate Consolidated EBITDA (determined on a pro
forma basis, as if the Four Transactions had occurred on the day immediately
prior to the first day of such period) of Details for the requisite number of
consecutive fiscal quarters commencing prior to the Closing Date.
Notwithstanding the foregoing, there shall be added to Consolidated EBITDA on a
pro forma basis for purposes of computing the financial covenants for any period
- --- -----
set forth in Section 7.1 (i) the amount of compensation and other payments paid
to James I. Swenson (not to exceed $2,400,000) which were deducted in computing
Consolidated Net Income for such period and (ii) the expenses deducted in
computing Consolidated Net Income for such period which were associated with the
vesting and exercise by existing management of Holdings of options on the
Capital Stock of Holdings on or prior to the Closing Date and the bonuses paid
to such existing management pursuant to Section 1.11 of the Recapitalization
Agreement.
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio
----------------------------------------
of (a) the total of (i) Consolidated EBITDA for such period less (ii) the
aggregate amount actually paid by Details and its Subsidiaries in cash during
such period on account of Capital Expenditures (excluding the principal amount
of Indebtedness incurred in connection with such expenditures and any Capital
Expenditures financed with Reinvestment Deferred Amounts) less (iii) any
provision for cash income taxes made by Details and its Subsidiaries on a
consolidated basis in respect of such period to (b) Consolidated Fixed Charges
for such period.
<PAGE>
6
"Consolidated Fixed Charges": for any period, the sum (without
--------------------------
duplication) of (a) Consolidated Interest Expense for such period and (b)
scheduled payments made during such period on account of principal of
Indebtedness of Details or any of its Subsidiaries (including the Term Loans).
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Consolidated Interest Expense": for any period, all cash interest
-----------------------------
expense (including that attributable to Capital Lease Obligations) of New
Intermediate Holdco and its Subsidiaries for such period with respect to all
outstanding Indebtedness of New Intermediate Holdco and its Subsidiaries
(including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Protection Agreements to the extent such net
costs are allocable to such period in accordance with GAAP) but shall exclude
the amount of the AHYDO Payment; provided that, for purposes of determining
--------
Consolidated Interest Expense at a time when less than four full fiscal quarters
of New Intermediate Holdco have begun after and fully elapsed since the Closing
Date, Consolidated Interest Expense shall be determined by annualizing the
Consolidated Interest Expense of New Intermediate Holdco for those fiscal
quarters which have begun after and fully elapsed since the Closing Date.
"Consolidated Leverage Ratio": as at the last day of any period, the
---------------------------
ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for
such period.
"Consolidated Net Income": for any period, the consolidated net
-----------------------
income (or loss) of Details and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded therefrom
--------
(a) the income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of Details or is merged into or consolidated with Details or any of
its Subsidiaries, (b) the income (or deficit) of any Person (other than a
Subsidiary of Details) in which Details or any of its Subsidiaries has an
ownership interest, except to the extent that any such income is actually
received by Details or such Subsidiary in the form of dividends or similar
distributions and (c) the undistributed earnings of any Subsidiary of Details to
the extent that the declaration or payment of dividends or similar distributions
by such Subsidiary is not at the time permitted by the terms of any Contractual
Obligation (other than under any Loan Document) or Requirement of Law applicable
to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of Details and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital": the excess of Consolidated Current
----------------------------
Assets over Consolidated Current Liabilities.
"Continuing Directors": the directors of Holdings on the date of
--------------------
Holdings' initial registered public offering of its common stock and each other
director if such director's nomination for the election to the Board of
Directors of Holdings is recommended by a majority of the then Continuing
Directors.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Cuplex Acquisition": the acquisition by DCI of all of the Capital
------------------
Stock of Cuplex, Inc.
"DCI": as defined in the preamble.
---
<PAGE>
7
"DCI Obligations": the unpaid principal of and interest on
---------------
(including, without limitation, interest accruing after the maturity of the
Loans made to DCI and the Reimbursement Obligations of DCI and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to DCI, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
the Loans made to DCI and all other obligations and liabilities of DCI to the
Administrative Agent or to any Lender (or, in the case of Interest Rate
Protection Agreements, any affiliate of any Lender), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this Agreement,
any other Loan Document, the Letters of Credit, any Interest Rate Protection
Agreement entered into with any Lender or any affiliate of any Lender or any
other document made, delivered or given in connection herewith or therewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees, charges
and disbursements of counsel to the Administrative Agent or to any Lender that
are required to be paid by DCI pursuant hereto) or otherwise.
"DCI Preferred Stock": as defined in Section 5.1(b)(iv).
-------------------
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Deferred Payment Amount: all amounts payable to holders of options
-----------------------
to purchase DCI stock under the employment agreements and option agreements
dated July 23, 1998 between Holdings, DCI and such option holders, not in excess
of $9,000,000 in the aggregate.
"Designated Equity Amounts": at any date, the amount equal to the
-------------------------
aggregate amount of Net Cash Proceeds received by Holdings and its Subsidiaries
from the issuance of Capital Stock which (a) have been contributed to a
Borrower, (b) have been designated in writing by the Borrower to the
Administrative Agent as "Permitted Expenditure Amounts" and (c) are utilized by
the Borrower and its Subsidiaries within 45 days after such receipt for an
Expenditure Use Amount.
"Disposition": with respect to any Property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition thereof;
and the terms "Dispose" and "Disposed of" shall have correlative meanings.
------- -----------
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Domestic Subsidiary": any Subsidiary of Details organized under the
-------------------
laws of any jurisdiction within the United States of America.
"ECF Percentage": 75%; provided, that, with respect to each fiscal
-------------- --------
year of Details ending on or after December 31, 2000, the ECF Percentage shall
be reduced to 50% if the Consolidated Leverage Ratio as of the last day of such
fiscal year is not greater than 4.0 to 1.0.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
<PAGE>
8
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined by the
Administrative Agent to be the offered rate for deposits in Dollars with a term
comparable to such Interest Period that appears on the applicable Telerate Page
at approximately 10:00 A.M., New York City time, two Business Days prior to the
beginning of such Interest Period; provided, however, that if at any time for
-------- -------
any reason such offered rate does not appear on the applicable Telerate Page,
"Eurodollar Base Rate" shall mean, with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at
which the Administrative Agent is offered Dollar deposits at or about 10:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of its Eurodollar Loans to be outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
the then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time, or
- --------
both, has been satisfied.
"Excess Cash Flow": for any fiscal year of Details, the excess, if
----------------
any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
deducted in arriving at such Consolidated Net Income, (iii) decreases in
Consolidated Working Capital for such fiscal year, (iv) an amount equal to the
aggregate net non-cash loss on the Disposition of Property by Details and its
Subsidiaries during such fiscal year (other than sales of inventory in the
ordinary course of business), to the extent deducted in arriving at such
Consolidated Net Income, (v) the amount, if any, by which Consolidated Working
Capital was increased by changes in the current deferred income tax account and
(vi) the amount by which Consolidated Working Capital was increased as a result
of the payment in such fiscal year of items referred to in clause (b)(vii) below
over (b) the sum, without duplication, of (i) an amount equal to the amount of
- ----
all non-cash credits included in arriving at such Consolidated Net Income, (ii)
the aggregate amount actually paid by Details and its Subsidiaries in cash
during such fiscal year on account of Capital Expenditures (excluding the
principal amount of Indebtedness incurred in connection with such expenditures
and any such expenditures financed with the proceeds of any portion of the
Reinvestment Deferred Amount that exceeded any gain
<PAGE>
9
recognized as a result of the event that gave rise to such Deferred Investment
Amount), (iii) the aggregate amount of all prepayments of Revolving Credit Loans
and Swing Line Loans during such fiscal year to the extent accompanying
permanent optional reductions of the Revolving Credit Commitments and all
optional prepayments of the Term Loans during such fiscal year, (iv) the
aggregate amount of all principal payments of Funded Debt (including, without
limitation, the Term Loans) of Details and its Subsidiaries made during such
fiscal year (other than in respect of any revolving credit facility to the
extent there is not an equivalent permanent reduction in commitments
thereunder), (v) increases in Consolidated Working Capital for such fiscal year,
(vi) an amount equal to the aggregate net non-cash gain on the Disposition of
Property by Details and its Subsidiaries during such fiscal year (other than
sales of inventory in the ordinary course of business), to the extent included
in arriving at such Consolidated Net Income, (vii) the amount of non cash
charges that decreased Consolidated Working Capital during such fiscal year
which resulted from items that Details reasonably determines in good faith are
expected to be paid in cash in the immediately following fiscal year, (viii) any
cash disbursement made against non-current liabilities to the extent not
deducted in determining Consolidated Net Income, (ix) the amount, if any, by
which Consolidated Working Capital was decreased by changes in the current
deferred income tax account, (x) the amount of distributions permitted by
Section 7.6 which were made in such fiscal year, (xi) the amount of investments,
advances, loans or extensions of credit made pursuant to clauses (d), (e), (i)
and (j) of Section 7.8, to the extent not funded by the incurrence of
Indebtedness or contributions to capital, (xii) any payments made to the former
shareholders of Holdings pursuant to Section 1.11 of the Recapitalization
Agreement and (xiii) any payments made during such fiscal year in respect of
Deferred Payment Amounts. As used in the foregoing definition of "Excess Cash
Flow", the term fiscal year shall be deemed to include any other specified
period for which Excess Cash Flow is being measured.
"Excess Cash Flow Application Date": as defined in Section 2.11(c).
---------------------------------
"Excluded Foreign Subsidiaries": any Foreign Subsidiary the pledge of
-----------------------------
all of whose Capital Stock as Collateral would, in the good faith judgment of
Details, result in adverse tax consequences to Details.
"Expenditure Use Amounts": at any date, the amount equal to the sum
-----------------------
of (a) all amounts utilized by Details and its Subsidiaries to finance Capital
Expenditures, other than Capital Expenditures which are (i) not in excess of the
Base CapEx Amount for the relevant fiscal year and any permitted rollovers to
such fiscal year of unused amounts from the prior fiscal year or (ii) financed
with Deferred Reinvestment Amounts, (b) all amounts utilized by Details and its
Subsidiaries to finance investments permitted pursuant to Section 7.8(i), except
to the extent that the consideration (determined in accordance with such Section
7.8(i)) for all such investments made since the Closing Date does not exceed
$30,000,000 in the aggregate, (c) all amounts utilized by Details and its
Subsidiaries to finance investments permitted pursuant to Section 7.8(j), except
to the extent that the aggregate amount of all such investments (valued at cost,
but net of returns of capital from such investments) made since the Closing Date
does not exceed $10,000,000 and (d) the amount of any dividends paid by Details
to finance the AHYDO Payment.
"Facility": each of (a) the Tranche A Term Loan Commitments and the
--------
Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"), (b)
----------------------------
the Tranche B Term Loan Commitments and the Tranche B Term Loans made thereunder
(the "Tranche B Term Loan Facility") and (c) the Revolving Credit Commitments
----------------------------
and the extensions of credit made thereunder (the "Revolving Credit Facility").
-------------------------
"Foreign Subsidiary": any Subsidiary of Details that is not a
------------------
Domestic Subsidiary.
"Four Transactions": the collective reference to the Transaction, the
-----------------
merger of Details Inc and DI Acquisition Corp. consummated on or about October
28, 1997 and the other transactions in connection therewith, the Colorado
Springs Acquisition and the Cuplex Acquisition.
<PAGE>
10
"Funded Debt": as to any Person, all Indebtedness of such Person that
-----------
matures more than one year from the date of its creation or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date, including, without
limitation, all current maturities and current sinking fund payments in respect
of such Indebtedness whether or not required to be paid within one year from the
date of its creation and, in the case of the Borrowers, Indebtedness in respect
of the Loans.
"GAAP": generally accepted accounting principles in the United States
----
of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board and the rules and regulations of the
Securities and Exchange Commission, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances of Details as of the date
of determination, except that for purposes of Section 7.1, GAAP shall be
determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 4.1(b). In the event that
any "Accounting Change" (as defined below) shall occur and such change results
in a change in the method of calculation of financial covenants, standards or
terms in this Agreement, then Details and the Administrative Agent agree to
enter into negotiations in order to amend such provisions of this Agreement so
as to equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
Details, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred. "Accounting
Changes" refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the Securities and Exchange Commission (or successors thereto or
agencies with similar functions).
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, the National Association of
Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by New Intermediate Holdco, the Company,
the Borrowers and each Subsidiary Guarantor, substantially in the form of
Exhibit A, as the same may be amended, supplemented or otherwise modified from
time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any Property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect
<PAGE>
11
thereof; provided, however, that the term Guarantee Obligation shall not include
-------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by
Details in good faith.
"Guarantors": the collective reference to the Subsidiary Guarantors,
----------
the Company and Details, in its capacity as a guarantor of the obligations of
DCI hereunder.
"Holdings": Details Holdings Corp., a California corporation.
--------
"Incur": as defined in Section 7.2.
-----
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of Property or services (other than trade
payables incurred in the ordinary course of such Person's business which are
current liabilities and other than Deferred Payment Amounts), (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to Property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such Property), (e) all Capital Lease Obligations of such Person, (f)
all obligations of such Person, contingent or otherwise, as an account party
under bankers' acceptance, letter of credit or similar facilities, (g) all
obligations of such Person, contingent or otherwise, to purchase, redeem, retire
or otherwise acquire for value any Capital Stock (other than common stock) of
such Person, (h) all Guarantee Obligations of such Person in respect of
obligations of the kind referred to in clauses (a) through (g) above; (i) all
obligations of the kind referred to in clauses (a) through (h) above secured by
(or for which the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on Property (including, without
limitation, accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such obligation; and
(j) for the purposes of Section 8(e) only, the net exposure of such Person in
respect of Interest Rate Protection Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof, after the
first day of such Interest Period and the
<PAGE>
12
last day of such Interest Period and (d) as to any Loan (other than any
Revolving Credit Loan that is an ABR Loan and any Swing Line Loan), the date of
any repayment or prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the relevant Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto; and (b)
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one, two, three or
six months thereafter, as selected by the relevant Borrower by irrevocable
notice to the Administrative Agent not less than three Business Days prior to
the last day of the then current Interest Period with respect thereto; provided
--------
that, all of the foregoing provisions relating to Interest Periods are subject
to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Scheduled Revolving Credit Termination Date or beyond the date final
payment is due on the Tranche A Term Loans or the Tranche B Term Loans, as
the case may be, shall end on the Scheduled Revolving Credit Termination
Date or such due date, as applicable;
(iiI) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(iv) the Borrowers shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Interest Rate Protection Agreement": any interest rate protection
----------------------------------
agreement, interest rate futures contract, interest rate option, interest rate
cap or other interest rate hedge arrangement, to or under which Details or any
of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a
party or a beneficiary after the date hereof.
"Issuing Lender": The Chase Manhattan Bank or any of its Affiliates,
--------------
in its capacity as issuer of any Letter of Credit.
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
----------------
Credit Lenders other than the Issuing Lender.
"Letters of Credit": as defined in Section 3.1(a).
-----------------
<PAGE>
13
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loan Documents": this Agreement, the Security Documents and the
--------------
Notes.
"Loan Parties": the Company, the Borrowers and each other Subsidiary
------------
of Details which is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
-------------------------
holders of more than 50% of the aggregate unpaid principal amount of the Term
Loans or the Total Revolving Extensions of Credit, as the case may be,
outstanding under such Facility (or, in the case of the Revolving Credit
Facility, prior to any termination of the Revolving Credit Commitments, the
holders of more than 50% of the Total Revolving Credit Commitments.
"Majority Revolving Credit Facility Lenders": the Majority Facility
------------------------------------------
Lenders in respect of the Revolving Credit Facility.
"Mandatory Prepayment Date": as defined in Section 2.17(d).
-------------------------
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
Transaction, (b) the business, operations, property or condition (financial or
otherwise) of Details and its Subsidiaries taken as a whole or (c) the validity
or enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Material Environmental Amount": an amount payable by Details and/or
-----------------------------
its Subsidiaries in excess of $1,500,000 for remedial costs, compliance costs,
compensatory damages, punitive damages, fines, penalties or any combination
thereof.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Material Subsidiary": any Subsidiary of the Company which has assets
-------------------
(valued at their fair market value) or annual revenues which are in excess of
$2,500,000 (and which shall in any event include Details and DCI).
"Mortgaged Properties": the real properties listed on Schedule 1.1B,
--------------------
as to which the Administrative Agent for the benefit of the Lenders shall be
granted a Lien pursuant to the Mortgages.
"Mortgages": each of the mortgages and deeds of trust made by any
---------
Loan Party in favor of, or for the benefit of, the Administrative Agent for the
benefit of the Lenders, substantially in the form of Exhibit H (with such
changes thereto as shall be advisable under the law of the jurisdiction in which
such mortgage or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
<PAGE>
14
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of reasonable attorneys' fees, accountants' fees, investment
banking fees, amounts required to be applied to the repayment of Indebtedness
secured by a Lien expressly permitted hereunder on any asset which is the
subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a
Security Document) and other customary and reasonable fees and expenses actually
incurred in connection therewith and net of taxes paid or reasonably estimated
to be payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and (b) in connection
with any issuance or sale of equity securities or debt securities or instruments
or the incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of reasonable attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.
"New Intermediate Holdco": Details Intermediate Holding Corp., a
-----------------------
California corporation.
"New Intermediate Holdco Note Purchase Agreement": the Note Purchase
-----------------------------------------------
Agreement entered into by New Intermediate Holdco in connection with the
issuance of the New Intermediate Holdco Notes, together with all instruments and
other agreements entered into by New Intermediate Holdco in connection therewith
and any indenture entered into pursuant thereto, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with Section
7.9.
"New Intermediate Holdco Notes": the unsecured discount notes of New
-----------------------------
Intermediate Holdco issued pursuant to the New Intermediate Holdco Note Purchase
Agreement.
"Non-Excluded Taxes": as defined in Section 2.19(a).
------------------
"Non-U.S. Lender": as defined in Section 2.19(b).
---------------
"Notes": the collective reference to any promissory note evidencing
-----
Loans.
"Obligations": the unpaid principal of and interest on (including,
-----------
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to either of the Borrowers, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) the Loans
and all other obligations and liabilities of the Borrowers to the Administrative
Agent or to any Lender (or, in the case of Interest Rate Protection Agreements,
any affiliate of any Lender), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, this Agreement, any other Loan
Document, the Letters of Credit, any Interest Rate Protection Agreement entered
into with any Lender or any affiliate of any Lender or any other document made,
delivered or given in connection herewith or therewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees, charges and disbursements of
counsel to the Administrative Agent or to any Lender that are required to be
paid by the Borrowers pursuant hereto) or otherwise.
"Participant": as defined in Section 11.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
<PAGE>
15
"Permitted Expenditure Amounts": at any date, the amount equal to (a)
-----------------------------
the sum of (i) all Designated Equity Amounts as of such date and (ii) any
portion of the Excess Cash Flow of the Company for fiscal years completed since
the Closing Date which was not required to be applied pursuant to the provisions
of Section 2.11(c) minus (b) the aggregate amount of Expenditure Use Amounts as
of such date.
"Permitted Holders": any of (a) Bain Capital and the Bain Affiliates,
-----------------
(b) each other holder of common stock of Holdings on the Closing Date and (c)
senior management employees of the Borrowers and Holdings.
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which Details or a Commonly Controlled Entity
is (or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Preferred Stock": any Capital Stock entitled by its terms to a
---------------
preference (a) as to dividends or (b) upon a distribution of assets.
"Prepayment Option Notice": as defined in Section 2.17(b).
------------------------
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Pro Forma Balance Sheets": as defined in Section 4.1(a).
------------------------
"Projections": as defined in Section 6.2(c).
-----------
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or intangible,
including, without limitation, Capital Stock.
"Real Properties": as defined in Section 4.17.
---------------
"Recapitalization Agreement": the Amended and Restated
--------------------------
Recapitalization Agreement, dated as of October 4, 1997, by and among DI
Acquisition Corp., Holdings and certain shareholders of Holdings, as amended,
supplemented or otherwise modified in accordance with the terms hereof and
thereof.
"Recovery Event": any settlement of or payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Company or any of its Subsidiaries.
"Refunded Swing Line Loans": as defined in Section 2.7.
-------------------------
"Refunding Date": as defined in Section 2.7.
--------------
"Register": as defined in Section 11.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
<PAGE>
16
"Reimbursement Obligation": the obligation of the relevant Borrower
------------------------
to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by the Company or any of its
Subsidiaries in connection therewith which are not applied to prepay the Term
Loans or reduce the Revolving Credit Commitments pursuant to Section 2.11(b) as
a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
------------------
which Details has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and that
Details (directly or indirectly through a Subsidiary) intends and expects to use
all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery
Event to acquire assets useful in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended or then committed to be expended prior to the relevant Reinvestment
Prepayment Date to acquire assets useful in Details' business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring six months (or, in the case of any
reinvestment to be made by Details or any of its Subsidiaries from the proceeds
of any property or casualty insurance claim, twelve months) after such
Reinvestment Event and (b) the date on which Details shall have determined not
to, or shall have otherwise ceased to, acquire assets useful in Details'
business with all or any portion of the relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S) 2615.
"Required Lenders": the holders of more than 50% of (a) until the
----------------
Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate
unpaid principal amount of the Term Loans and (ii) the Total Revolving Credit
Commitments or, if the Revolving Credit Commitments have been terminated, the
Total Revolving Extensions of Credit.
"Required Prepayment Lenders": the Majority Facility Lenders in
---------------------------
respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"Responsible Officer": the chief executive officer, president or
-------------------
chief financial officer of Details, but in any event, with respect to financial
matters, the chief financial officer of Details.
"Revolving Credit Commitment": as to any Lender, the obligation of
---------------------------
such Lender, if any, to make Revolving Credit Loans and participate in Swing
Line Loans and Letters of Credit, in an aggregate principal and/or face amount
not to exceed the amount set forth under the heading "Revolving Credit
<PAGE>
17
Commitment" opposite such Lender's name on Schedule 1.1A, as the same may be
changed from time to time pursuant to the terms hereof.
"Revolving Credit Commitment Period": the period from and including
----------------------------------
the Closing Date to the Scheduled Revolving Credit Termination Date or such
earlier date on which the Revolving Credit Commitments shall terminate as
provided herein.
"Revolving Credit Lender": each Lender which has a Revolving Credit
-----------------------
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
----------------------
"Revolving Credit Percentage": as to any Revolving Credit Lender at
---------------------------
any time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the Total Revolving Credit Commitments (or, at any time after the
Revolving Credit Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Revolving Credit Loans
then outstanding constitutes of the aggregate principal amount of the Revolving
Credit Loans then outstanding).
"Revolving Extensions of Credit": as to any Revolving Credit Lender
------------------------------
at any time, an amount equal to the sum of (a) the aggregate principal amount of
all Revolving Credit Loans made by such Lender then outstanding, (b) such
Lender's Revolving Credit Percentage of the aggregate principal amount of Swing
Line Loans then outstanding and (c) such Lender's Revolving Credit Percentage of
the L/C Obligations then outstanding.
"Scheduled Revolving Credit Termination Date": July 22, 2004.
-------------------------------------------
"Second Closing Date": the Business Day immediately following the
-------------------
Closing Date.
"Securities Act": the Securities Act of 1933, as amended from time to
--------------
time, and the rules and regulations.
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any Property of any
Person to secure the obligations and liabilities of any Loan Party under any
Loan Document.
"Senior Subordinated Note Indenture": the Indenture, dated as of
----------------------------------
November 18, 1997, entered into by Details and certain of its Subsidiaries in
connection with the issuance of the Senior Subordinated Notes, together with all
instruments and other agreements entered into by Details or such Subsidiaries in
connection therewith, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with Section 7.9.
"Senior Subordinated Notes": the subordinated notes of Details issued
-------------------------
pursuant to the Senior Subordinated Note Indenture.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the amount of the "present fair saleable value"
of the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing
<PAGE>
18
determinations of the insolvency of debtors, (b) the present fair saleable value
of the assets of such Person will, as of such date, be greater than the amount
that will be required to pay the liability of such Person on its debts as such
debts become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) "debt" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"Specified Change of Control": a "Change of Control" as defined in
---------------------------
any of the Senior Subordinated Note Indenture, the Company Indenture or the New
Intermediate Holdco Note Purchase Agreement.
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of Details and unless otherwise specified,
DCI shall be treated as a Subsidiary of Details.
"Subsidiary Guarantor": each Subsidiary of Details other than any
--------------------
Excluded Foreign Subsidiary.
"Swing Line Commitment": the obligation of the Swing Line Lender to
---------------------
make Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount
at any one time outstanding not to exceed $5,000,000.
"Swing Line Lender": The Chase Manhattan Bank, in its capacity as the
-----------------
lender of Swing Line Loans.
"Swing Line Loans": as defined in Section 2.6.
----------------
"Swing Line Participation Amount": as defined in Section 2.7.
-------------------------------
"Tax Benefit": as defined in Section 2.19(c).
-----------
"Telerate Page" means the display designated as Page 3750 on the Dow
-------------
Jones Markets System (or such other page as may replace such page on such
service for the purpose of displaying the rates at which Dollar deposits are
offered by leading banks in the London interbank deposit market).
"Term Loan Lenders": the collective reference to the Tranche A Term
-----------------
Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Tranche A Term Loans
----------
and the Tranche B Term Loans.
"Total Revolving Credit Commitments": at any time, the aggregate
----------------------------------
amount of the Revolving Credit Commitments at such time.
<PAGE>
19
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Revolving Credit Lenders at
such time.
"Tranche A Term Loan": as defined in Section 2.1.
-------------------
"Tranche A Term Loan Commitment": as to any Lender, the obligation of
------------------------------
such Lender, if any, to make Tranche A Term Loans to the Borrowers hereunder in
an aggregate principal amount not to exceed the amount set forth under the
heading "Tranche A Term Loan Commitment" opposite such Lender's name on Schedule
1.1A.
"Tranche A Term Loan Lender": each Lender which has a Tranche A Term
--------------------------
Loan Commitment or which has made Tranche A Term Loans.
"Tranche A Term Loan Percentage": as to Tranche A Term Loan Lender at
------------------------------
any time, the percentage which such Lender's Tranche A Term Loan Commitment then
constitutes of the aggregate Tranche A Term Loan Commitments (or, at any time
after the Closing Date, the percentage which the aggregate principal amount of
such Lender's Tranche A Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche A Term Loans then outstanding).
"Tranche B Repayment Amount": as defined in Section 2.17(d).
--------------------------
"Tranche B Term Loan": as defined in Section 2.1.
-------------------
"Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender,
------------------------------
the obligation of such Lender, if any, to make Tranche B Term Loans to the
Borrowers hereunder in an aggregate principal amount not to exceed the amount
set forth under the heading "Tranche B Term Loan Commitment" opposite such
Lender's name on Schedule 1.1A.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
--------------------------
Loan Commitment or which has made Tranche B Term Loans.
"Tranche B Term Loan Percentage": as to any Lender at any time, the
------------------------------
percentage which such Lender's Tranche B Term Loan Commitment then constitutes
of the aggregate Tranche B Term Loan Commitments (or, at any time after the
Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche B Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche B Term Loans then outstanding).
"Transaction": as defined in Section 5.1(b).
-----------
"Transaction Agreement": the Stock Contribution and Merger Agreement,
---------------------
dated as of July 23, 1998, by and among DCI, Holdings and the shareholders of
DCI, as amended, supplemented or otherwise modified in accordance with the terms
hereof and thereof.
"Transaction Documents": the collective reference to the Transaction
---------------------
Agreement and all other agreements, documents and instruments executed or filed
by or on behalf of DCI or Holdings or any of its Subsidiaries or any of their
Affiliates with any Governmental Authority in connection with the Transaction.
"Transferee": as defined in Section 11.15.
----------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
<PAGE>
20
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"U.S. Taxes": as defined in Section 11.6(f)(ii).
----------
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is
---------------------------------
a Wholly Owned Subsidiary of Details.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Company and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
---------------------
hereof, (a) each Tranche A Term Loan Lender severally agrees to make term loans
to the Borrowers on the Closing Date and to DCI on the Second Closing Date (the
"Tranche A Term Loans") in an aggregate amount not to exceed the amount of the
--------------------
Tranche A Term Loan Commitment of such Lender and (b) each Tranche B Term Loan
Lender severally agrees to make term loans (the "Tranche B Term Loans") to the
--------------------
Borrowers on the Closing Date and on the Second Closing Date in an aggregate
amount not to exceed the amount of the Tranche B Term Loan Commitment of such
Lender; provided, that the aggregate amount of Term Loans which may be borrowed
--------
by DCI on the Closing Date shall not exceed $129,000,000. The Term Loans may
from time to time be Eurodollar Loans or ABR Loans, as determined by the
relevant Borrower and notified to the Administrative Agent in accordance with
Sections 2.2 and 2.12.
2.2 Procedure for Term Loan Borrowing. The Borrowers shall give the
---------------------------------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 2:00 P.M., New York City time, one Business Day
prior to the requested Borrowing Date) requesting that the Tranche A Term Loan
Lenders and the Tranche B Term Loan Lenders make such Term Loans on the
requested Borrowing Date (which must be a Business Day) and specifying the
amount to be borrowed. All Tranche A Term Loans and Tranche B Term Loans
initially shall be made as ABR Loans and shall be in an amount equal to
$1,000,000 or a whole multiple of $500,000 in excess thereof. Any Term Loans
which are made on the Closing Date may not be converted into or continued as a
Eurodollar Loan having an Interest Period in excess of one month prior to the
earlier of (a) the date which is 60 days after the Closing Date and (b) the date
upon which the Administrative Agent determines (in good faith) that the
syndication of the Commitments is complete. Upon receipt of any such notice the
Administrative Agent shall
<PAGE>
21
promptly notify each Term Loan Lender thereof. Not later than 12:00 Noon, New
York City time, on the requested Borrowing Date each Term Loan Lender shall make
available to the Administrative Agent at its office specified in Section 11.2 an
amount in immediately available funds equal to the Term Loan or Term Loans to be
made by such Lender. The Administrative Agent shall credit the account of the
relevant Borrower on the books of such office of the Administrative Agent with
the aggregate of the amounts made available to the Administrative Agent by the
Term Loan Lenders in immediately available funds.
2.3 Repayment of Term Loans. (a) The Tranche A Term Loans of each
-----------------------
Tranche A Term Loan Lender shall mature in quarterly installments (other than
with respect to the last installment, which shall be due on July 22, 2004),
commencing on June 30, 1999, in an amount equal to such Lender's Tranche A Term
Loan Percentage of the amount set forth opposite the date on which such
installment is due:
<TABLE>
<CAPTION>
Installment Percentage
----------- ----------
<S> <C>
June 30, 1999 $ 675,000
September 30, 1999 $ 675,000
December 31, 1999 $ 675,000
March 31, 2000 $ 675,000
June 30, 2000 $1,125,000
September 30, 2000 $1,125,000
December 31, 2000 $1,125,000
March 31, 2001 $1,125,000
June 30, 2001 $4,950,000
September 30, 2001 $4,950,000
December 31, 2001 $4,950,000
March 31, 2002 $4,950,000
June 30, 2002 $4,950,000
September 30, 2002 $4,950,000
December 31, 2002 $6,300,000
March 31, 2003 $6,300,000
June 30, 2003 $6,750,000
September 30, 2003 $6,750,000
December 31, 2003 $6,750,000
March 31, 2004 $6,750,000
June 30, 2004 $6,750,000
July 22, 2004 $6,750,000
</TABLE>
Any Tranche A Term Loans outstanding on July 22, 2004 shall be due and payable
on such date.
(b) The Tranche B Term Loan of each Tranche B Lender shall mature in
quarterly installments (other than with respect to the last installment, which
shall be due on April 22, 2005), commencing on June 30, 1999, each of which
shall be in an amount equal to such Lender's Tranche B Term Loan Percentage of
the amount set forth opposite the date on which such installment is due:
<TABLE>
<CAPTION>
Installment Amount
----------- ------
<S> <C>
June 30, 1999 $ 330,000
September 30, 1999 $ 330,000
December 31, 1999 $ 330,000
March 31, 2000 $ 330,000
June 30, 2000 $ 330,000
September 30, 2000 $ 330,000
</TABLE>
<PAGE>
22
<TABLE>
<S> <C>
December 31, 2000 $ 330,000
March 31, 2001 $ 330,000
June 30, 2001 $ 330,000
September 30, 2001 $ 330,000
December 31, 2001 $ 330,000
March 31, 2002 $ 330,000
June 30, 2002 $ 330,000
September 30, 2002 $ 330,000
December 31, 2002 $ 330,000
March 31, 2003 $ 330,000
June 30, 2003 $ 330,000
September 30, 2003 $ 330,000
December 31, 2003 $ 330,000
March 31, 2004 $ 330,000
June 30, 2004 $ 330,000
September 30, 2004 $ 330,000
December 31, 2004 $52,470,000
March 31, 2005 $52,470,000
April 22, 2005 $52,800,000
</TABLE>
Any Tranche B Term Loans outstanding on April 22, 2005 shall be due and payable
on such date.
2.4 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrowers from time to
----------------------
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the sum of (i) the aggregate principal amount of the Swing
Line Loans then outstanding and (ii) the aggregate amount of the L/C Obligations
then outstanding, does not exceed the amount of such Lender's Revolving Credit
Commitment. During the Revolving Credit Commitment Period the Borrowers may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Revolving Credit Loans may from time to time be
Eurodollar Loans or ABR Loans, as determined by the Borrowers and notified to
the Administrative Agent in accordance with Sections 2.5 and 2.12, provided that
--------
no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that
is one month prior to the Scheduled Revolving Credit Termination Date.
(b) The Borrowers shall repay all outstanding Revolving Credit Loans
on the Scheduled Revolving Credit Termination Date (or such earlier date as all
amounts owing hereunder shall become due and payable).
2.5 Procedure for Revolving Credit Borrowing. The Borrowers may
----------------------------------------
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrowers shall give
--------
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to (a) 3:00 P.M., New York City time, three
Business Days prior to the requested Borrowing Date, in the case of Eurodollar
Loans, or (b) 11:00 A.M., New York City time, on the requested Borrowing Date,
in the case of ABR Loans), specifying (i) the amount and Type of Revolving
Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the
case of Eurodollar Loans, the respective amounts of each such Type of Loan and
the respective lengths of the initial Interest Period therefor. Each borrowing
under the Revolving Credit Commitments shall be in an amount equal to (x) in the
case of ABR Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof
(or, if the then aggregate Available Revolving Credit Commitments are less than
$1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided that
--------
the Swing Line Lender may, on behalf of the Borrowers, request borrowings
<PAGE>
23
of ABR Loans under the Revolving Credit Commitments in amounts other than those
specified above to the extent necessary to repay Refunded Swing Line Loans. Upon
receipt of any such notice from either Borrower, the Administrative Agent shall
promptly notify each Revolving Credit Lender thereof. Each Revolving Credit
Lender will make the amount of its pro rata share of each borrowing available to
--- ----
the Administrative Agent for the account of the relevant Borrower at the office
of the Administrative Agent specified in Section 11.2 prior to 12:00 Noon, New
York City time, on the Borrowing Date requested by such Borrower in funds
immediately available to the Administrative Agent. Such borrowing will then be
made available to such Borrower by the Administrative Agent crediting the
account of such Borrower on the books of such office with the aggregate of the
amounts made available to the Administrative Agent by the Revolving Credit
Lenders and in like funds as received by the Administrative Agent.
2.6 Swing Line Commitment. (a) Subject to the terms and conditions
---------------------
hereof, the Swing Line Lender agrees to make a portion of the credit otherwise
available to the Borrowers under the Revolving Credit Commitments from time to
time during the Revolving Credit Commitment Period by making swing line loans
("Swing Line Loans") to the Borrowers; provided that (i) the aggregate principal
- ------------------ --------
amount of Swing Line Loans outstanding at any time shall not exceed the Swing
Line Commitment then in effect (notwithstanding that the Swing Line Loans
outstanding at any time, when aggregated with the Swing Line Lender's other
outstanding Revolving Credit Loans hereunder, may exceed the Swing Line
Commitment then in effect) and (ii) the Borrowers shall not request, and the
Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to
the making of such Swing Line Loan, the aggregate amount of the Available
Revolving Credit Commitments would be less than zero. During the Revolving
Credit Commitment Period, the Borrowers may use the Swing Line Commitment by
borrowing, repaying and reborrowing, all in accordance with the terms and
conditions hereof. Swing Line Loans shall be made as ABR Loans only and shall
not be entitled to be converted into Eurodollar Loans.
(b) The Borrowers shall repay all outstanding Swing Line Loans on the
Scheduled Revolving Credit Termination Date or such earlier date on which the
Revolving Credit Commitments shall terminate as provided herein.
2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line
-----------------------------------------------------------
Loans. (a) Whenever either Borrower desires that the Swing Line Lender make
Swing Line Loans it shall give the Swing Line Lender irrevocable telephonic
notice confirmed promptly in writing (which telephonic notice must be received
by the Swing Line Lender not later than 2:00 P.M., New York City time, on the
proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii) the
requested Borrowing Date (which shall be a Business Day during the Revolving
Credit Commitment Period). Each borrowing under the Swing Line Commitment shall
be in an amount equal to $500,000 or a whole multiple of $100,000 in excess
thereof. Not later than 4:00 P.M., New York City time, on the Borrowing Date
specified in a notice in respect of Swing Line Loans, the Swing Line Lender
shall make available to the Administrative Agent at its office specified in
Section 11.2 an amount in immediately available funds equal to the amount of the
Swing Line Loan to be made by the Swing Line Lender. The Administrative Agent
shall make the proceeds of such Swing Line Loan available to the relevant
Borrower on such Borrowing Date by depositing such proceeds in the account of
such Borrower with the Administrative Agent on such Borrowing Date in
immediately available funds.
(b) The Swing Line Lender, at any time and from time to time in its
sole and absolute discretion may, on behalf of the Borrowers (which hereby
irrevocably directs the Swing Line Lender to act on its behalf), on notice given
by the Swing Line Lender no later than 2:00 P.M., New York City time, on the
requested Borrowing Date, request each Revolving Credit Lender to make, and each
Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan, in an
amount equal to such Revolving Credit Lender's Revolving Credit Percentage of
the aggregate amount of the Swing Line Loans (the "Refunded Swing Line Loans")
-------------------------
outstanding on the date of such notice, to repay the Swing Line Lender. Each
Revolving Credit Lender shall make the amount of such Revolving Credit Loan
available to the Administrative Agent at its office set forth in Section 11.2 in
immediately available funds, not later than
<PAGE>
24
4:00 P.M., New York City time, on the date of such notice. The proceeds of such
Revolving Credit Loans shall be immediately applied by the Swing Line Lender to
repay the Refunded Swing Line Loans. The Borrowers irrevocably authorize the
Swing Line Lender to charge the Borrowers' accounts with the Administrative
Agent (up to the amount available in each such account) in order to immediately
pay the amount of such Refunded Swing Line Loans to the extent amounts received
from the Revolving Credit Lenders are not sufficient to repay in full such
Refunded Swing Line Loans.
(c) If prior to the time a Revolving Credit Loan would have otherwise
been made pursuant to Section 2.7(b), one of the events described in Section
8(f) shall have occurred and be continuing with respect to either Borrower or if
for any other reason, as determined by the Swing Line Lender in its sole
discretion, Revolving Credit Loans may not be made as contemplated by Section
2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit
Loan was to have been made pursuant to the notice referred to in Section 2.7(b)
(the "Refunding Date"), purchase for cash an undivided participating interest in
--------------
an amount equal to (i) its Revolving Credit Percentage times (ii) the aggregate
principal amount of Swing Line Loans then outstanding which were to have been
repaid with such Revolving Credit Loans (the "Swing Line Participation Amount").
-------------------------------
(d) Whenever, at any time after the Swing Line Lender has received
from any Revolving Credit Lender such Lender's Swing Line Participation Amount,
the Swing Line Lender receives any payment on account of the Swing Line Loans,
the Swing Line Lender will distribute to such Lender its Swing Line
Participation Amount (appropriately adjusted, in the case of interest payments,
to reflect the period of time during which such Lender's participating interest
was outstanding and funded and, in the case of principal and interest payments,
to reflect such Lender's pro rata portion of such payment if such payment is not
sufficient to pay the principal of and interest on all Swing Line Loans then
due); provided, however, that in the event that such payment received by the
Swing Line Lender is required to be returned, such Revolving Credit Lender will
return to the Swing Line Lender any portion thereof previously distributed to it
by the Swing Line Lender.
(e) Each Revolving Credit Lender's obligation to make the Loans
referred to in Section 2.7(b) and to purchase participating interests pursuant
to Section 2.7(c) shall be absolute and unconditional and shall not be affected
by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which such Revolving Credit
Lender or either Borrower may have against the Swing Line Lender, either
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default or an Event of Default or the failure to satisfy any of
the other conditions specified in Section 5; (iii) any adverse change in the
condition (financial or otherwise) of either Borrower; (iv) any breach of this
Agreement or any other Loan Document by either Borrower, any other Loan Party or
any other Revolving Credit Lender; or (v) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
2.8 Commitment Fees, etc. (a) The Borrowers agree to pay to the
---------------------
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment
(without giving effect to any Swing Line Loans which are then outstanding) of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Scheduled Revolving Credit Termination Date or such earlier date on which the
Revolving Credit Commitments shall terminate as provided herein, commencing on
the first of such dates to occur after the date hereof.
(b) Details agrees to pay to the Administrative Agent the fees in the
amounts and on the dates previously agreed to in writing by Details and the
Administrative Agent.
<PAGE>
25
2.9 Termination or Reduction of Commitments. The Borrowers shall
---------------------------------------
have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments; provided
--------
that no such termination or reduction of Revolving Credit Commitments shall be
permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans and Swing Line Loans made on the effective date thereof,
the Total Revolving Extensions of Credit would exceed the Total Revolving Credit
Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof, and shall reduce permanently the Revolving Credit
Commitments then in effect.
2.10 Optional Prepayments. The Borrowers may at any time and from
--------------------
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of ABR Loans, which notice shall specify
the date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
--------
earlier than the last day of the Interest Period applicable thereto, the
Borrowers shall also pay any amounts owing pursuant to Section 2.20. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with (except in the case of Revolving Credit Loans which are ABR Loans and any
Swing Line Loans) accrued interest to such date on the amount prepaid. Partial
prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate
principal amount of $1,000,000 or a whole multiple thereof. Partial Prepayments
of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a
whole multiple thereof. Amounts to be applied in connection with optional
prepayments of the Term Loans shall be applied pro rata among the Tranche A Term
--- ----
Loans and the Tranche B Term Loans based upon the outstanding principal amount
thereof.
2.11 Mandatory Prepayments and Commitment Reductions. (a) Unless the
-----------------------------------------------
Required Prepayment Lenders shall otherwise agree, if any Capital Stock or
Indebtedness shall be issued or Incurred by Holdings or any of its Subsidiaries,
an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance or Incurrence toward the prepayment of the Term Loans and
the reduction of the Revolving Credit Commitments as set forth in Section
2.11(d); provided that no such prepayment and reduction shall be required
--------
pursuant to this Section 2.11(a) with respect to (i) Designated Equity Amounts,
(ii) any such Net Cash Proceeds from the issuance of Capital Stock which is
applied within five Business Days after the receipt thereof by the Company and
its Subsidiaries to repay Indebtedness Incurred in reliance upon the provisions
of Section 7.2(i) or (j) hereof, (iii) other than to the extent set forth
therein, Indebtedness Incurred in accordance with Section 7.2, (iv) any Net Cash
Proceeds from the issuance of Capital Stock by Holdings or the Incurrence of
Indebtedness by Holdings or New Intermediate Holdco which are used to finance
the AHYDO Payment and (v) up to $20,000,000 in aggregate Net Cash Proceeds from
the issuance of Capital Stock by Holdings after the Closing Date.
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date Holdings or any of its Subsidiaries shall receive Net Cash Proceeds
from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall
be delivered in respect thereof, such Net Cash Proceeds shall be applied on such
date toward the prepayment of the Term Loans and the reduction of the Revolving
Credit Commitments as set forth in Section 2.11(d); provided, that,
--------
notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset
Sales that may be excluded from the foregoing requirement pursuant to a
Reinvestment Notice shall not exceed $4,000,000 in any fiscal year of Details
and (ii) on each Reinvestment Prepayment Date, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event
shall be applied toward the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments as set forth in Section 2.11(d).
(c) Unless the Required Prepayment Lenders shall otherwise agree, if,
for the period beginning on the Closing Date and ending on December 31, 1999 and
for each fiscal year of Details
<PAGE>
26
thereafter, there shall be Excess Cash Flow, the Borrowers shall, on the
relevant Excess Cash Flow Application Date, apply the ECF Percentage of such
Excess Cash Flow toward the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments as set forth in Section 2.11(d). Each such
prepayment and commitment reduction shall be made on a date (an "Excess Cash
-----------
Flow Application Date") no later than five days after the earlier of (i) the
- ---------------------
date on which the financial statements of Details referred to in Section 6.1(a),
for the fiscal year with respect to which such prepayment is made, are required
to be delivered to the Lenders and (ii) the date such financial statements are
actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.11 shall be applied, first, to
-----
the prepayment of the Term Loans (pro rata among the Tranche A Term Loans and
--- ----
the Tranche B Term Loans, based upon the outstanding principal amount thereof)
and, second, to reduce permanently the Revolving Credit Commitments. Any such
------
reduction of the Revolving Credit Commitments shall be accompanied by prepayment
of the Revolving Credit Loans and/or Swing Line Loans to the extent, if any,
that the Total Revolving Extensions of Credit exceed the amount of the Total
Revolving Credit Commitments as so reduced, provided that if the aggregate
--------
principal amount of Revolving Credit Loans and Swing Line Loans then outstanding
is less than the amount of such excess (because L/C Obligations constitute a
portion thereof), the Borrowers shall, to the extent of the balance of such
excess, replace outstanding Letters of Credit and/or deposit an amount in cash
in a cash collateral account established with the Administrative Agent for the
benefit of the Lenders on terms and conditions satisfactory to the
Administrative Agent. Subject to the immediately preceding sentence, the
application of any prepayment pursuant to Section 2.11 shall be made first to
ABR Loans and second to Eurodollar Loans. Each prepayment of the Loans under
Section 2.11 (except in the case of Revolving Credit Loans that are ABR Loans
and Swing Line Loans) shall be accompanied by accrued interest to the date of
such prepayment on the amount prepaid.
(e) All unpaid amounts owing hereunder shall be due and payable on
April 22, 2005.
2.12 Conversion and Continuation Options. (a) The Borrowers may elect
-----------------------------------
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least one Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
--------
made on the last day of an Interest Period with respect thereto. The Borrowers
may elect from time to time to convert ABR Loans to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan under a particular Facility may be
--------
converted into a Eurodollar Loan (i) when any Event of Default has occurred and
is continuing and the Administrative Agent or the Majority Facility Lenders in
respect of such Facility have determined in its or their sole discretion not to
permit such conversions or (ii) after the date that is one month prior to the
final scheduled termination or maturity date of such Facility. Upon receipt of
any such notice the Administrative Agent shall promptly notify each relevant
Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrowers giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
--------
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and provided, further, that if the Borrowers
-------- -------
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso such
Loans shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period. Upon receipt of any such notice the Administrative
Agent shall promptly notify each relevant Lender thereof.
<PAGE>
27
2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches.
---------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.14 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 2.14
plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to
- ----
ABR Loans under the Revolving Credit Facility plus 2%, and (ii) if all or a
----
portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate applicable to
ABR Loans under the relevant Facility plus 2% (or, in the case of any such other
----
amounts that do not relate to a particular Facility, the ABR plus 3.25%), in
----
each case, with respect to clauses (i) and (ii) above, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
2.14 shall be payable from time to time on demand.
2.15 Computation of Interest and Fees. (a) Interest, fees and
--------------------------------
commissions payable pursuant hereto shall be calculated on the basis of a 360-
day year for the actual days elapsed, except that, with respect to ABR Loans the
rate of interest on which is calculated on the basis of the Prime Rate, the
interest thereon shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Borrowers and the relevant Lenders of
each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change becomes effective. The Administrative Agent shall as soon as practicable
notify the Borrowers and the relevant Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrowers and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrowers, deliver to the
Borrowers a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.14(a).
2.16 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
<PAGE>
28
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrowers and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans under the relevant Facility that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility
that were to have been continued as such on such first day shall be converted on
such day to ABR Loans. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans under the relevant Facility
shall be made or continued as such, nor shall the Borrowers have the right to
convert Loans under the relevant Facility to Eurodollar Loans.
2.17 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrowers from the Lenders hereunder, each payment by the Borrowers on account
of any commitment fee and any reduction of the Commitments of the Lenders shall
be made pro rata according to the respective Tranche A Term Loan Percentages,
--- ----
Tranche B Term Loan Percentages or Revolving Credit Percentages, as the case may
be, of the relevant Lenders.
(b) Each payment (including each prepayment) by a Borrower on account
of principal of and interest on the Tranche A Term Loans or the Tranche B Term
Loans shall be made pro rata according to the respective outstanding principal
--- ----
amounts of such Term Loans of such Borrower then held by the relevant Term Loan
Lenders (except as otherwise provided in paragraph (d) below). The amount of
each principal prepayment of the Term Loans shall be applied to reduce the then
remaining installments of the Tranche A Term Loans and Tranche B Term Loans, as
the case may be, pro rata based upon the then remaining principal amount
--- ----
thereof. Amounts prepaid on account of the Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrowers on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
- --- ----
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) Notwithstanding anything to the contrary in Section 2.11(d) or
2.17, with respect to the amount of any mandatory prepayment described in
Section 2.11 that is allocated to Tranche B Term Loans (such amounts, the
"Tranche B Prepayment Amount"), at any time when Tranche A Term Loans remain
- ----------------------------
outstanding, the Borrowers will, in lieu of applying such amount to the
prepayment of Tranche B Term Loans as provided in Section 2.11, on the date
specified in Section 2.11 for such prepayment, give the Administrative Agent
telephonic notice (promptly confirmed in writing) requesting that the
Administrative Agent prepare and provide to each Tranche B Term Loan Lender a
notice (each, a "Prepayment Option Notice") as described below. As promptly as
------------------------
practicable after receiving such notice from the Borrowers, the Administrative
Agent will send to each Tranche B Term Loan Lender a Prepayment Option Notice,
which shall be in the form of Exhibit G, and shall include an offer by the
Borrowers to prepay on the date (each a "Mandatory Prepayment Date") that is 10
-------------------------
Business Days after the date of the Prepayment Option
<PAGE>
29
Notice, the relevant Tranche B Term Loans of such Lender by an amount equal to
the portion of the Tranche B Prepayment Amount indicated in such Lender's
Prepayment Option Notice as being applicable to such Lender's Tranche B Term
Loans. On the Mandatory Prepayment Date, (i) the Borrowers shall pay to the
Administrative Agent the aggregate amount necessary to prepay that portion of
the outstanding relevant Term Loans in respect of which Tranche B Term Loan
Lenders have accepted prepayment as described above (such Lenders, the
"Accepting Lenders"), and such amount shall be applied to reduce the Tranche B
-----------------
Repayment Amounts with respect to each Accepting Lender and (ii) the Borrowers
shall pay to the Administrative Agent an amount equal to the remaining portion
of the Tranche B Prepayment Amount not accepted by the Accepting Lenders, and
such amount shall be applied to the prepayment of the Tranche A Term Loans.
(e) All payments (including prepayments) to be made by the Borrowers
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Administrative Agent's office specified in
Section 11.2, in Dollars and in immediately available funds. The Administrative
Agent shall distribute such payments to the Lenders promptly upon receipt in
like funds as received. If any payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day. If any
payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(f) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrowers a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this Section 2.17(f) shall
be conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to ABR Loans under the relevant Facility, on demand, from
the Borrowers.
2.18 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Taxes covered by Section 2.19
and changes in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
<PAGE>
30
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrowers shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable; provided that the Borrowers
--------
shall not be required to compensate a Lender pursuant to this paragraph for any
amounts incurred more than six months prior to the date that such Lender
notifies the Borrowers of such Lender's intention to claim compensation
therefor. If any Lender becomes entitled to claim any additional amounts
pursuant to this Section 2.18, it shall promptly notify the Borrowers (with a
copy to the Administrative Agent) of the event by reason of which it has become
so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrowers (with a copy to the Administrative
Agent) of a written request therefor, the Borrowers shall pay to such Lender
such additional amount or amounts as will compensate such Lender for such
reduction; provided that the Borrowers shall not be required to compensate a
--------
Lender pursuant to this paragraph for any amounts incurred more than six months
prior to the date that such Lender notifies the Borrowers of such Lender's
intention to claim compensation therefor.
(c) A certificate as to any additional amounts payable pursuant to
this Section 2.18 submitted by any Lender to the Borrowers (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrowers pursuant to this Section 2.18 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.19 Taxes. (a) All payments made by the Borrowers under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
------------------
payable to the Administrative Agent or any Lender hereunder, the amounts so
payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, provided,
--------
however, that the Borrowers shall not be required to (x) increase any such
- -------
amounts payable to any Lender that is not organized under the laws of the United
States of America or a state thereof to the extent such Lender fails to comply
with Section 2.19(b) or (y) compensate a Lender pursuant to this paragraph for
any amounts incurred more than six months prior to the date that such Lender
<PAGE>
31
notifies the Borrowers of such Lender's intention to claim compensation
therefor. Whenever any Non-Excluded Taxes are payable by the Borrowers, as
promptly as possible thereafter the Borrowers shall send to the Administrative
Agent for its own account or for the account of such Lender, as the case may be,
a certified copy of an original official receipt received by the Borrowers
showing payment thereof. If the Borrowers fail to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the
Administrative Agent the required receipts or other required documentary
evidence, the Borrowers shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure. The
agreements in this Section 2.19 shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrowers and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions thereof
or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, an
annual certificate representing that such Non-U.S. Lender is not a "bank" for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrowers and is not a
controlled foreign corporation related to the Borrowers (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S.
federal withholding tax on all payments by the Borrowers under this Agreement
and the other Loan Documents. Such forms shall be delivered by each Non-U.S.
Lender on or before the date it becomes a party to this Agreement (or, in the
case of any Participant, on or before the date such Participant purchases the
related participation). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Borrowers at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrowers (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this Section 2.19(b), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.19(b) that
such Non-U.S. Lender is not legally able to deliver.
(c) In the event the Borrowers make any additional payment to any Lender or
the Administrative Agent pursuant to Section 2.19(a) and such Lender or the
Administrative Agent, by reason of payment by the Borrowers of any Taxes,
obtains a credit against, or return or reduction of, any tax payable by it in,
or any other currently realized tax benefit from, a taxing jurisdiction which it
would not have enjoyed but for such payment ("Tax Benefit"), such Lender or the
-----------
Administrative Agent shall, to the extent that it can do so without prejudice to
the retention of such Tax Benefit, thereupon pay to the Borrowers the amount
which, after the deduction of any additional tax savings realized as a result of
such payment, shall equal the amount of such Tax Benefit; provided, however,
-------- -------
that the Borrowers shall not be entitled to require such Lender or the
Administrative Agent to supply it with details of its tax position or to inspect
any records, including tax returns, of any Lender or the Administrative Agent.
The Borrowers agree to reimburse the Administrative Agent and each Lender upon
demand for out-of-pocket costs and expenses (other than expenses incurred in
connection with the preparation of any tax returns) incurred in connection with
any determination required pursuant to this Section 2.19(c).
2.20 Indemnity. The Borrowers agree to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense (other than any loss of
Applicable Margin) which such Lender reasonably may sustain or incur as a
consequence of (a) default by the Borrowers in making a borrowing
<PAGE>
32
of, conversion into or continuation of Eurodollar Loans after the Borrowers have
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrowers in making any prepayment after the
Borrowers have given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification shall be based upon the amount equal to the excess, if any, of
(i) the amount of interest which would have accrued on the amount so prepaid, or
not so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender)
- ----
which would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. A certificate as to any amounts payable pursuant to this Section 2.20
submitted to the Borrowers by any Lender shall be presumptively correct in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
2.21 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.18 or 2.19(a)
with respect to such Lender, it will, if requested by the Borrowers, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.21 shall
-------- -------
affect or postpone any of the obligations of any Borrower or the rights of any
Lender pursuant to Section 2.18 or 2.19(a).
2.22 Replacement of Lenders under Certain Circumstances. The
--------------------------------------------------
Borrowers shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to Section 2.18 or 2.19 or (b) defaults
in its obligation to make Loans hereunder, with a replacement financial
institution; provided that (i) such replacement does not conflict with any
--------
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) prior to any such replacement,
such Lender shall not have eliminated the continued need for payment of amounts
owing pursuant to Section 2.18 or 2.19, (iv) the replacement financial
institution shall purchase, at par, all Loans and other amounts owing to such
replaced Lender on or prior to the date of replacement, (v) the Borrowers shall
be liable to such replaced Lender under Section 2.20 if any Eurodollar Loan
owing to such replaced Lender shall be purchased other than on the last day of
the Interest Period relating thereto, (vi) the replacement financial
institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of Section 11.6 (provided that the
Borrowers shall be obligated to pay the registration and processing fee referred
to therein), (viii) until such time as such replacement shall be consummated,
the Borrowers shall pay all additional amounts (if any) required pursuant to
Section 2.18 or 2.19, as the case may be, and (ix) any such replacement shall
not be deemed to be a waiver of any rights which the Borrowers, the
Administrative Agent or any other Lender shall have against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
-------
of Credit") for the account of either Borrower on any Business Day during the
- ---------
Revolving Credit Commitment Period in such form as may be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no
--------
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero.
<PAGE>
33
Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no
later than the earlier of (x) the first anniversary of its date of issuance and
(y) the date which is five Business Days prior to the Scheduled Revolving Credit
Termination Date, provided that any Letter of Credit with a one-year term
--------
may provide for the renewal thereof for additional one-year periods (which shall
in no event extend beyond the date referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrowers may
------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrowers. The Issuing Lender shall furnish a copy of
such Letter of Credit to the relevant Borrower promptly following the issuance
thereof. The Issuing Lender shall promptly furnish to the Administrative Agent,
which shall in turn promptly furnish to the Lenders, notice of the issuance of
each Letter of Credit (including the amount thereof).
3.3 Commissions, Fees and Other Charges. (a) The Borrowers will pay
-----------------------------------
a commission on all outstanding Letters of Credit at a per annum rate equal to
the Applicable Margin then in effect with respect to Eurodollar Loans under the
Revolving Credit Facility, shared ratably among the Revolving Credit Lenders and
payable quarterly in arrears on each L/C Fee Payment Date after the issuance
date. In addition, each Borrower shall pay to the Issuing Lender for its own
account a fronting fee of 1/4 of 1% per annum, payable quarterly in arrears on
each L/C Fee Payment Date after the issuance date with respect to each Letter of
Credit issued for the account of such Borrower.
(b) In addition to the foregoing fees and commissions, the Borrowers
shall pay or reimburse the Issuing Lender for such normal and customary costs
and expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the relevant Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, which is not so reimbursed.
<PAGE>
34
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (ii a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans under the Revolving Credit Facility. A certificate of
the Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
---
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
- ----
receives any payment related to such Letter of Credit (whether directly from the
Borrowers or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
--- ----
provided, however, that in the event that any such payment received by the
- -------- -------
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrowers. Each Borrower agrees
-----------------------------------------
to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies such Borrower of the date and amount of a draft presented under any
Letter of Credit issued for the account of such Borrower and paid by the Issuing
Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges
or other costs or expenses incurred by the Issuing Lender in connection with
such payment. Each such payment shall be made to the Issuing Lender at its
address for notices specified herein in lawful money of the United States of
America and in immediately available funds. Interest shall be payable on any
and all amounts remaining unpaid by the Borrowers under this Section from the
date such amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate set forth in Section 2.14(c). Each
drawing under any Letter of Credit shall (unless an event of the type described
in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with
respect to either of the Borrowers, in which case the procedures specified in
Section 3.4 for funding by L/C Participants shall apply) constitute a request by
the relevant Borrower to the Administrative Agent for a borrowing pursuant to
Section 2.5 of ABR Loans (or, at the option of each of the Administrative Agent
and the Swing Line Lender in its respective sole discretion, a borrowing
pursuant to Section 2.7 of Swing Line Loans) in the amount of such drawing. The
Borrowing Date with respect to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute. The Borrowers' obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrowers may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrowers also agree with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrowers'
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrowers and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrowers against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions resulting from
<PAGE>
35
the gross negligence or willful misconduct of the Issuing Lender. The Borrowers
agree that any action taken or omitted by the Issuing Lender under or in
connection with any Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful misconduct and in accordance with
the standards of care specified in the Uniform Commercial Code of the State of
New York, shall be binding on the Borrowers and shall not result in any
liability of the Issuing Lender to the Borrowers.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
relevant Borrower of the date and amount thereof. The responsibility of the
Issuing Lender to the Borrowers in connection with any draft presented for
payment under any Letter of Credit shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that
the documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Company and the Borrowers hereby jointly and severally represent and
warrant to the Administrative Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma summary
------------------- --- -----
consolidated balance sheets (including a detailed statement of shareholder's
equity) of (i) Details and its consolidated Subsidiaries as at June 30, 1998
(including the notes thereto) (the "Details Pro Forma Balance Sheet") and (ii)
-------------------------------
Holdings and its consolidated Subsidiaries as at June 30, 1998 (including the
notes thereto) (the "Holdings Pro Forma Balance Sheet"; and collectively with
--------------------------------
the Details Pro Forma Balance Sheet, the "Pro Forma Balance Sheets"), copies of
------------------------
which have heretofore been furnished to each Lender, have been prepared giving
effect (as if such events had occurred on June 30, 1998) to (i) the consummation
of the Transaction, (ii) the Indebtedness to be incurred on the Closing Date
(including, without limitation, the New Intermediate Holdco Notes) and the use
of proceeds thereof and (iii) the payment of fees and expenses in connection
with the foregoing. The Pro Forma Balance Sheets have been prepared giving
consideration, among other factors, to the requirements of Regulation S-X of the
Securities Act based on the best information available to Holdings and Details
as of the date of delivery thereof, are consistent in all material respects with
the forecasts previously delivered to the Lenders and present fairly in all
material respects on a pro forma basis the estimated financial position of
--- -----
Holdings and its consolidated Subsidiaries and Details and its consolidated
Subsidiaries, as the case may be, as at June 30, 1998, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of Details as at December
31, 1997 and December 31, 1996, and the related consolidated statements of
income and of cash flows for the fiscal years ended on such dates, reported on
by and accompanied by an unqualified report from McGladrey & Pullen, with
respect to the 1996 fiscal year, and PricewaterhouseCoopers LLP, with respect to
the 1997 fiscal year, present fairly in all material respects the consolidated
financial condition of Details as at such dates, and the consolidated results of
its operations and its consolidated cash flows for the respective fiscal years
then ended. The audited consolidated balance sheets of DCI as at December 31,
1997 and December 31, 1996, and the related consolidated statements of income
and of cash flows for the fiscal years ended on such dates, reported on by and
accompanied by an unqualified report from PricewaterhouseCooopers LLP present
fairly in all material respects the consolidated financial condition of DCI as
at such dates, and the consolidated results of its operations and its
consolidated cash flows for the respective fiscal years then ended. The
unaudited consolidated balance sheet of Details as at March 31,
<PAGE>
36
1998, and the related unaudited consolidated statements of income and cash flows
for the three-month period ended on such date, present fairly in all material
respects the consolidated financial condition of Details as at such date, and
the consolidated results of its operations and its consolidated cash flows for
the three-month period then ended (subject to normal year-end audit
adjustments). The unaudited consolidated balance sheet of DCI as at March 31,
1998, and the related unaudited consolidated statements of income and cash flows
for the three-month period ended on such date, present fairly in all material
respects the consolidated financial condition of DCI as at such date, and the
consolidated results of its operations and its consolidated cash flows for the
three-month period then ended (subject to normal year-end audit adjustments).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by the aforementioned firms
of accountants and disclosed therein). Neither Details and its Subsidiaries nor
DCI and its Subsidiaries have any material Guarantee Obligations, contingent
liabilities and liabilities for taxes, or any long-term leases or unusual
forward or long-term commitments, including, without limitation, any interest
rate or foreign currency swap or exchange transaction or other obligation in
respect of derivatives, which are not reflected in the most recent audited
financial statements referred to in this paragraph (b). During the period from
December 31, 1997 to and including the date hereof there has been no Disposition
by Details or DCI or any of their respective Subsidiaries of any material part
of its business or Property.
4.2 No Change. Since December 31, 1997 there has been no development
---------
or event which has had or could reasonably be expected to have a Material
Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of DCI, the
----------------------------------------
Company and their Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrowers, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrowers, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Transaction and the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, (ii) those consents, authorizations, filings
and notices (to the extent material) which have been obtained or made and are in
full force and effect and (iii) the filings referred to in Section 4.19. Each
Loan Document has been duly executed and delivered on behalf of each Loan Party
party thereto. This Agreement constitutes, and each other Loan Document upon
execution will constitute, a legal, valid and binding obligation of each Loan
Party party thereto, enforceable against each such Loan Party in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of DCI, the
<PAGE>
37
Company or any of their Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of their respective properties or
revenues pursuant to any Requirement of Law or any such Contractual Obligation
(other than the Liens created by the Security Documents). No Requirement of Law
or Contractual Obligation applicable to DCI, the Company or any of their
Subsidiaries could reasonably be expected to have a Material Adverse Effect.
4.6 No Material Litigation. No litigation, investigation or
----------------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Company or the Borrowers, threatened by or against DCI,
the Company or any of their Subsidiaries or against any of their respective
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) which could reasonably
be expected to have a Material Adverse Effect.
4.7 No Default. Neither DCI, the Company nor any of their
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of DCI, the Company and each
----------------------------
of their Subsidiaries has title in fee simple to, or a valid leasehold interest
in, all its real property, and good title to, or a valid leasehold interest in,
all its other Property, and none of such Property is subject to any Lien except
as permitted by Section 7.3.
4.9 Intellectual Property. DCI, the Company and each of their
---------------------
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted. No material claim has
been asserted and is pending by any Person challenging or questioning the use of
any Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does the Company or any Borrower know of any valid basis for any
such claim. The use by DCI, the Company and their Subsidiaries of Intellectual
Property which is material to the operations of DCI, the Company and their
Subsidiaries does not infringe on the rights of any Person in any material
respect.
4.10 Taxes. Each of DCI, the Company and each of their Subsidiaries
-----
has filed or caused to be filed all Federal, state and other material tax
returns which are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
Property and all other taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of DCI, the Company or their Subsidiaries, as the case may be); no tax
Lien has been filed, and (except as disclosed on Schedule 4.10), to the
knowledge of the Company and the Borrowers, no claim is being asserted, with
respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board as now and
from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of the Board. If requested by any Lender or the
Administrative Agent, the Borrowers will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form U-1 referred to in said Regulation U.
4.12 Labor Matters. There are no strikes or other labor disputes
-------------
against DCI, the Company or any of their Subsidiaries pending or, to the
knowledge of the Company or the Borrowers, threatened that (individually or in
the aggregate) could reasonably be expected to have a Material Adverse Effect.
Hours worked by, and payment made to, employees of DCI, the Company and their
Subsidiaries
<PAGE>
38
have not been in violation of the Fair Labor Standards Act or any other
applicable Requirement of Law dealing with such matters that (individually or in
the aggregate) could reasonably be expected to have a Material Adverse Effect.
All payments due from DCI, the Company or any of their Subsidiaries on account
of employee health and welfare insurance that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect if not paid have
been paid or accrued as a liability on the books of DCI, the Company or such
Subsidiary or otherwise disclosed in writing to the Lenders.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrowers nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan which has resulted or could reasonably be expected to result
in a material liability under ERISA, and neither the Borrowers nor any Commonly
Controlled Entity would become subject to any material liability under ERISA if
either of the Borrowers or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date most closely
preceding the date on which this representation is made or deemed made. No such
Multiemployer Plan is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15
------------
constitute all the Subsidiaries of DCI and the Company at the date hereof.
4.16 Use of Proceeds. The proceeds of the Tranche A Term Loans and
---------------
the Tranche B Term Loans shall be used to finance a portion of the Transaction
and to pay related fees and expenses. The proceeds of the Revolving Credit
Loans, the Swing Line Loans and the Letters of Credit shall be used for working
capital needs and general corporate purposes of the Borrowers and their
Subsidiaries in the ordinary course of business (including in connection with
any acquisition described in Section 7.8(i) or (j)).
4.17 Environmental Matters.
---------------------
(a) The facilities and properties owned, leased or operated by DCI,
the Company or any of their Subsidiaries (the "Real Properties") do not
---------------
contain, and have not previously contained, any Materials of Environmental
Concern in amounts or concentrations or under circumstances which (i)
constitute or constituted a violation of, or (ii) could give rise to
liability under, any Environmental Law, except in either case insofar as
such violation or liability, or any aggregation thereof, could not
reasonably be expected to result in the payment of a Material Environmental
Amount.
(b) The Real Properties and all operations at the Real Properties are
in material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Real Properties or violation of any
Environmental Law with respect to the Real Properties or the business
operated by DCI, the Company or any of their Subsidiaries (the "Business")
--------
which could materially interfere
<PAGE>
39
with the continued operation of the Real Properties or materially impair
the fair saleable value thereof. Neither DCI, the Company nor any of their
Subsidiaries has assumed any liability of any other Person under
Environmental Laws.
(c) Neither DCI, the Company nor any of their Subsidiaries has
received or is aware of any notice of violation, alleged violation, non-
compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Real Properties or the Business, nor does the Company or the Borrowers have
knowledge or reason to believe that any such notice will be received or is
being threatened, except insofar as such notice or threatened notice, or
any aggregation thereof, does not involve a matter or matters that could
reasonably be expected to result in the payment of a Material Environmental
Amount.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Real Properties in violation of, or in a manner or to
a location which could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Real Properties in
violation of, or in a manner that could give rise to liability under, any
applicable Environmental Law, except insofar as any such violation or
liability referred to in this paragraph, or any aggregation thereof, could
not reasonably be expected to result in the payment of a Material
Environmental Amount.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Company and the Borrowers,
threatened, under any Environmental Law to which DCI, the Company or any of
their Subsidiaries is or will be named as a party with respect to the Real
Properties or the Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental
Law with respect to the Real Properties or the Business, except insofar as
such proceeding, action, decree, order or other requirement, or any
aggregation thereof, could not reasonably be expected to result in the
payment of a Material Environmental Amount.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Real Properties, or arising from or
related to the operations of DCI, the Company or any of their Subsidiaries
in connection with the Real Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give rise
to liability under Environmental Laws, except insofar as any such violation
or liability referred to in this paragraph, or any aggregation thereof,
could not reasonably be expected to result in the payment of a Material
Environmental Amount.
4.18 Accuracy of Information, etc. No statement or information (other
----------------------------
than the projections and the pro forma financial information described in the
--- -----
immediately following sentence) contained in this Agreement, any other Loan
Document, the Confidential Information Memorandum or any other document,
certificate or statement furnished to the Administrative Agent or the Lenders or
any of them, by or on behalf of any Loan Party for use in connection with the
transactions contemplated by this Agreement or the other Loan Documents taken as
a whole, contained as of the date such statement, information, document or
certificate was so furnished (or, in the case of the Confidential Information
Memorandum, as of the Closing Date), any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
contained herein or therein not misleading. The projections and pro forma
--- -----
financial information contained in the materials referenced above are based upon
good faith estimates and assumptions believed by management of Details to be
reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount. As of the date hereof, the representations and warranties
contained in the Transaction Agreement are true and correct in
<PAGE>
40
all material respects. There is no fact known to any Loan Party that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, in the Confidential
Information Memorandum or in any other documents, certificates and statements
furnished to the Administrative Agent and the Lenders for use in connection with
the transactions contemplated hereby and by the other Loan Documents.
4.19 Security Documents. (a) The Guarantee and Collateral Agreement
------------------
is effective to create in favor of the Administrative Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. When financing statements in appropriate
form are filed in the offices specified on Schedule 4.19(a), the Guarantee and
Collateral Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in the Collateral
and the proceeds thereof, as security for the Obligations (as defined in the
Guarantee and Collateral Agreement), in each case prior and superior in right to
any other Person (other than Liens permitted by Section 7.3).
(b) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person.
4.20 Solvency. Each Loan Party is, and after giving effect to the
--------
Transaction and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 Senior Indebtedness. The Obligations constitute "Senior
-------------------
Indebtedness" of Details under and as defined in the Senior Subordinated Note
Indenture. The obligations of each Subsidiary Guarantor under the Guarantee and
Collateral Agreement constitute "Guarantor Senior Indebtedness" of such
Subsidiary Guarantor under and as defined in the Senior Subordinated Note
Indenture.
4.22 Regulation H. No Mortgage encumbers improved real property that
------------
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of 1968
unless such insurance has been obtained.
4.23 Year 2000 Matters. The testing and reprogramming required to
-----------------
permit the proper functioning (but only to the extent that such proper
functioning would otherwise be impaired by the occurrence of the year 2000) in
and following the year 2000 of computer systems and other equipment containing
embedded microchips, in either case owned or operated by the Borrowers or any of
their Subsidiaries or used or relied upon in the conduct of their business
(including any such systems and other equipment supplied by others or with which
the computer systems of the Borrowers or any of their Subsidiaries interface),
and the testing of all such systems and other equipment as so reprogrammed began
to be implemented in February 1998, and the Borrowers have no reason to believe
that any such testing and reprogramming required for the Borrowers and their
Subsidiaries to be year 2000 compliant will not be completed by June 30, 1999.
The costs to the Borrowers and their Subsidiaries that have not been incurred as
of the date hereof for such reprogramming and testing and for the other
reasonably foreseeable consequences to them of any improper functioning of other
computer systems and equipment containing embedded microchips due to the
occurrence of the year 2000 could not reasonably be expected to result in a
Default or Event of Default or to have a Material Adverse Effect.
<PAGE>
41
4.24 Senior Indebtedness. The Indebtedness consisting of the Term
-------------------
Loans is being incurred as Indebtedness permitted respectively by the proviso to
each of clause (a) of Section 1011 of the Company Indenture and clause (a) of
Section 1010 of the Senior Subordinated Note Indenture. This Agreement replaces
the senior secured Credit Agreement, dated as of October 28, 1997 (as amended
and restated as of December 5, 1997), among the Company, The Chase Manhattan
Bank, as administrative agent and the lenders party thereto. The Revolving
Extensions of Credit and the Indebtedness consisting of the Term Loans
constitute "Senior Indebtedness" (as defined in each of the Company Indenture
and the Senior Subordinated Note Indenture) by virtue of being "Bank
Indebtedness" (as so defined in said indentures).
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of the
Company and the Borrowers and (ii) the Guarantee and Collateral Agreement,
executed and delivered by a duly authorized officer of the Company,
Details, DCI and each other Subsidiary Guarantor.
(b) Transaction, etc. The following transactions (collectively with
----------------
all other transactions in connection therewith, the "Transaction") shall
-----------
have been consummated:
(i) The current common shareholders of DCI shall each have
contributed to Holdings approximately 40% of the common equity of DCI held
by each of them (the "40% Shares");
----------
(ii) Holdings shall have contributed the 40% Shares to New
Intermediate Holdco;
(iii) New Intermediate Holdco and investment funds managed by
Bain Capital each shall have contributed all of the common equity of DCI
then held by each of them to a Wholly Owned Subsidiary of New Intermediate
Holdco, a newly formed Delaware corporation, Details Merger Corp. I
("MergerCo I"), and in return shall have received an equal number of shares
----------
of the common equity of MergerCo I;
(iv) MergerCo I shall have merged with and into DCI, the holders
of all of the outstanding common equity of DCI (other than that held by
Bain Capital and MergerCo I) shall have received an aggregate amount of
approximately $67,000,000 in exchange for the cancellation of such common
equity, the holders of the Class A Preferred Stock of DCI shall have
received an aggregate amount of approximately $12,316,000 in exchange for
the cancellation of such Class A Preferred Stock and the Class B Preferred
Stock of DCI (the "DCI Preferred Stock") will remain outstanding;
-------------------
(v) New Intermediate Holdco shall have received not less than
$33,000,000 in net proceeds from the issuance of the New Intermediate
Holdco Notes, which proceeds shall be lent to DCI, in each case, on terms
and conditions reasonably satisfactory to the Administrative Agent; and
<PAGE>
42
(vi) The transactions undertaken pursuant to clauses (i) through
(v) above shall be undertaken pursuant to the Transaction Documents and in
form and substance consistent with the terms previously disclosed to the
Administrative Agent in writing and on other terms reasonably satisfactory
to the Lenders.
(c) Pro Forma Balance Sheets; Financial Statements. The Lenders
----------------------------------------------
shall have received (i) the Pro Forma Balance Sheets, (ii) audited
consolidated financial statements of each of Details and DCI for the 1997
and 1996 fiscal years and (iii) unaudited interim consolidated financial
statements of each of Details and DCI for each fiscal quarterly period
ended subsequent to the date of the latest applicable financial statements
delivered pursuant to clause (ii) of this paragraph as to which such
financial statements are available, and such financial statements shall
not, in the reasonable judgment of the Lenders, reflect any material
adverse change in the consolidated financial condition of Details or DCI,
as reflected in the financial statements or projections previously
distributed by Details to the Administrative Agent or the Lenders in
writing or which are contained in the Confidential Information Memorandum.
(d) Business Plan. The Lenders shall have received a satisfactory
-------------
written business plan for each fiscal year through the scheduled final
maturity of the Tranche B Term Loans.
(e) Capitalization. The capitalization and structure of Holdings and
--------------
each of its Subsidiaries after giving effect to the Transaction shall be
consistent with the capitalization and structure previously disclosed to
the Lenders in writing.
(f) Payment of Outstanding Indebtedness. Each of Details and DCI
-----------------------------------
shall have repaid its outstanding bank indebtedness in an aggregate
principal amount approximately equal to $106,100,000 and $64,725,000,
respectively, and the terms and conditions of any indebtedness of Details
and DCI to remain outstanding after the Closing Date shall be reasonably
satisfactory to the Administrative Agent.
(g) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent lien search in each of the jurisdictions where assets
of Holdings or any of its Subsidiaries are located, and such search shall
reveal no liens on any of the assets of Holdings or any of its Subsidiaries
except for liens permitted by Section 7.3 and liens to be discharged on or
prior to the Closing Date pursuant to documentation reasonably satisfactory
to the Administrative Agent.
(h) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(i) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions:
(i) the legal opinion of Ropes & Gray, counsel to the Company
and its Subsidiaries, substantially in the form of Exhibit E;
(ii) to the extent consented to by the relevant counsel, each
legal opinion, if any, delivered in connection with the Transaction
Agreement, accompanied by a reliance letter in favor of the Lenders; and
(iii) the legal opinion of local counsel in California and of
such other special and local counsel as may be required by the
Administrative Agent.
<PAGE>
43
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(j) Filings, Registrations and Recordings. Each document (including,
-------------------------------------
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation.
(k) Solvency Opinion. The Administrative Agent shall have received a
----------------
satisfactory solvency opinion from Murray, Devine & Co. which shall
document the solvency of the Company and its Subsidiaries on a consolidated
basis after giving effect to the Transaction, the financing thereof and the
other transactions contemplated hereby.
(l) Insurance. The Administrative Agent shall have received
---------
insurance certificates satisfying the requirements of Section 5.2 of the
Guarantee and Collateral Agreement.
(m) Environmental Audit. The Lenders shall have received a
-------------------
satisfactory environmental audit with respect to the real property owned or
leased by DCI and its Subsidiaries from a firm satisfactory to the
Administrative Agent.
(n) Transaction Documents. The Company and its Subsidiaries and
---------------------
Affiliates (i) shall not be in breach or violation of any of their
obligations under the Transaction Documents and (ii) shall not be subject
to any Requirements of Law or Contractual Obligations that would be
violated by the Transaction and none of the provisions of any of the
Transaction Documents shall have been amended, modified or waived in any
material respect without the written consent of the Administrative Agent.
(o) Transaction Fees and Expenses. The fees and expenses to be
-----------------------------
incurred in connection with the Transaction and the financing thereof shall
not exceed $12,750,000 in the aggregate.
(p) Financial Ratios. The Administrative Agent shall be satisfied
----------------
that (i) the Consolidated Leverage Ratio as at the Closing Date shall not
be greater than 5.40 to 1.0 and (ii) the "Consolidated Coverage Ratio" of
Details and its "Restricted Subsidiaries" (all as defined in the Senior
Subordinated Note Indenture) as at the Closing Date shall be at least 2.00
to 1.0, and Details shall provide support for such calculations which is
reasonably satisfactory to the Administrative Agent (giving consideration,
among other factors, to the requirements of Regulation S-X of the
Securities Act).
5.2 Condition to Loans on the Second Closing Date. The agreement of
---------------------------------------------
each Lender to make the Loans to be made by it on the Second Closing Date is
subject to the satisfaction prior to or concurrently with the making of such
Loans on the Second Closing Date, of the following additional conditions
precedent:
<PAGE>
44
(a) New Intermediate Holdco shall have contributed all of the common
equity owned by it in DCI to a wholly owned subsidiary of New Intermediate
Holdco, a newly formed Delaware corporation, Details Merger Corp. II
("MergerCo II");
-----------
(b) MergerCo II shall have merged with and into DCI and investment
funds managed by Bain Capital holding shares of common equity of DCI shall
have received an aggregate amount of approximately $23,000,000 in exchange
for the cancellation of such common equity;
(c) New Intermediate Holdco shall then contribute all of the common
equity of DCI to the Company which will then contribute all of such common
equity to Details; and
(d) The transactions undertaken pursuant to clauses (a) through (c)
above shall be undertaken pursuant to the Transaction Documents and in form
and substance consistent with the terms previously disclosed to the
Administrative Agent in writing and on other terms reasonably satisfactory
to the Lenders.
5.3 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit on the Closing
Date and any extension of credit on the Second Closing Date) is subject to the
satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrowers
hereunder shall constitute a representation and warranty by the Borrowers as of
the date of such extension of credit that the conditions contained in this
Section 5.3 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Company and the Borrowers hereby jointly and severally agree that,
so long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of the Company and the Borrowers shall and
shall cause each of their Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent for
--------------------
distribution to each of the Lenders:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of New Intermediate Holdco and Details, a copy of
the audited consolidated balance sheet of New Intermediate Holdco and its
consolidated Subsidiaries and Details and its consolidated Subsidiaries as
at the end of such year and the related audited consolidated statements of
income and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a
"going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by PricewaterhouseCoopers LLP or
other independent certified public accountants of nationally recognized
standing;
<PAGE>
45
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of New Intermediate Holdco and Details, the unaudited consolidated
balance sheet of New Intermediate Holdco and its consolidated Subsidiaries
and Details and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments); and
(c) as soon as available, but in any event not later than 30 days
after the end of each month occurring during each fiscal year of New
Intermediate Holdco and Details (other than the third, sixth, ninth and
twelfth such month), the unaudited consolidated balance sheets of New
Intermediate Holdco and its consolidated Subsidiaries and Details and its
consolidated Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and of cash flows for such
month and the portion of the fiscal year through the end of such month,
setting forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except (x) as approved by such accountants or officer, as the case may
be, and disclosed therein and (y) in the case of the financial statements
delivered pursuant to clauses (b) and (c) above, for the absence of footnotes).
6.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent for distribution to each of the Lenders, or, in the case of clause (g), to
the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default under the financial covenants set forth in
Section 7.1, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of each such Responsible Officer's knowledge, each Loan
Party during such period has in all material respects observed or performed
all of its covenants and other agreements, and satisfied every condition,
contained in this Agreement and the other Loan Documents to which it is a
party to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) in the case of
quarterly or annual financial statements, (x) a Compliance Certificate
containing all information necessary for determining compliance by the
Company and its Subsidiaries with the provisions of this Agreement referred
to therein as of the last day of the fiscal quarter or fiscal year of
Details, as the case may be, and (y) to the extent not previously disclosed
to the Administrative Agent, a listing of any county or state within the
United States where any Loan Party keeps inventory or equipment and of any
Intellectual Property acquired by any Loan Party since the date of the most
recent list delivered pursuant to this clause (y) (or, in the case of the
first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of Details, a detailed consolidated
budget for the then-current fiscal year (including a projected consolidated
balance sheet of Details and its Subsidiaries as of the end of such then-
<PAGE>
46
current fiscal year, and the related consolidated statements of projected
cash flow, projected changes in financial position and projected income),
and, as soon as available, significant revisions, if any, of such budget
and projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
-----------
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of Details, a
narrative discussion and analysis of the financial condition and results of
operations of Details and its Subsidiaries for such fiscal quarter and for
the period from the beginning of the then current fiscal year to the end of
such fiscal quarter, as compared to the portion of the Projections covering
such periods and to the comparable periods of the previous year;
(e) no later than 3 Business Days prior to the effectiveness thereof
(or, to the extent that the consent of all or any portion of the Lenders is
required hereunder in connection with such amendment, supplement, waiver or
modification, no later than 10 Business Days prior to the effectiveness
thereof), copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification with respect to the Company
Indenture, the Senior Subordinated Note Indenture, the New Intermediate
Holdco Note Purchase Agreement or the Transaction Agreement;
(f) within five days after the same are sent, copies of all financial
statements and reports which Holdings, the Company or Details sends to the
holders of any class of its debt securities or public equity securities and
within five days after the same are filed, copies of all financial
statements and reports which Holdings, the Company or Details may make to,
or file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority; and
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Company or its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
------------------------------------------------------
Continue to engage in business of the same general type as now conducted by it,
(ii) preserve, renew and keep in full force and effect its corporate existence
and (iii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (iii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and1 (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property
----------------------------------
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its Property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
<PAGE>
47
6.6 Inspection of Property; Books and Records; Discussions. (a)
------------------------------------------------------
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit, upon two Business Days' prior notice to the chief financial officer or
other Responsible Officer of the Company or Details (except when a Default or
Event of Default has occurred and is continuing, in which case, no notice shall
be required), representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Company and its Subsidiaries with officers and employees of the Company and its
Subsidiaries and with its independent certified public accountants; provided
--------
that all such visits and inspections shall be coordinated through the
Administrative Agent.
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any litigation, investigation or proceeding which may exist at
any time affecting Holdings or any of its Subsidiaries which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event within
30 days after Details knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
Details or any Commonly Controlled Entity or any Multiemployer Plan with
respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(d) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company or the relevant Subsidiary of the
Company proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with,
------------------
and ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection. In the case of Details, within 90 days
------------------------
after the Closing Date, enter into Interest Rate Protection Agreements to the
extent necessary to provide that at least 50% of the aggregate principal amount
of the Senior Subordinated Notes and the Term Loans is subject to either a fixed
interest rate or interest rate protection for a period of not less than three
years, which Interest Rate Protection Agreements shall have terms and conditions
reasonably satisfactory to the Administrative Agent.
<PAGE>
48
6.10 Additional Collateral, etc. (a) With respect to any Property
--------------------------
acquired after the Closing Date by the Company or any of its Subsidiaries (other
than (x) any Property described in paragraph (b), (c) or (d) below and (y) any
Property subject to a Lien expressly permitted by Section 7.3(g)) as to which
the Administrative Agent, for the benefit of the Lenders, does not have a
perfected Lien, promptly (i) execute and deliver to the Administrative Agent
such amendments to the Guarantee and Collateral Agreement or such other
documents as the Administrative Agent deems necessary or advisable in order to
grant to the Administrative Agent, for the benefit of the Lenders, a security
interest in such Property and (ii) take all actions necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a perfected
first priority security interest in such Property, including without limitation,
the filing of Uniform Commercial Code financing statements in such jurisdictions
as may be required by the Guarantee and Collateral Agreement or by law or as may
be requested by the Administrative Agent.
(b) With respect to any fee interest in any real estate having a
value (together with improvements thereof) of at least $1,000,000 acquired after
the Closing Date by the Company or any of its Subsidiaries (other than any such
real estate subject to a Lien expressly permitted by Section 7.3(g)), promptly
upon request of the Administrative Agent or the Required Lenders (i) execute and
deliver a first priority Mortgage or deed of trust, as the case may be, in favor
of the Administrative Agent, for the benefit of the Lenders, covering such real
estate, in form and substance reasonably satisfactory to the Administrative
Agent, (ii) if requested by the Administrative Agent, provide the Lenders with
(x) title and extended coverage insurance covering such real estate in an amount
at least equal to the purchase price of such real estate (or such other amount
as shall be reasonably specified by the Administrative Agent) as well as a
current ALTA survey thereof, together with a surveyor's certificate and (y) any
consents or estoppels reasonably deemed necessary or advisable by the
Administrative Agent in connection with such mortgage or deed of trust, each of
the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by the Company
(which, for the purposes of this paragraph (c), shall include any existing
Subsidiary that ceases to be an Excluded Foreign Subsidiary) or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by the Company or any of its
Subsidiaries, (ii) cause such new Subsidiary (A) to become a party to the
Guarantee and Collateral Agreement and (B) to take such actions necessary or
advisable to grant to the Administrative Agent for the benefit of the Lenders a
perfected first priority security interest in the Collateral described in the
Guarantee and Collateral Agreement with respect to such new Subsidiary,
including, without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Administrative
Agent, and (iii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by the Company or any of its Subsidiaries,
promptly (i) execute and deliver to the Administrative Agent such amendments to
the Guarantee and Collateral Agreement as the Administrative Agent deems
necessary or advisable in order to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by the Company or any of its
Subsidiaries (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), and (ii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the
<PAGE>
49
matters described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
6.11 DCI Drop Down. No later than the Second Closing Date, New
-------------
Intermediate Holdco shall contribute the note of DCI evidencing the loan
referred to in Section 5.1(b)(v) to the capital of DCI and, except for the DCI
Preferred Stock, shall cause DCI to be a Wholly Owned Subsidiary of Details as a
result of the transactions referred to in Section 5.2.
6.12 Mortgages, etc. Within 30 days after the Closing Date (which
--------------
period may be extended by the Administrative Agent for up to an additional 30
days):
(i) The Administrative Agent shall have received a Mortgage with
respect to each Mortgaged Property, executed and delivered by a duly
authorized officer of each party thereto.
(ii) If requested by the Administrative Agent, the Administrative
Agent shall have received, and the title insurance company issuing the
policy referred to in clause (iii) below (the "Title Insurance Company")
-----------------------
shall have received, maps or plats of an as-built survey of the sites of
the Mortgaged Properties certified to the Administrative Agent and the
Title Insurance Company in a manner satisfactory to them, dated a date
satisfactory to the Administrative Agent and the Title Insurance Company by
an independent professional licensed land surveyor satisfactory to the
Administrative Agent and the Title Insurance Company, which maps or plats
and the surveys on which they are based shall be made in accordance with
the Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1992, and, without limiting
the generality of the foregoing, there shall be surveyed and shown on such
maps, plats or surveys the following: (A) the locations on such sites of
all the buildings, structures and other improvements and the established
building setback lines; (B) the lines of streets abutting the sites and
width thereof; (C) all access and other easements appurtenant to the sites;
(D) all roadways, paths, driveways, easements, encroachments and
overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (E) any encroachments on any adjoining
property by the building structures and improvements on the sites; (F) if
the site is described as being on a filed map, a legend relating the survey
to said map; and (G) the flood zone designations, if any, in which the
Mortgaged Properties are located.
(iii) The Administrative Agent shall have received in respect of each
Mortgaged Property a mortgagee's title insurance policy (or policies) or
marked up unconditional binder for such insurance. Each such policy shall
(A) be in an amount satisfactory to the Administrative Agent; (B) be issued
at ordinary rates; (C) insure that the Mortgage insured thereby creates a
valid first Lien on such Mortgaged Property free and clear of all defects
and encumbrances, except as disclosed therein; (D) name the Administrative
Agent for the benefit of the Lenders as the insured thereunder; (E) be in
the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and 10/17/84) (or
equivalent policies); (F) contain such endorsements and affirmative
coverage as the Administrative Agent may reasonably request and (G) be
issued by title companies satisfactory to the Administrative Agent
(including any such title companies acting as co-insurers or reinsurers, at
the option of the Administrative Agent). The Administrative Agent shall
have received evidence satisfactory to it that all premiums in respect of
each such policy, all charges for mortgage recording tax, and all related
expenses, if any, have been paid.
(iv) If requested by the Administrative Agent, the Administrative
Agent shall have received (A) a policy of flood insurance that (1) covers
any parcel of improved real property that is encumbered by any Mortgage (2)
is written in an amount not less than the outstanding principal amount of
the indebtedness secured by such Mortgage that is reasonably allocable to
such real
<PAGE>
50
property or the maximum limit of coverage made available with respect to
the particular type of property under the National Flood Insurance Act of
1968, whichever is less, and (3) has a term ending not later than the
maturity of the Indebtedness secured by such Mortgage and (B) confirmation
that the Borrower has received the notice required pursuant to Section
208(e)(3) of Regulation H of the Board.
(v) The Administrative Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the
title policy or policies referred to in clause (iii) above and a copy of
all other material documents affecting the Mortgaged Properties.
SECTION 7. NEGATIVE COVENANTS
The Company and the Borrowers hereby jointly and severally agree that,
so long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of the Company and the Borrowers shall not,
and shall not permit any of their Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
---------------------------
Ratio as at the last day of any period of four consecutive fiscal quarters of
Details ending during any period set forth below to exceed the ratio set forth
below opposite such period:
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
Closing Date through December 30, 1999 6.00 to 1.0
December 31, 1999 through September 29, 2000 5.25 to 1.0
September 30, 2000 through September 29, 2001 4.50 to 1.0
September 30, 2001 through September 29, 2002 4.00 to 1.0
September 30, 2002 through September 29, 2003 3.50 to 1.0
September 30, 2003 through thereafter 3.00 to 1.0
</TABLE>
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
Details ending during any period set forth below to be less than the ratio set
forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated Interest
Period Coverage Ratio
------ ---------------------
<S> <C>
Closing Date through September 29, 1999 1.75 to 1.0
September 30, 1999 through September 29, 2000 1.85 to 1.0
September 30, 2000 through September 29, 2001 2.25 to 1.0
September 30, 2001 through September 29, 2002 2.50 to 1.0
September 30, 2002 through September 29, 2003 2.75 to 1.0
September 30, 2003 through thereafter 3.00 to 1.0
</TABLE>
(c) Consolidated Fixed Charge Coverage Ratio. Permit the
----------------------------------------
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters (commencing with the period of four consecutive fiscal quarters
ending on December 31, 1998) of Details to be less than 1.05 to 1.0.
<PAGE>
51
(d) Minimum EBITDA. Permit Consolidated EBITDA for any fiscal year
--------------
set forth below to be less than the amount set forth opposite such fiscal year:
<TABLE>
<CAPTION>
Consolidated
Fiscal Year EBITDA
----------- ------------
<S> <C>
1998 60,000,000
1999 67,500,000
2000 75,000,000
2001 80,000,000
2002 85,000,000
2003 90,000,000
2004 90,000,000
2005 90,000,000
</TABLE>
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist (in each case, to "Incur") any Indebtedness or issue any Preferred Stock,
-----
except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of Details to any Subsidiary and of any Wholly Owned
Subsidiary Guarantor to Details or any other Subsidiary;
(c) Indebtedness secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $4,000,000 at any one time
outstanding;
(d) Capital Lease Obligations existing on the date hereof and other
Capital Lease Obligations, which other Capital Lease Obligations shall not
exceed $10,000,000 aggregate principal amount at any one time outstanding;
(e) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(e) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(f) guarantees made in the ordinary course of business by Details or
any of its Subsidiaries of obligations of any Wholly Owned Subsidiary
Guarantor;
(g) (i) Indebtedness of Details in respect of the Senior Subordinated
Notes in an aggregate principal amount not to exceed $100,000,000 and (ii)
Indebtedness of the Company in respect of the Company Zeros in an
aggregate, unaccreted principal amount not to exceed $60,100,000;
(h) Indebtedness of the Company evidenced by the increase in the
principal amount of the Company Zeros in connection with the payment in
kind of interest thereon prior to the fifth anniversary of the Closing
Date;
(i) Indebtedness of a Person which becomes a Subsidiary after the
date hereof; provided, that (i) such Indebtedness existed at the time such
--------
Person became a Subsidiary and was not created in anticipation of the
acquisition and (ii) such Indebtedness was not created in contemplation of
such Person becoming a Subsidiary;
(j) Indebtedness of Details and its Subsidiaries on account of the
deferred purchase price for acquisitions of Capital Stock and assets
permitted pursuant to Section 7.8;
<PAGE>
52
(k) guarantees made by Subsidiaries of Details on account of the
Senior Subordinated Notes; provided, that such guarantees are subordinated
--------
to the obligations of such Subsidiaries under the Guarantee and Collateral
Agreement and the other Security Documents upon terms satisfactory to the
Administrative Agent;
(l) (i) the DCI Preferred Stock and (ii) any other Preferred Stock
which is not redeemable and is not convertible into debt obligations of the
Company or any of its Subsidiaries, in each case, during the term of this
Agreement, the dividends with respect to which are payable only in kind and
the other terms and conditions of which are reasonably satisfactory to the
Administrative Agent; and
(m) additional Indebtedness of Details or any of its Subsidiaries in
an aggregate principal amount (for Details and all Subsidiaries) not to
exceed $20,000,000 at any one time outstanding.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of Details or its Subsidiaries,
as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) Liens in existence on the date hereof listed on Schedule 7.3(e),
securing Indebtedness permitted by Section 7.2(e), provided that no such
--------
Lien is spread to cover any additional Property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(f) zoning restrictions, easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do not in
any case materially detract from the value of the Property subject thereto
or materially interfere with the ordinary conduct of the business of
Details or any of its Subsidiaries;
(g) Liens securing Indebtedness of Details or any of its Subsidiaries
incurred pursuant to Section 7.2(c) to finance the acquisition of fixed or
capital assets, provided that (i) such Liens shall be created substantially
--------
simultaneously with the acquisition of such fixed or capital assets, (ii)
such Liens do not at any time encumber any Property other than the Property
financed by such Indebtedness and (iii) the amount of Indebtedness secured
thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into by
Details or any Subsidiary in the ordinary course of its business and
covering only the assets so leased (including, without
<PAGE>
53
limitation, with respect to the capital leases of Details' principal
manufacturing facility and related equipment and covering only such
facility and related equipment); and
(j) Liens not otherwise permitted by this Section 7.3 so long as
neither (i) the aggregate principal amount of the obligations secured
thereby nor (ii) the aggregate fair market value (determined as of the date
such Lien is incurred) of the assets subject thereto exceeds (as to Details
and all Subsidiaries) $4,000,000 at any one time outstanding.
7.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of, all or substantially all
of its Property or business, or make any material change in its present method
of conducting business, except:
(a) any Subsidiary of Details may be merged or consolidated with or
into Details (provided that Details shall be the continuing or surviving
--------
corporation) or with or into any Wholly Owned Subsidiary Guarantor
(provided that the Wholly Owned Subsidiary Guarantor shall be the
--------
continuing or surviving corporation);
(b) Details or any of its Subsidiaries may Dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to Details or any
Wholly Owned Subsidiary Guarantor; and
(c) any Person may be merged or consolidated with or into Details or
any of its Subsidiaries pursuant to an investment permitted subsection
7.8(i) or (j) (provided that Details or the applicable Subsidiary shall be
--------
the continuing or surviving corporation).
7.5 Limitation on Sale of Assets. Dispose of any of its Property or
----------------------------
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of property or assets that are no longer used or
useful in the ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to Details
or any Wholly Owned Subsidiary Guarantor;
(e) Details and its Subsidiaries may, in the ordinary course of
business, license Intellectual Property to third Persons and to one
another, so long as each such license does not otherwise prohibit the
granting of a Lien by Details or any of its Subsidiaries pursuant to the
Security Documents in the Intellectual Property which is the subject of
such license; and
(f) the sale of other assets having a fair market value not to exceed
$10,000,000 in the aggregate for any fiscal year of Details.
7.6 Limitation on Dividends. Declare or pay any dividend (other than
-----------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of Details or any of
its Subsidiaries or any warrants or options to purchase any such Capital Stock,
whether now or hereafter outstanding, or make
<PAGE>
54
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of Details or any of its
Subsidiaries (collectively, "Restricted Payments"), except that:
-------------------
(a) any Subsidiary may make Restricted Payments to Details or any
Wholly Owned Subsidiary Guarantor;
(b) any payments made to the former shareholders of Holdings pursuant
to Section 1.11 of the Recapitalization Agreement;
(c) any payments on the DCI Preferred Stock on the terms in existence
on the date hereof and any payments of Deferred Payment Amounts;
(d) so long as no Default or Event of Default shall have occurred and
be continuing, Details may pay dividends to the Company to permit the
Company to pay dividends directly, or indirectly through the Company or New
Intermediate Holdco, to Holdings to permit Holdings to (i) purchase
Holdings' common stock or common stock options from present or former
officers or employees of Holdings or any of its Subsidiaries upon the
death, disability or termination of employment of such officer or employee,
provided, that the aggregate amount of payments under this clause (i) shall
--------
not exceed $4,000,000 during any fiscal year of Details and $10,000,000
during the term of this Agreement, net, in any case, of any proceeds
received by Holdings and contributed to Details in connection with resales
of any common stock or common stock options so purchased during the
relevant period and (ii) pay management fees to Bain Capital and Bain
Affiliates expressly permitted by Section 7.10(iii); and
(e) Details may pay dividends to the Company to permit the Company,
New Intermediate Holdco or Holdings to (i) pay corporate overhead expenses
incurred in the ordinary course of business not to exceed $500,000 in any
fiscal year, (ii) pay any taxes which are due and payable by Holdings as
part of a consolidated group of which the Company, New Intermediate Holdco
and Details are members (provided that the amount of such dividends shall
--------
not exceed the lesser of (x) the actual cash tax liability of Holdings
which is then due and payable to Governmental Authorities and (y) the cash
tax liability which would be owing by the Company and its Subsidiaries to
Governmental Authorities on a stand-alone basis), (iii) pay fees and
expenses (other than to Affiliates) relating to the Company Zeros and the
New Intermediate Holdco Notes, (iv) beginning no earlier than July 2002,
pay interest in cash on the Company Zeros, (v) no earlier than December
2003 and so long as no Default or Event of Default shall have occurred and
be continuing, make all or any portion of the AHYDO Payment; provided, that
--------
(w) prior to Details making the dividend to permit all or any portion of
the AHYDO Payment to be made, Details shall provide a certificate to the
Administrative Agent, certifying that on a pro forma basis, after giving
effect to such dividend it is in compliance with all of the covenants
contained in Section 7.1, (x) the Borrower shall not be permitted to borrow
under the Revolving Credit Facility to finance such dividend and (y) the
amount of such dividend shall not exceed the lesser of (I) the then unused
Permitted Expenditure Amount plus $7,500,000 and (II) $35,000,000, and (vi)
after the date of the AHYDO Payment, pay interest in cash on the New
Intermediate Holdco Notes.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
----------------------------------
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure, except Capital Expenditures of
<PAGE>
55
Details and its Subsidiaries in the ordinary course of business not exceeding in
any fiscal year of Details the amount set forth below opposite such fiscal year
(the "Base CapEx Amount") plus the then unused Permitted Expenditure Amount:
----------------- ----
<TABLE>
<CAPTION>
Fiscal Year Base CapEx Amount
- ----------------- -----------------
<S> <C>
1998 $20,000,000
1999 $20,000,000
2000 $22,500,000
2001 $25,000,000
2002 $27,500,000
2003 $30,000,000
2004 $30,000,000
2005 $32,500,000
</TABLE>
; provided, that (i) up to 50% of the Base CapEx Amount not expended in the
--------
fiscal year for which it is permitted may be carried over for expenditure in the
next succeeding fiscal year, and (ii) Capital Expenditures made during any
fiscal year shall be deemed made, first, in respect of the Base CapEx Amount
-----
permitted for such fiscal year as provided above and, second, in respect of any
------
portion of such Base CapEx Amount carried over from the prior fiscal year
pursuant to subclause (i) above; provided, further, that notwithstanding the
-------- -------
foregoing, Details and its Subsidiaries may make Capital Expenditures (which
Capital Expenditures shall not be included in the amount of Capital Expenditures
permitted to be made pursuant to this Section 7.7 without giving effect to this
second proviso) with Reinvestment Deferred Amounts.
7.8 Limitation on Investments, Loans and Advances. Make any advance,
---------------------------------------------
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting all or a material part of a business
unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of the Company and its
Subsidiaries in the ordinary course of business (including, without
limitation, for travel, entertainment and relocation expenses) in an
aggregate amount for the Company and its Subsidiaries not to exceed
$1,000,000 at any one time outstanding;
(e) (i) the Company may acquire and hold obligations of one or more
officers or other employees of the Company or its Subsidiaries in
connection with such officers' or employees' acquisition of shares of
common stock of Holdings so long as no cash is paid by the Company or any
of its Subsidiaries in connection with the acquisition of any such
obligations, (ii) the Borrower may lend up to $1,000,000 in an aggregate
principal amount at any one time outstanding to officers and employees of
the Company and its Subsidiaries on or after the date on which any such
officers and employees exercise their options to purchase common stock of
Holdings issued to them in connection with the Transaction so long as the
proceeds of such loans are promptly used by such officers and employees to
pay taxes payable by them as a result of such exercise and (iii)
investments consisting of loans by the Borrower or its Subsidiaries to
employees of the Company or its Subsidiaries, not exceeding (x) $650,000 in
the aggregate for loans made in connection with the Transaction or the
transactions contemplated by the Recapitalization Agreement and (y)
$2,000,000 for loans made after the Closing Date, in each case, in
aggregate principal amount at
<PAGE>
56
any time outstanding and made solely for the purpose of funding purchases
by such employees of common stock of Holdings;
(f) the Transaction;
(g) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases;
(h) investments by the Company or any of its Subsidiaries in Details
or any Person that, prior to such investment, is a Wholly Owned Subsidiary
Guarantor;
(i) Details and its Subsidiaries may acquire all or substantially all
of the Capital Stock or assets of any Person or business unit of a Person;
provided that (i) no Default or Event of Default has occurred and is
--------
continuing or would result therefrom, (ii) the Company would have been in
compliance, on a pro forma basis, with each of the financial covenants
contained in Section 7.1 if such acquisition had been made on the first day
of the most recently completed period of calculation thereof, (iii) the
aggregate consideration (including the aggregate principal amount of
Indebtedness which is incurred, assumed or guaranteed, the aggregate amount
of any deferred consideration and the fair market value of any non-cash
consideration) paid on account of all such acquisitions which are
consummated after the Closing Date does not exceed the sum of $30,000,000
and the then unused Permitted Expenditure Amount; and
(j) in addition to investments otherwise expressly permitted by this
Section 7.8, investments by Details or any of its Subsidiaries in an
aggregate amount (valued at cost, but net of returns of capital from such
investments) not to exceed during the term of this Agreement the sum of
$10,000,000 and the then unused Permitted Expenditure Amount on the date
upon which such investment is made.
7.9 Limitation on Optional Payments and Modifications of Debt
---------------------------------------------------------
Instruments, etc. (a) Make or offer to make any payment, prepayment,
- -----------------
repurchase or redemption of or otherwise defease or segregate funds with respect
to the Senior Subordinated Notes, the Company Zeros or the New Intermediate
Holdco Notes (other than scheduled interest payments required to be made in cash
and the AHYDO Payment), (b) amend, modify, waive or otherwise change, or consent
or agree to any amendment, modification, waiver or other change to, any of the
terms of the Senior Subordinated Notes, the Senior Subordinated Note Indenture,
the Company Zeros, the Company Indenture, the New Intermediate Holdco Notes or
the New Intermediate Holdco Note Purchase Agreement (other than any such
amendment, modification, waiver or other change which (i) would extend the
maturity or reduce the amount of any payment of principal thereof or which would
reduce the rate or extend the date for payment of interest thereon or (ii) is
not adverse in any respect to the interests of the Lenders in the reasonable
opinion of the Administrative Agent in its sole discretion) or (c) designate any
Indebtedness as "Designated Senior Indebtedness" for the purposes of the Senior
Subordinated Note Indenture.
7.10 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Company, Details or any Wholly Owned Subsidiary Guarantor) unless such
transaction is (a) not otherwise prohibited under this Agreement and (b) upon
fair and reasonable terms no less favorable to the Company, Details or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate; provided, that the
--------
following transactions shall not be prohibited:
(i) the Transaction and the payment of fees to Bain Capital and/or
Bain Affiliates and to Celerity Partners I, L.P. and Celerity Management
Co. in connection with the Transaction in an aggregate amount with respect
to all such fees not to exceed $4,500,000;
<PAGE>
57
(ii) in connection with any acquisition consummated pursuant to
Section 7.8(i) or (j), the payment to Bain Capital and/or Bain Affiliates
of a fee in an amount not to exceed 2% of the aggregate consideration paid
by the Company and its Subsidiaries on account of such acquisition;
(iii) so long as no Default or Event of Default shall have occurred
and is continuing, the payment, on a quarterly basis, of management fees to
Bain Capital and/or the Bain Affiliates in an aggregate amount (for all
such Persons taken together) not to exceed $375,000 in any fiscal quarter
of Details; provided that the portion of such fee which accrued but was not
--------
payable during the existence and continuance of such Default or Event of
Default shall be permitted to be paid at such time as all Defaults and
Events of Default have been cured or waived; and
(iv) the reimbursement of Bain Capital and/or the Bain Affiliates for
their reasonable out-of-pocket expenses incurred by them in connection with
performing management services to Details and its Subsidiaries.
Notwithstanding anything to the contrary contained in this Section 7.10, at no
time will the Company or any of its Subsidiaries make any payments to Bain
Capital and/or any of its Affiliates in an amount which would exceed that amount
permitted to be paid pursuant to the Senior Subordinated Note Indenture, the
Company Indenture or the New Intermediate Note Indenture at such time.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement
----------------------------------
with any Person providing for the leasing by the Company or any of its
Subsidiaries of real or personal property which has been or is to be sold or
transferred by the Company or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Company or such
Subsidiary.
7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year
---------------------------------------
of the Company or either of the Borrowers to end on a day other than December 31
or change the Company's or the Borrowers' method of determining fiscal quarters.
7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to
-------------------------------------
exist or become effective any agreement which prohibits or limits the ability of
the Company or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, other than (a) this Agreement and the other Loan Documents
and (b) any agreements governing any purchase money Liens or Capital Lease
Obligations otherwise permitted hereby (in which case, any prohibition or
limitation shall only be effective against the assets financed thereby).
7.14 Limitation on Restrictions on Subsidiary Distributions. Enter
------------------------------------------------------
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of Details to (a) pay dividends or
make any other distributions in respect of any Capital Stock of such Subsidiary
held by, or pay any Indebtedness owed to, Details or any other Subsidiary of
Details, (b) make loans or advances to Details or any other Subsidiary of
Details or (c) transfer any of its assets to Details or any other Subsidiary of
Details, except for such encumbrances or restrictions existing under or by
reason of (i) any restrictions existing under the Loan Documents and (ii) any
restrictions with respect to a Subsidiary imposed pursuant to an agreement which
has been entered into in connection with the Disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary.
7.15 Limitation on Lines of Business. Enter into any business, either
-------------------------------
directly or through any Subsidiary, except for those businesses in which the
Borrowers and their Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto.
<PAGE>
58
7.16 Limitation on Amendments to Transaction Documents. (a) Amend,
-------------------------------------------------
supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and
conditions of the Recapitalization Agreement or any of the Transaction
Documents.
7.17 Limitation on Activities of the Company. In the case of the
---------------------------------------
Company and notwithstanding anything to the contrary in this Agreement or any
other Loan Document, (a) conduct, transact or otherwise engage in, or commit to
conduct, transact or otherwise engage in, any business or operations other than
those incidental to its ownership of the Capital Stock of Details and the
transitory ownership of the Capital Stock of DCI, (b) incur, create, assume or
suffer to exist any Indebtedness or other liabilities or financial obligations,
other than (i) nonconsensual obligations imposed by operation of law, (ii)
pursuant to the Loan Documents to which it is a party, (iii) the Company Zeros
and the Company Indenture and (iv) obligations with respect to its Capital
Stock, or (c) own, lease, manage or otherwise operate any properties or assets
(including cash and Cash Equivalents), other than Capital Stock of Details and
the transitory ownership of the Capital Stock of DCI and cash received in
connection with dividends made by Details in accordance with Section 7.6 pending
application in the manner contemplated by said Section.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrowers shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrowers shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within three days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) Any Loan Party shall default in the observance or performance of
any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to the Company and the Borrowers only), Section 6.12 or in Section
7; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
(to the extent that such default is susceptible of remedy) such default
shall continue unremedied for a period of 30 days after the earlier of (x)
the date upon which the Borrowers knows or should reasonably be expected to
know of the existence of such default or (y) the date upon which either of
the Borrowers receives notice of such event from the Administrative Agent
or any Lender; or
(e) Holdings or any of its Subsidiaries shall (i) default in making
any payment of any principal of any Indebtedness (including, without
limitation, any Guarantee Obligation, but excluding the Loans) on the
scheduled or original due date with respect thereto; or (ii) default in
making any payment of any interest on any such Indebtedness beyond the
period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created; or (iii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto,
<PAGE>
59
or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of such
holder or beneficiary) to cause, with the giving of notice if required,
such Indebtedness to become due prior to its stated maturity or (in the
case of any such Indebtedness constituting a Guarantee Obligation) to
become payable; provided, that a default, event or condition described in
--------
clause (i), (ii) or (iii) of this paragraph (e) shall not at any time
constitute an Event of Default under this Agreement unless, at such time,
one or more defaults, events or conditions of the type described in clauses
(i), (ii) and (iii) of this paragraph (e) shall have occurred and be
continuing with respect to Indebtedness the outstanding principal amount of
which exceeds in the aggregate $2,000,000; or
(f) (i) Holdings or any of its Material Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all
or any substantial part of its assets, or Holdings or any of its Material
Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against Holdings or any of its
Material Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against Holdings or any of its Material
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) Holdings or any of its Material Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
Holdings or any of its Material Subsidiaries shall generally not, or shall
be unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of either
of the Borrowers or any Commonly Controlled Entity, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement
of proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) either of the Borrowers or
any Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could, in the sole judgment of the Required Lenders, reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of
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60
$2,000,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from
the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported
to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) A Change of Control or a Specified Change of Control shall occur;
or
(l) (i) After the Second Closing Date, other than with respect to the
DCI Preferred Stock, Details shall cease to own directly 100% on a fully
diluted basis of the economic and voting interest in DCI's capital stock,
free of Liens except Liens created by the Guarantee and Collateral
Agreement, (ii) the Company shall cease to own directly 100% on a fully
diluted basis of the economic and voting interest in Details's capital
stock, free of Liens except Liens created by the Guarantee and Collateral
Agreement, (iii) New Intermediate Holdco shall cease to own directly 100%
on a fully diluted basis of the economic and voting interest in the
Company's capital stock, free of Liens or (iv) Holdings shall cease to own
directly 100% on a fully diluted basis of the economic and voting interest
in New Intermediate Holdco's capital stock, free of Liens; or
(m) Holdings or New Intermediate Holdco shall (a) conduct, transact
or otherwise engage in, or commit to conduct, transact or otherwise engage
in, any business or operations other than those incidental to its ownership
of the Capital Stock of New Intermediate Holdco or the Company, as the case
may be and, in the case of New Intermediate Holdco, the ownership of the
Capital Stock of DCI and the making of the loan referred to in Section
5.1(b)(iii) prior to the Second Closing Date, (b) incur, create, assume or
suffer to exist any Indebtedness or other liabilities or financial
obligations, other than (i) nonconsensual obligations imposed by operation
of law, (ii) in the case of New Intermediate Holdco, the New Intermediate
Holdco Notes, (iii) obligations with respect to its Capital Stock, (iv) in
the case of Holdings or New Intermediate Holdco, Indebtedness incurred to
finance AHYDO Payment and (v) the obligations of Holdings under its cash
bonus plan on terms in existence on the date hereof, or (c) own, lease,
manage or otherwise operate any properties or assets (including cash and
Cash Equivalents), other than Capital Stock of New Intermediate Holdco or
the Company, as the case may be, or, in the case of New Intermediate
Holdco, the Capital Stock of DCI prior to the Second Closing Date, and cash
received directly or indirectly in connection with dividends paid by
Details in accordance with Section 7.6 pending application in the manner
contemplated by said Section; or
(n) The Senior Subordinated Notes or the guarantees thereof shall
cease, for any reason, to be validly subordinated to the Obligations or the
obligations of the Subsidiary Guarantors under the Guarantee and Collateral
Agreement, as the case may be, as provided in the Senior Subordinated Note
Indenture, or any Loan Party, any Affiliate of any Loan Party, the trustee
in respect of the Senior Subordinated Notes or the holders of at least 25%
in aggregate principal amount of the Senior Subordinated Notes shall so
assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to either of the
Borrowers, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have
<PAGE>
61
presented the documents required thereunder) shall immediately become due and
payable, and (B) if such event is any other Event of Default, either of both of
the following actions may be taken: (i) with the consent of the Majority
Revolving Credit Facility Lenders, the Administrative Agent may, or upon the
request of the Majority Revolving Credit Facility Lenders, the Administrative
Agent shall, by notice to the Borrowers declare the Revolving Credit Commitments
to be terminated forthwith, whereupon the Revolving Credit Commitments shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrowers, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrowers shall at such time
deposit in a cash collateral account opened by the Administrative Agent an
amount equal to the aggregate then undrawn and unexpired amount of such Letters
of Credit. Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrowers hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrowers hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrowers (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by the Borrowers.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any
----------------------
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except to the extent that any of the foregoing result from its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Loan Party or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or
other document
<PAGE>
62
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Loan Party a
party thereto to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Company or the Borrowers), independent accountants and other experts selected by
the Administrative Agent. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders (or, if so specified by this Agreement, all
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
9.5 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender, the
Company or either of the Borrowers referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice,
the Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so specified by this Agreement, all Lenders); provided that unless and until the
--------
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that neither the Administrative Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Administrative Agent
hereinafter taken, including any review of the affairs of a Loan Party or any
affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates and made
its own decision to make its Loans hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance
upon the Administrative Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their
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63
affiliates. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
any Loan Party or any affiliate of a Loan Party which may come into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Company or the Borrowers and without limiting the obligation of the Company
or the Borrowers to do so), ratably according to their respective Revolving
Credit Percentages, Tranche A Term Loan Percentages and Tranche B Term Loan
Percentages in effect on the date on which indemnification is sought under this
Section 9.7 (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with such percentages immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided
--------
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements which result from the Administrative Agent's
gross negligence or willful misconduct. The Administrative Agent shall have the
right to deduct any amount owed to it by any Lender under this Section from any
payment made by it to such Lender hereunder. The agreements in this Section 9.7
shall survive the payment of the Loans and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though the
Administrative Agent was not the Administrative Agent. With respect to its
Loans made or renewed by it and with respect to any Letter of Credit issued or
participated in by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders and Details.
If the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 8(a) or Section 8(f) with
respect to either of the Borrowers shall have occurred and be continuing) be
approved by Details (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 30 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the other Loan Documents.
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64
9.10 Authorization to Release Liens. The Administrative Agent is
------------------------------
hereby irrevocably authorized by each of the Lenders to release any Lien
covering any Property of the Company or any of its Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 11.1.
SECTION 10. GUARANTEE
10.1 Guarantee. In order to induce the Administrative Agent and the
---------
Lenders to execute and deliver this Agreement and to make or maintain the Loans
hereunder, and in consideration thereof, from and after the Second Closing Date
Details hereby unconditionally and irrevocably guarantees to the Administrative
Agent, for the ratable benefit of the Lenders, the prompt and complete payment
and performance by DCI when due (whether at stated maturity, by acceleration or
otherwise) of the DCI Obligations, and Details further agrees to pay any and all
expenses (including, without limitation, all reasonable fees, charges and
disbursements of counsel) that may be paid or incurred by the Administrative
Agent or by the Lenders in enforcing, or obtaining advice of counsel in respect
of, any of their rights under the guarantee contained in this Section 10. The
guarantee contained in this Section 10, subject to Section 10.5, shall remain in
full force and effect until the DCI Obligations are paid in full, the
Commitments are terminated and no Letters of Credit are outstanding,
notwithstanding that from time to time prior thereto DCI may be free from any
DCI Obligations.
Details agrees that whenever, at any time, or from time to time, it
shall make any payment to the Administrative Agent or any Lender on account of
its liability under this Section 10, it will notify the Administrative Agent and
such Lender in writing that such payment is made under the guarantee contained
in this Section 10 for such purpose. No payment or payments made by DCI or any
other Person or received or collected by the Administrative Agent or any Lender
from DCI or any other Person by virtue of any action or proceeding or any setoff
or appropriation or application, at any time or from time to time, in reduction
of or in payment of the DCI Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of Details under this Section 10
which, notwithstanding any such payment or payments, shall remain liable for the
DCI Obligations until, subject to Section 10.5, the DCI Obligations are paid in
full, the Commitments are terminated and no Letters of Credit are outstanding.
10.2 No Subrogation, Contribution, Reimbursement or Indemnity.
--------------------------------------------------------
Notwithstanding anything to the contrary in this Section 10, Details hereby
irrevocably waives all rights that may have arisen in connection with the
guarantee contained in this Section 10 to be subrogated to any of the rights
(whether contractual, under the United States Bankruptcy Code (or similar action
under any successor law or under any comparable law), including Section 509
thereof, under common law or otherwise) of the Administrative Agent or any
Lender against DCI or against the Administrative Agent or any Lender for the
payment of the DCI Obligations, until the DCI Obligations shall have been paid
in full, no Letters of Credit shall be outstanding and the Commitments shall
have been terminated. Details hereby further irrevocably waives all
contractual, common law, statutory and other rights of reimbursement,
contribution, exoneration or indemnity (or any similar right) from or against
DCI or any other Person that may have arisen in connection with the guarantee
contained in this Section 10, until the DCI Obligations shall have been paid in
full, no Letters of Credit shall be outstanding and the Commitments shall have
been terminated. So long as the DCI Obligations remain outstanding, if any
amount shall be paid by or on behalf of DCI to Details on account of any of the
rights waived in this Section 10.2, such amount shall be held by Details in
trust, segregated from other funds of Details, and shall, forthwith upon receipt
by Details, be turned over to the Administrative Agent in the exact form
received by Details (duly indorsed by Details to the Administrative Agent, if
required), to be applied against the DCI Obligations, whether matured or
unmatured, in such order as the Administrative Agent may determine. The
provisions of this Section 10.2 shall survive the term of the guarantee
contained in this Section 10 and the payment in full of the DCI Obligations and
the termination of the Commitments.
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65
10.3 Amendments, etc. with respect to the DCI Obligations. Details
----------------------------------------------------
shall remain obligated under this Section 10 notwithstanding that, without any
reservation of rights against Details, and without notice to or further assent
by Details, any demand for payment of or reduction in the principal amount of
any of the DCI Obligations made by the Administrative Agent or any Lender may be
rescinded by the Administrative Agent or such Lender, and any of the DCI
Obligations continued, and the DCI Obligations, or the liability of any other
party upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Administrative Agent or any
Lender, and this Agreement, any other Loan Document, and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Lenders (or the Required
Lenders, as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Lender for the payment of the DCI Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the DCI Obligations or
for the guarantee contained in this Section 10 or any property subject thereto.
10.4 Guarantee Absolute and Unconditional. Details waives any and all
------------------------------------
notice of the creation, renewal, extension or accrual of any of the DCI
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon the guarantee contained in this Section 10 or acceptance of the
guarantee contained in this Section 10; the DCI Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon the guarantee contained
in this Section 10; and all dealings between DCI or Details, on the one hand,
and the Administrative Agent and the Lenders, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 10. Details waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon DCI
or Details with respect to the DCI Obligations. The guarantee contained in this
Section 10 shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or enforceability of
this Agreement or any other Loan Document, any of the DCI Obligations or any
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Administrative Agent or any
Lender, (b) any defense, setoff or counterclaim (other than a defense of payment
or performance) that may at any time be available to or be asserted by DCI
against the Administrative Agent or any Lender, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of DCI or Details) that
constitutes, or might be construed to constitute, an equitable or legal
discharge of DCI for the DCI Obligations, or of Details under the guarantee
contained in this Section 10, in bankruptcy or in any other instance. When the
Administrative Agent or any Lender is pursuing its rights and remedies under
this Section 10 against Details, the Administrative Agent or any Lender may, but
shall be under no obligation to, pursue such rights and remedies as it may have
against DCI or any other Person or against any collateral security or guarantee
for the DCI Obligations or any right of offset with respect thereto, and any
failure by the Administrative Agent or any Lender to pursue such other rights or
remedies or to collect any payments from DCI or any such other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of DCI or any such other Person or of any such
collateral security, guarantee or right of offset, shall not relieve Details of
any liability under this Section 10, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent and the Lenders against Details.
10.5 Reinstatement. The guarantee contained in this Section 10 shall
-------------
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the DCI Obligations is rescinded or must
otherwise be restored or returned by the Administrative Agent or any Lender upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of DCI or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, DCI or any substantial part of its
property, or otherwise, all as though such payments had not been made.
<PAGE>
66
10.6 Payments. Details hereby agrees that any payments in respect of
--------
the DCI Obligations pursuant to this Section 10 will be paid to the
Administrative Agent without setoff or counterclaim in Dollars at its office
specified in Section 11.2.
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 11.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall (i) forgive or reduce the principal amount or
extend the final scheduled date of maturity of any Loan, extend the scheduled
date of any amortization payment in respect of any Term Loan, reduce the stated
rate of any interest, fee or letter of credit commission payable hereunder or
extend the scheduled date of any payment thereof, or increase the amount or
extend the expiration date of any Lender's Revolving Credit Commitment, in each
case without the consent of each Lender directly affected thereby; (ii) amend,
modify or waive any provision of this Section 11.1 or reduce any percentage
specified in the definition of Required Lenders or Required Prepayment Lenders,
consent to the assignment or transfer by either of the Borrowers of any of its
rights and obligations under this Agreement and the other Loan Documents,
release all or substantially all of the Collateral or release all or
substantially all of the Guarantors from their obligations under the Guarantee
and Collateral Agreement, in each case without the written consent of all
Lenders; (iii) reduce the percentage specified in the definition of Majority
Facility Lenders without the written consent of all Lenders under each affected
Facility; (iv) amend, modify or waive any provision of Section 9 without the
written consent of the Administrative Agent; (v) amend, modify or waive any
provision of Section 2.6 or 2.7 without the written consent of the Swing Line
Lender or (vi) amend, modify or waive any provision of Section 3 without the
written consent of the Issuing Lender. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Administrative Agent and all
future holders of the Loans. In the case of any waiver, the Loan Parties, the
Lenders and the Administrative Agent shall be restored to their former position
and rights hereunder and under the other Loan Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon.
11.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Company, the Borrowers and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
<PAGE>
67
The Company and the Borrowers: Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention: Chief Financial Officer
Telecopy: (714) 630-9438
Dynamic Circuits, Inc.
1831 Tarob Court
Milpitas, California 95035
Attention: Chief Financial Officer
Telecopy: (408) 935-9104
with copies to: Bain Capital, Inc.
Two Copley Plaza
6th Floor
Boston, Massachusetts 02116
Attention: David Dominik/Prescott
Ashe/Steve Zide
Telecopy: (617) 572-3274
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Philip J. Smith
Telecopy: (617) 951-7050
The Administrative Agent: The Chase Manhattan Bank
c/o The Loan and Agency Services Group
1 Chase Manhattan Plaza - 8th Floor
New York, New York, 10081
Attention: Janet Belden
Telecopy: (212) 552-5658
with a copy to: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: John Huber
Telecopy: (212) 270-4584
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders shall not be effective until received.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
<PAGE>
68
11.5 Payment of Expenses and Taxes. Each of the Borrowers agrees (a)
-----------------------------
to pay or reimburse the Administrative Agent for all its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel) to each Lender
and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each
Lender and the Administrative Agent harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the
Administrative Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "indemnitee") harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including, without limitation, any of the foregoing
relating to the use of proceeds of the Loans or the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
the Company or any of its Subsidiaries or any of the Properties (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
provided, that the Borrowers shall have no obligation hereunder to any
- --------
indemnitee with respect to indemnified liabilities to the extent such
indemnified liabilities result from the gross negligence or willful misconduct
of such indemnitee. The agreements in this Section 11.5 shall survive repayment
of the Loans and all other amounts payable hereunder.
11.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Company,
the Borrowers, the Lenders, the Administrative Agent, all future holders of the
Loans and their respective successors and assigns, except that neither of the
Borrowers may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
(b) Any Lender may, without the consent of the Company or either of
the Borrowers, in accordance with applicable law, at any time sell to one or
more banks, financial institutions or other entities (each, a "Participant")
-----------
participating interests in any Loan owing to such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under the other Loan
Documents. In the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this Agreement to the
other parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrowers and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event
shall any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Loans or
any fees payable hereunder, or postpone the date of the final maturity of the
Loans, in each case to the extent subject to such participation. The Borrowers
agree that if amounts outstanding under this Agreement and the Loans are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent
<PAGE>
69
permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
--------
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 11.7(a) as
fully as if it were a Lender hereunder. The Borrowers also agree that each
Participant shall be entitled to the benefits of Sections 2.18, 2.19 and 2.20
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it was a Lender; provided that, in the case of Section
--------
2.19, such Participant shall have complied with the requirements of said Section
and provided, further, that no Participant shall be entitled to receive any
-------- -------
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
--------
law, at any time and from time to time assign to any Lender or any affiliate or
Approved Fund thereof or, with the consent of Details and the Administrative
Agent (which, in each case, shall not be unreasonably withheld or delayed), to
an additional bank, financial institution or other entity (an "Assignee") all or
--------
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit D, executed by
such Assignee and such Assignor (and, in the case of an Assignee that is not
then a Lender or an affiliate or Approved Fund thereof, by Details and the
Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register; provided that no such assignment to an
--------
Assignee (other than any Lender or any affiliate or Approved Fund thereof) shall
be in an aggregate principal amount of less than $5,000,000 (other than in the
case of an assignment of all of a Lender's interests under this Agreement),
unless otherwise agreed by Details and the Administrative Agent. Any such
assignment need not be ratable as among the Facilities. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment and/or
Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of an Assignor's rights and obligations under this Agreement, such assigning
Lender shall cease to be a party hereto). Notwithstanding any provision of this
Section 11.6, the consent of Details shall not be required, and, unless
requested by the Assignee and/or the Assignor, new Notes shall not be required
to be executed and delivered by the Borrowers, for any assignment which occurs
at any time when any of the events described in Section 8 shall have occurred
and be continuing.
(d) The Administrative Agent shall maintain at its address referred
to in Section 11.2 a copy of each Assignment and Acceptance delivered to it and
a register (the "Register") for the recordation of the names and addresses of
--------
the Lenders and the Commitments of, and the principal amount of the Loans owing
to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrowers, each other Loan
Party, the Administrative Agent and the Lenders shall treat each Person whose
name is recorded in the Register as the owner of the Loan recorded therein for
all purposes of this Agreement.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in the case of an Assignee that is not then a
Lender or an affiliate or Approved Fund thereof, by Details and the
Administrative Agent) together with payment to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) record the information
contained therein in the Register on the effective date determined pursuant
thereto; provided however, that no such fee shall be payable in the case of an
-------- -------
assignment to another Lender or an Affiliate or Approved Fund of a Lender; and
provided further that, in the case of contemporaneous assignments by a Lender to
- -------- -------
more than one fund managed by the
<PAGE>
70
same investment advisor (which funds are not then Lenders hereunder), only a
single $3,500 such fee shall be payable for all such contemporaneous
assignments.
(f) (i) To the extent requested by any Lender, the Loans made by
such Lender shall be evidenced by a Note issued by the Borrowers, substantially
in the form of Exhibit F-1, F-2 or F-3, as the case may be, payable to the order
of such Lender (or, in the case of any Alternative Note, payable to such Lender
or its registered assigns). Each Lender is hereby authorized to record, on the
schedule annexed to and constituting a part of the relevant Note, information
regarding the relevant Loans made by such Lender, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded,
----- -----
provided that the failure to make any such recordation or any error in such
- --------
recordation shall not affect the Borrowers' obligations hereunder or under any
Note. On or prior to the effective date of an Assignment and Acceptance, the
Borrowers, at their own expense, shall, to the extent requested by the Assignee,
execute and deliver to the Administrative Agent, in exchange for the relevant
Notes, new Notes to the order of the Assignee and, if applicable, the Assignor.
Such new Notes shall be dated the Closing Date.
(ii) Any Non-U.S. Lender that could become completely exempt from
withholding of any tax, assessment or other charge or levy imposed by or on
behalf of the United States or any taxing authority thereof ("U.S. Taxes") in
----------
respect of payment of any Obligations due to such Non-U.S. Lender under this
Agreement if the Obligations were in registered form for U.S. federal income tax
purposes may request the Borrowers (through the Administrative Agent), and the
Borrowers agree thereupon, to exchange any promissory note(s) evidencing such
Obligations for promissory note(s) substantially in the form of Exhibit F-3
(each, an "Alternative Note"). Alternative Notes may not be exchanged for
----------------
promissory notes that are not Alternative Notes. Each Non-U.S. Lender that
holds Alternative Note(s) (an "Alternative Noteholder") (or, if such Alternative
----------------------
Noteholder is not the beneficial owner thereof, such beneficial owner) shall
deliver to the Borrowers prior to or at the time such Non-U.S. Lender becomes an
Alternative Noteholder each of the forms and certifications required by Section
2.19(b). An Alternative Note and the Obligation(s) evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Alternative Note and the Obligation(s)
evidenced thereby on the Register (and each Alternative Note shall expressly so
provide). Any assignment or transfer of all or part of such Obligation(s) and
the Alternative Note(s) evidencing the same shall be registered on the Register
only upon surrender for registration of assignment or transfer of the
Alternative Note(s) evidencing such Obligation(s), duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the Alternative Noteholder thereof, and thereupon one or more new Alternative
Note(s) in the same aggregate principal amount shall be issued to the designated
Assignee(s). No assignment of an Alternative Note and the Obligations evidenced
thereby shall be effective unless it has been recorded in the Register.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 11.6 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without limitation,
any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
11.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, if any Lender (a "Benefitted Lender") shall at any time
-----------------
receive any payment of all or part of its Loans or the Reimbursement Obligations
owing to it, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans or the Reimbursement
Obligations owing to such other Lender, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan and/or of the Reimbursement
Obligations owing to each
<PAGE>
71
such other Lender, or shall provide such other Lenders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or any
-------- -------
portion of such excess payment or benefits is thereafter recovered from such
Benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Company or
the Borrowers, any such notice being expressly waived by the Company and the
Borrowers to the extent permitted by applicable law, upon any amount becoming
due and payable by the Company or either of the Borrowers hereunder (whether at
the stated maturity, by acceleration or otherwise) to set off and appropriate
and apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the
account of the Company or the Borrowers. Each Lender agrees promptly to notify
the Company, the Borrowers and the Administrative Agent after any such setoff
and application made by such Lender, provided that the failure to give such
--------
notice shall not affect the validity of such setoff and application.
11.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with Details and the Administrative
Agent.
11.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Company, the Borrowers, the Administrative Agent
and the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
11.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
11.12 Submission To Jurisdiction; Waivers. Each of the Company and the
-----------------------------------
Borrowers hereby irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
<PAGE>
72
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Company or the Borrowers, as the case may be at its address set forth in
Section 11.2 or at such other address of which the Administrative Agent
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 11.12 any special, exemplary, punitive or consequential
damages.
11.13 Acknowledgements. Each of the Company and the Borrowers hereby
----------------
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Company or the Borrowers arising out of or
in connection with this Agreement or any of the other Loan Documents, and
the relationship between Administrative Agent and Lenders, on one hand, and
the Company and the Borrowers, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Company, the Borrowers and the Lenders.
11.14 WAIVERS OF JURY TRIAL. THE COMPANY, THE BORROWERS, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
11.15 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to use reasonable efforts to keep confidential all non-public
information provided to it by any Loan Party pursuant to this Agreement that is
designated by such Loan Party as confidential; provided that nothing herein
--------
shall prevent the Administrative Agent or any Lender from disclosing any such
information (a) to the Administrative Agent, any other Lender or any affiliate
of any Lender, (b) to any Participant or Assignee (each, a "Transferee") or
----------
prospective Transferee which agrees to comply with the provisions of this
Section 11.15, (c) to the employees, directors, agents, attorneys, accountants
and other professional advisors of such Lender or its affiliates, (d) upon the
request or demand of any Governmental Authority having jurisdiction over the
Administrative Agent or such Lender, (e) in response to any order of any court
or other Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) which has been publicly disclosed other
than in breach of this Section 11.15, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access
<PAGE>
73
to information about a Lender's investment portfolio in connection with ratings
issued with respect to such Lender, or (i) in connection with the exercise of
any remedy hereunder or under any other Loan Document.
<PAGE>
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
DETAILS CAPITAL CORP.
By:__________________________________
Name:
Title:
DETAILS, INC.
By:__________________________________
Name:
Title:
DYNAMIC CIRCUITS, INC.
By:__________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent, Collateral Agent,
Co-Syndication Agent and as a Lender
By:__________________________________
Name:
Title:
BANKERS TRUST COMPANY, as Documentation
Agent, Co-Syndication Agent and as a
Lender
By:__________________________________
Name:
Title:
<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as Co-Agent and as a
Lender
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
<PAGE>
Annex A
-------
PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS
TRANCHE A TERM LOANS AND COMMITMENT FEES
<TABLE>
<CAPTION>
Applicable Margin Applicable
for Eurodollar Margin for ABR
Loans and Letters Loans and Swing
Consolidated of Credit Line Loans Commitment
Leverage Ratio Fee Rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
(greater
than or
equal to) 5.00 to 1.0 2.25% 1.25% 0.50%
- -------------------------------------------------------------------------------------
(less than) 5.00 to 1.0 and
(greater
than or
equal to) 4.00 to 1.0 2.00% 1.00% 0.50%
- -------------------------------------------------------------------------------------
(less than) 4.00 to 1.0 and
(greater
than or
equal to) 3.00 to 1.0 1.75% 0.75% 0.375%
- -------------------------------------------------------------------------------------
(less than) 3.00 to 1.0 and
(greater
than or
equal to) 2.50 to 1.0 1.50% 0.50% 0.375%
- -------------------------------------------------------------------------------------
(less than) 2.50 to 1.0 1.25% 0.25% 0.375%
=====================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Tranche A Term Loans or
Revolving Credit Loans or in the Commitment Fee Rate resulting from changes in
the Consolidated Leverage Ratio shall become effective on the date (the
"Adjustment Date") on which financial statements are delivered to the Lenders
- ----------------
pursuant to Section 6.1 (but in any event not later than the 45th day after the
end of each of the first three quarterly periods of each fiscal year or the 90th
day after the end of each fiscal year, as the case may be) and shall remain in
effect until the next change to be effected pursuant to this paragraph. If any
financial statements referred to above are not delivered within the time periods
specified above, then, until such financial statements are delivered, if the
Administrative Agent or the Required Lenders so determine, the Consolidated
Leverage Ratio as at the end of the fiscal period that would have been covered
thereby shall for the purposes of this definition be deemed to be greater than
5.00 to 1.0. In addition, at all times while an Event of Default shall have
occurred and be continuing and the Administrative Agent or the Required Lenders
so determine, the Consolidated Leverage Ratio shall for the purposes of this
definition be deemed to be greater than 5.00 to 1.0. Each determination of the
Consolidated Leverage Ratio pursuant to this definition shall be made with
respect to the period of four consecutive fiscal quarters of Details ending at
the end of the period covered by the relevant financial statements.
<PAGE>
SCHEDULE 1.1A
-------------
<TABLE>
<CAPTION>
COMMITMENTS
-------------------------
Tranche A Tranche B Revolving
Term Loan Term Loan Credit
Lender Commitment Commitment Commitment
=====================================================================================
<S> <C> <C> <C>
The Chase Manhattan Bank $40,261,437.91 $ 99,607,843.14 $20,130,718.96
- -------------------------------------------------------------------------------------
Bankers Trust Company $33,071,895.42 $ 65,392,156.86 $16,535,947.71
- -------------------------------------------------------------------------------------
Dresdner Bank AG, New York and $16,666,666.67 $ 8,333,333.33
Grand Cayman Branches
- -------------------------------------------------------------------------------------
TOTALS $90,000,000.00 $165,000,000.00 $45,000,000.00
============== =============== ==============
=====================================================================================
</TABLE>
<PAGE>
SCHEDULES
---------------------------------------------
Schedule 1.1A Commitments
Schedule 1.1B Mortgaged Property
Schedule 4.4 Consents, Authorizations, Filings and Notices
Schedule 4.10 Taxes
Schedule 4.15 Subsidiaries
Schedule 4.19(a) UCC Filing Jurisdictions
Schedule 4.19(b) Mortgage Filing Jurisdictions
Schedule 7.2(e) Existing Indebtedness
Schedule 7.3(e) Existing Liens
EXHIBITS
---------------------------------------------
Exhibit A Form of Guarantee and Collateral Agreement
Exhibit B Form of Compliance Certificate
Exhibit C Form of Closing Certificate
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Legal Opinion of Ropes & Gray
Exhibit F-1 Form of Term Note
Exhibit F-2 Form of Revolving Credit Note
Exhibit F-3 Form of Alternative Term Note
Exhibit F-4 Form of Alternative Revolving Credit Note
Exhibit F-5 Form of Swing Line Note
Exhibit G Form of Prepayment Option Notice
Exhibit H Form of Mortgage
-iv-
<PAGE>
================================================================================
GUARANTEE AND COLLATERAL AGREEMENT
made by
DETAILS INTERMEDIATE HOLDING CORP.,
DETAILS CAPITAL CORP.,
DETAILS, INC.,
DYNAMIC CIRCUITS, INC.,
and certain of their Subsidiaries
in favor of
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of July 23, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINED TERMS................................................... 1
1.1 Definitions....................................................... 1
1.2 Other Definitional Provisions..................................... 5
SECTION 2. GUARANTEE....................................................... 5
2.1 Guarantee......................................................... 5
2.2 Right of Contribution............................................. 6
2.3 No Subrogation.................................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations......... 6
2.5 Guarantee Absolute and Unconditional.............................. 7
2.6 Reinstatement..................................................... 8
2.7 Payments.......................................................... 8
SECTION 3. GRANT OF SECURITY INTEREST...................................... 8
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 9
4.1 Representations in Credit Agreement............................... 9
4.2 Title; No Other Liens............................................. 9
4.3 Perfected First Priority Liens.................................... 9
4.4 Chief Executive Office............................................ 9
4.5 Inventory and Equipment........................................... 9
4.6 Farm Products..................................................... 9
4.7 Pledged Securities................................................10
4.8 Receivables.......................................................10
4.9 Intellectual Property.............................................10
SECTION 5. COVENANTS.......................................................11
5.1 Delivery of Instruments and Chattel Paper.........................11
5.2 Maintenance of Insurance..........................................11
5.3 Payment of Obligations............................................11
5.4 Maintenance of Perfected Security Interest; Further
Documentation.................................................11
5.5 Changes in Locations, Name, etc...................................12
5.6 Notices...........................................................12
5.7 Pledged Securities................................................12
5.8 Receivables.......................................................13
5.9 Intellectual Property.............................................13
SECTION 6. REMEDIAL PROVISIONS.............................................15
6.1 Certain Matters Relating to Receivables...........................15
6.2 Communications with Obligors; Grantors Remain Liable..............15
6.3 Pledged Stock.....................................................16
6.4 Proceeds to be Turned Over To Administrative Agent................17
6.5 Application of Proceeds...........................................17
6.6 Code and Other Remedies...........................................17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.7 Registration Rights...............................................18
6.8 Waiver; Deficiency................................................19
SECTION 7. THE ADMINISTRATIVE AGENT........................................19
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc.......19
7.2 Duty of Administrative Agent......................................20
7.3 Execution of Financing Statements.................................21
7.4 Authority of Administrative Agent.................................21
SECTION 8. MISCELLANEOUS...................................................21
8.1 Amendments in Writing.............................................21
8.2 Notices...........................................................21
8.3 No Waiver by Course of Conduct; Cumulative Remedies...............21
8.4 Enforcement Expenses; Indemnification.............................22
8.5 Successors and Assigns............................................22
8.6 Set-Off...........................................................22
8.7 Counterparts......................................................23
8.8 Severability......................................................23
8.9 Section Headings..................................................23
8.10 Integration.......................................................23
8.11 GOVERNING LAW.....................................................23
8.12 Submission To Jurisdiction; Waivers...............................23
8.13 Acknowledgements..................................................24
8.14 WAIVER OF JURY TRIAL..............................................24
8.15 Additional Grantors...............................................24
8.16 Releases..........................................................24
</TABLE>
ii
<PAGE>
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of July 23, 1998, made by
each of the signatories hereto (together with any other entity that may become a
party hereto as provided herein, the "Grantors"), in favor of THE CHASE
--------
MANHATTAN BANK, as Administrative Agent (in such capacity, the "Administrative
--------------
Agent") for the banks and other financial institutions (the "Lenders") from time
- ----- -------
to time parties to the Credit Agreement, dated as of July 23, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
----------------
among Details, Inc. (the "Details"), Dynamic Circuits, Inc. ("DCI", and
------- ---
collectively with Details, the "Borrowers", and individually, a "Borrower"), the
--------- --------
Lenders and the Administrative Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make extensions of credit to either of the Borrowers upon the terms
and subject to the conditions set forth therein;
WHEREAS, each of the Borrowers are members of an affiliated group of
companies that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement may be used in part to enable the Borrowers to make valuable transfers
to one or more of the other Grantors in connection with the operation of their
respective businesses;
WHEREAS, the Borrowers and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the making of the extensions of credit under the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective initial extensions of credit to the Borrowers under the
Credit Agreement that the Grantors shall have executed and delivered this
Agreement to the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit thereunder,
each Grantor hereby agrees with the Administrative Agent, for the ratable
benefit of the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined
-----------
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Instruments, Inventory and Investment Property.
(b) The following terms shall have the following meanings:
<PAGE>
2
"Agreement": this Guarantee and Collateral Agreement, as the same may
---------
be amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the DCI
--------------------
Obligations (as defined in the Credit Agreement) and the Details
Obligations.
"Collateral": as defined in Section 3.
----------
"Collateral Account": any collateral account established by the
------------------
Administrative Agent as provided in Section 6.1 or 6.4.
"Copyrights": (i) all copyrights arising under the laws of the United
----------
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed in Schedule 6), all registrations and
----------
recordings thereof, and all applications in connection therewith,
including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to
obtain all renewals thereof.
"Copyright Licenses": any written agreement naming any Grantor as
------------------
licensor or licensee (including, without limitation, those listed in
Schedule 6), granting any right under any Copyright, including, without
----------
limitation, the grant of rights to manufacture, distribute, exploit and
sell materials derived from any Copyright, to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in such agreement
is not prohibited by such agreement without the consent of any other party
thereto, would not give any other party to such agreement the right to
terminate its obligations thereunder, or is permitted with consent if all
necessary consents to such grant of a security interest have been obtained
from the other parties thereto.
"Details Obligations": the collective reference to the unpaid
-------------------
principal of and interest on the Loans made to Details and the
Reimbursement Obligations of Details and all other obligations and
liabilities of Details (including, without limitation, interest accruing at
the then applicable rate provided in the Credit Agreement after the
maturity of such Loans and such Reimbursement Obligations and interest
accruing at the then applicable rate provided in the Credit Agreement after
the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to Details, in its
capacity as a borrower under the Credit Agreement, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding) to
the Administrative Agent or any Lender (or, in the case of any Hedge
Agreement referred to below, any Affiliate of any Lender), whether direct
or indirect, absolute or contingent, due or to become due, or now existing
or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, this Agreement, the other Loan Documents, any
Letter of Credit or any Hedge Agreement entered into by Details with any
Lender (or any Affiliate of any Lender) or any other document made,
delivered or given in connection therewith, in each case whether on account
of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or to the Lenders that
are required to be paid by Details pursuant to the terms of any of the
foregoing agreements).
"Domestic Issuer": any Issuer that is organized under the laws of any
---------------
jurisdiction within the United States.
<PAGE>
3
"Foreign Issuer": any Issuer that is organized under the laws of any
--------------
jurisdiction outside the United States.
"General Intangibles": all "general intangibles" as such term is
-------------------
defined in Section 9-106 of the Uniform Commercial Code in effect in the
State of New York on the date hereof and, in any event, including, without
limitation, with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which such
Grantor is a party or under which such Grantor has any right, title or
interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of such Grantor to perform and to exercise
all remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is
not prohibited by such contract, agreement, instrument or indenture without
the consent of any other party thereto, would not give any other party to
such contract, agreement, instrument or indenture the right to terminate
its obligations thereunder, or is permitted with consent if all necessary
consents to such grant of a security interest have been obtained from the
other parties thereto (it being understood that the foregoing shall not be
deemed to obligate such Grantor to obtain such consents); provided, that
--------
the foregoing limitation shall not affect, limit, restrict or impair the
grant by such Grantor of a security interest pursuant to this Agreement in
any Receivable or any money or other amounts due or to become due under any
such contract, agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the
---------------------
collective reference to (i) the Borrower Obligations and (ii) all
obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Loan Document to which such
Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all fees and disbursements of
counsel to the Administrative Agent or to the Lenders that are required to
be paid by such Guarantor pursuant to the terms of this Agreement or any
other Loan Document).
"Guarantors": the collective reference to each Grantor other than (i)
----------
with respect to the DCI Obligations only, DCI, (ii) with respect to the
Details Obligations only, Details, and and (iii) any Grantor that is a
Foreign Subsidiary.
"Hedge Agreements": as to any Person, all interest rate swaps, caps
----------------
or collar agreements or similar arrangements entered into by such Person
providing for protection against fluctuations in interest rates or currency
exchange rates or the exchange of nominal interest obligations, either
generally or under specific contingencies.
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.
<PAGE>
4
"Intercompany Note": any promissory note evidencing loans made by any
-----------------
Grantor to its direct or indirect parent or any of its Subsidiaries.
"Issuers": the collective reference to each issuer of a Pledged
-------
Security.
"New York UCC": the Uniform Commercial Code as from time to time in
------------
effect in the State of New York.
"Obligations": (i) in the case of Details, the Details Obligations,
-----------
(ii) in the case of DCI, the DCI Obligations, and (iii) in the case of each
Guarantor, its Guarantor Obligations.
"Patents": (i) all letters patent of the United States, any other
-------
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
----------
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any of the foregoing referred to in Schedule
--------
6, and (iii) all rights to obtain any reissues or extensions of the
-
foregoing.
"Patent License": all agreements, whether written or oral, providing
--------------
for the grant by or to any Grantor of any right to manufacture, use or sell
any invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6 to the extent
----------
the grant by such Grantor of a security interest pursuant to this Agreement
in its right, title and interest in such agreement is not prohibited by
such agreement without the consent of any other party thereto, would not
give any other party to such agreement the right to terminate its
obligations thereunder, or is permitted with consent if all necessary
consents to such grant of a security interest have been obtained from the
other parties thereto.
"Pledged Notes": all promissory notes listed on Schedule 2, all
------------- ----------
Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than promissory
notes issued in connection with extensions of trade credit by any Grantor
in the ordinary course of business) or any Investment Property.
"Pledged Securities": the collective reference to the Pledged Notes
------------------
and the Pledged Stock.
"Pledged Stock": the shares of Capital Stock listed on Schedule 2,
------------- ----------
together with any other shares, stock certificates, options or rights of
any nature whatsoever in respect of the Capital Stock of any Person that
may be issued or granted to, or held by, any Grantor while this Agreement
is in effect or any Investment Property.
"Proceeds": all "proceeds" as such term is defined in Section 9-
--------
306(1) of the Uniform Commercial Code in effect in the State of New York on
the date hereof and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Securities, collections thereon
or distributions or payments with respect thereto.
"Receivable": any right to payment for goods sold or leased or for
----------
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
<PAGE>
5
"Securities Act": the Securities Act of 1933, as amended.
--------------
"Trademarks": (i) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
----------
right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
-----------------
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing referred to
in Schedule 6 to the extent the grant by such Grantor of a security
----------
interest pursuant to this Agreement in its right, title and interest in
such agreement is not prohibited by such agreement without the consent of
any other party thereto, would not give any other party to such agreement
the right to terminate its obligations thereunder, or is permitted with
consent if all necessary consents to such grant of a security interest have
been obtained from the other parties thereto.
1.2 Other Definitional Provisions. (a) The words "hereof,"
-----------------------------
"herein", "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section and Schedule references are to this
Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or
any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
---------
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrowers when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee
<PAGE>
6
contained in this Section 2 or affecting the rights and remedies of the
Administrative Agent or any Lender hereunder.
(d) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Borrower Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement either of the Borrowers may be free from any
Borrower Obligations.
(e) No payment made by the Borrowers, any of the Guarantors, any
other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from the Borrowers, any of the Guarantors,
any other guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the maximum liability of any
Guarantor hereunder which shall, notwithstanding any such payment (other than
any payment made by such Guarantor in respect of the Borrower Obligations or any
payment received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid in
full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2 Right of Contribution. Each Subsidiary Guarantor hereby agrees
---------------------
that to the extent that a Subsidiary Guarantor shall have paid more than its
proportionate share of any payment made hereunder, such Subsidiary Guarantor
shall be entitled to seek and receive contribution from and against any other
Subsidiary Guarantor hereunder which has not paid its proportionate share of
such payment. Each Subsidiary Guarantor's right of contribution shall be subject
to the terms and conditions of Section 2.3. The provisions of this Section 2.2
shall in no respect limit the obligations and liabilities of any Subsidiary
Guarantor to the Administrative Agent and the Lenders, and each Subsidiary
Guarantor shall remain liable to the Administrative Agent and the Lenders for
the maximum liability of such Subsidiary Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
--------------
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against either of the Borrowers or any other Guarantor or any collateral
security or guarantee or right of offset held by the Administrative Agent or any
Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek
or be entitled to seek any contribution or reimbursement from either of the
Borrowers or any other Guarantor in respect of payments made by such Guarantor
hereunder, until all amounts owing to the Administrative Agent and the Lenders
by the Borrowers on account of the Borrower Obligations are paid in full, no
Letter of Credit shall be outstanding and the Commitments are terminated. If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor for the account of the
Administrative Agent and the Lenders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Administrative Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Administrative Agent, if required), to be
applied against the Borrower Obligations, whether matured or unmatured, in such
order as the Administrative Agent may determine.
<PAGE>
7
2.4 Amendments, etc. with respect to the Borrower Obligations. Each
---------------------------------------------------------
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender and any of the Borrower Obligations
continued, and the Borrower Obligations, or the liability of any other Person
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and the
Credit Agreement and the other Loan Documents and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Administrative Agent (or the Required
Lenders or all Lenders, as the case may be) may deem advisable from time to
time, and any collateral security, guarantee or right of offset at any time held
by the Administrative Agent or any Lender for the payment of the Borrower
Obligations may be sold, exchanged, waived, surrendered or released. Neither
the Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Borrower Obligations or for the guarantee contained in this Section 2 or any
property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Administrative
Agent or any Lender upon the guarantee contained in this Section 2 or acceptance
of the guarantee contained in this Section 2; the Borrower Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 2; and all dealings between the Borrowers
and any of the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon the guarantee contained in this Section 2.
Each Guarantor waives diligence, presentment, protest, demand for payment of the
Borrower Obligations and notice of default or nonpayment to or upon the
Borrowers or any of the Guarantors with respect to the Borrower Obligations.
Each Guarantor understands and agrees to the fullest extent permitted by
applicable law that the guarantee contained in this Section 2 shall be construed
as a continuing, absolute and unconditional guarantee of payment without regard
to (a) the validity or enforceability of the Credit Agreement or any other Loan
Document, any of the Borrower Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Administrative Agent or any Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrowers or any other Person against the Administrative Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrowers or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrowers for the Borrower
Obligations, or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Administrative Agent or any Lender may, but shall be under no obligation to,
make a similar demand on or otherwise pursue such rights and remedies as it may
have against the Borrowers, any other Guarantor or any other Person or against
any collateral security or guarantee for the Borrower Obligations or any right
of offset with respect thereto, and any failure by the Administrative Agent or
any Lender to make any such demand, to pursue such other rights or remedies or
to collect any payments from the Borrowers, any other Guarantor or any other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrowers, any other
Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any
<PAGE>
8
obligation or liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of the
Administrative Agent or any Lender against any Guarantor. For the purposes
hereof "demand" shall include the commencement and continuance of any legal
proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 shall
-------------
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Borrower Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
either of the Borrowers or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, either of the Borrowers or any Guarantor or any substantial part of
its property, or otherwise, all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
--------
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at 270
Park Avenue, New York, New York 10017.
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Administrative Agent,
and hereby grants to the Administrative Agent, for the ratable benefit of the
Lenders, a security interest in, all of the following property now owned or at
any time hereafter acquired by such Grantor or in which such Grantor now has or
at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"), as collateral security for the prompt and
----------
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of such Grantor's Obligations,:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Documents;
(d) all Equipment;
(e) all General Intangibles;
(f) all Instruments;
(g) all Intellectual Property;
(h) all Inventory;
(i) all Investment Property;
(j) all Pledged Securities;
(k) all books and records pertaining to the Collateral; and
<PAGE>
9
(l) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
Notwithstanding the foregoing, such Collateral does not include any
rights or property to the extent that any valid and enforceable law or
regulation applicable to such rights or property prohibits the creation of a
security interest therein. In addition, in the event that any Grantor disposes
of assets, in a transaction permitted by Section 7.5 of the Credit Agreement,
such assets, but not the proceeds or products thereof, shall be released from
the Lien on the Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit to the Borrowers thereunder, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:
4.1 Representations in Credit Agreement. In the case of each
-----------------------------------
Guarantor, the representations and warranties set forth in Section 4 of the
Credit Agreement as they relate to such Guarantor or to the Loan Documents to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Administrative Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and warranty to
--------
either of the Borrower's knowledge shall, for the purposes of this Section 4.1,
be deemed to be a reference to such Guarantor's knowledge.
4.2 Title; No Other Liens. Except for the security interest granted
---------------------
to the Administrative Agent for the ratable benefit of the Lenders pursuant to
this Agreement and the other Liens permitted to exist on the Collateral by the
Credit Agreement, such Grantor owns each item of the Collateral free and clear
of any and all Liens or claims of others. No financing statement or other
public notice with respect to all or any part of the Collateral is on file or of
record in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement or as are permitted by the Credit Agreement.
4.3 Perfected First Priority Liens. The security interests granted
------------------------------
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
----------
referred to on said Schedule, have been delivered to the Administrative Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Administrative Agent, for the
ratable benefit of the Lenders, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for Liens permitted by the Credit Agreement
which have priority over the Liens on the Collateral by operation of law.
4.4 Chief Executive Office. On the date hereof, such Grantor's
----------------------
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
----------
<PAGE>
10
4.5 Inventory and Equipment. On the date hereof, the Inventory and
-----------------------
the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
- ----------
4.6 Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by
------------------
such Grantor hereunder constitute (i) all the issued and outstanding shares of
all classes of the Capital Stock of each Domestic Issuer owned by such Grantor
and (ii) 65% of the issued and outstanding shares of all classes of the Capital
Stock of each Foreign Issuer owned by such Grantor.
(b) All the shares of the Pledged Stock issued by either of the
Borrowers or any of its Subsidiaries have been duly and validly issued and are
fully paid and nonassessable.
(c) Each of the Pledged Notes of either of the Borrowers or any of
its Subsidiaries constitutes the legal, valid and binding obligation of the
obligor with respect thereto, enforceable in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement.
4.8 Receivables. (a) No amount payable to such Grantor under or in
-----------
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent.
(b) Not more than 5% of the aggregate amount of the then outstanding
Receivables relate to obligors which are Governmental Authorities.
(c) The amounts represented by such Grantor to the Lenders from time
to time as owing to such Grantor in respect of the Receivables will at such
times be accurate.
4.9 Intellectual Property. (a) Schedule 6 lists all Intellectual
--------------------- ----------
Property owned by such Grantor in its own name on the date hereof.
(b) Each Grantor owns, or is licensed to use, all Intellectual
Property necessary for the conduct of its business as currently conducted. No
material claim has been asserted and is pending by any Person challenging or
questioning the use of any Intellectual Property or the validity or
effectiveness of any Intellectual Property, nor does such Grantor know of any
valid basis for any such claim. The use by such Grantor of Intellectual
Property which is material to the operations of the Borrowers and their
respective Subsidiaries does not infringe on the rights of any Person in any
material respect. No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
<PAGE>
11
(c) Except as set forth in Schedule 6, on the date hereof, none of
----------
the Intellectual Property is the subject of any licensing or franchise agreement
pursuant to which such Grantor is the licensor or franchisor.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative Agent and
the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Commitments shall have terminated:
5.1 Delivery of Instruments and Chattel Paper. If any amount payable
-----------------------------------------
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper not constituting Investment Property, such
Instrument or Chattel Paper shall be immediately delivered to the Administrative
Agent, duly indorsed in a manner satisfactory to the Administrative Agent, to be
held as Collateral pursuant to this Agreement.
5.2 Maintenance of Insurance. (a) Such Grantor will maintain, with
------------------------
financially sound and reputable companies, insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Administrative Agent and
(ii) insuring such Grantor, the Administrative Agent and the Lenders against
liability for personal injury and property damage relating to such Inventory and
Equipment or to any motor vehicles owned or operated by such Grantor, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Administrative Agent and the Lenders.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Administrative Agent of
written notice thereof, (ii) name the Administrative Agent as insured party or
loss payee, (iii) if reasonably requested by the Administrative Agent, include a
breach of warranty clause and (iv) be reasonably satisfactory in all other
respects to the Administrative Agent.
(c) The Borrowers shall deliver to the Administrative Agent and the
Lenders a report of a reputable insurance broker with respect to such insurance
at the time of delivery of the financial statements described in Section 6.1(a)
of the Credit Agreement.
5.3 Payment of Obligations. Such Grantor will pay and discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all its material obligations of whatever nature, against or with
respect to the Collateral, except that no such charge need be paid if the amount
or validity thereof is currently being contested in good faith by appropriate
proceedings, reserves in conformity with GAAP with respect thereto have been
provided on the books of such Grantor and such proceedings could not reasonably
be expected to result in the sale, forfeiture or loss of any material portion of
the Collateral or any interest therein.
5.4 Maintenance of Perfected Security Interest; Further
---------------------------------------------------
Documentation. (a) Such Grantor shall maintain the security interest created
by this Agreement as a perfected security interest having at least the priority
described in Section 4.3 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
<PAGE>
12
(b) Such Grantor will furnish to the Administrative Agent and the
Lenders from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Administrative Agent may reasonably request, all in reasonable
detail.
(c) At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Administrative
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.5 Changes in Locations, Name, etc. Such Grantor will not, except
--------------------------------
upon 15 days' prior written notice to the Administrative Agent and delivery to
the Administrative Agent of (a) all additional executed financing statements and
other documents reasonably requested by the Administrative Agent to maintain the
validity, perfection and priority of the security interests provided for herein
and (b) if applicable, a written supplement to Schedule 5 showing any additional
----------
location at which Inventory or Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a location
other than those listed on Schedule 5;
----------
(ii) change the location of its chief executive office or sole place
of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Administrative Agent in
connection with this Agreement would become misleading.
5.6 Notices. Such Grantor will advise the Administrative Agent and
-------
the Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Administrative Agent to exercise any of its
remedies hereunder; and
(b) the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.7 Pledged Securities. (a) If such Grantor shall become entitled
------------------
to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer or any Investment Property, whether
in addition to, in substitution of, as a conversion of, or in exchange for, any
shares of the Pledged Stock, or otherwise in respect thereof, such Grantor shall
accept the same as the agent of the Administrative Agent and the Lenders, hold
the same in trust for the Administrative Agent and the Lenders and deliver the
same forthwith to the Administrative Agent in the
<PAGE>
13
exact form received, duly indorsed by such Grantor to the Administrative Agent,
if required, together with an undated stock power covering such certificate duly
executed in blank by such Grantor and with, if the Administrative Agent so
requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Securities upon the liquidation or
dissolution of any Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Obligations, and
in case any distribution of capital shall be made on or in respect of the
Pledged Securities or any property shall be distributed upon or with respect to
the Pledged Securities pursuant to the recapitalization or reclassification of
the capital of any Issuer or pursuant to the reorganization thereof, the
property so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Administrative Agent, be delivered to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Pledged Securities shall be received by such
Grantor, such Grantor shall, until such money or property is paid or delivered
to the Administrative Agent, hold such money or property for the account of the
Lenders, segregated from other funds of such Grantor, as additional collateral
security for the Obligations.
(b) Without the prior written consent of the Administrative Agent,
such Grantor will not (i) vote to enable, or take any other action to permit,
any Issuer to issue any stock or other equity securities of any nature or to
issue any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
in each case, to any Person other than the Administrative Agent, (ii) sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Pledged Securities or Proceeds thereof (except pursuant to a
transaction expressly permitted by the Credit Agreement), (iii) create, incur or
permit to exist any Lien or option in favor of, or any claim of any Person with
respect to, any of the Pledged Securities or Proceeds thereof, or any interest
therein, except for the security interests created by this Agreement or (iv)
enter into any agreement or undertaking restricting the right or ability of such
Grantor or the Administrative Agent to sell, assign or transfer any of the
Pledged Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer
agrees that (i) it will be bound by the terms of this Agreement relating to the
Pledged Securities issued by it and will comply with such terms insofar as such
terms are applicable to it, (ii) it will notify the Administrative Agent
promptly in writing of the occurrence of any of the events described in Section
5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms
of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to
------- --------
all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with
respect to the Pledged Securities issued by it.
5.8 Receivables. (a) Other than in the ordinary course of business
-----------
consistent with its past practice, such Grantor will not (i) grant any extension
of the time of payment of any Receivable, (ii) compromise or settle any
Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
(b) Such Grantor will deliver to the Administrative Agent a copy of
each material demand, notice or document received by it that questions or calls
into doubt the validity or enforceability of more than 5% of the aggregate
amount of the then outstanding Receivables.
<PAGE>
14
5.9 Intellectual Property. (a) Such Grantor (either itself or
---------------------
through licensees) will (i) continue to use each material Trademark on each and
every trademark class of goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law,
(iv) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Trademark unless the Administrative Agent, for the ratable
benefit of the Lenders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any way, except in each case to
the extent that taking, or omitting to take, such action would not have a
Material Adverse Effect.
(b) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any material Patent may become forfeited,
abandoned or dedicated to the public, except in each case to the extent that
taking, or omitting to take, such action would not have a Material Adverse
Effect.
(c) Such Grantor (either itself or through licensees) (i) will employ
each material Copyright and (ii) will not (and will not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
material portion of the Copyrights may become invalidated or otherwise impaired.
Such Grantor will not (either itself or through licensees) do any act whereby
any material portion of the Copyrights may fall into the public domain, except
to the extent that taking such action would not have a Material Adverse Effect.
(d) Such Grantor (either itself or through licensees) will not do any
act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person, except to the extent that
taking such action would not have a Material Adverse Effect.
(e) Such Grantor will notify the Administrative Agent and the Lenders
immediately if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse determination
or development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or tribunal in
any country) regarding such Grantor's ownership of, or the validity of, any
material Intellectual Property or such Grantor's right to register the same or
to own and maintain the same.
(f) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Administrative Agent within five Business Days after the last day
of the fiscal quarter in which such filing occurs. Upon the reasonable request
of the Administrative Agent, such Grantor shall execute and deliver, and have
recorded, any and all agreements, instruments, documents, and papers as the
Administrative Agent may request to evidence the Administrative Agent's and the
Lenders' security interest in any Copyright, Patent or Trademark and the
goodwill and general intangibles of such Grantor relating thereto or represented
thereby.
<PAGE>
15
(g) Such Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Administrative
---------------------------------------
Agent shall have the right to make test verifications of the Receivables in any
manner and through any medium that it reasonably considers advisable, and each
Grantor shall furnish all such assistance and information as the Administrative
Agent may require in connection with such test verifications; provided, that
--------
prior to a Default or Event of Default such test verifications shall be done
without any notice that the verification is being done by a secured party being
given to any of the obligors on such Receivables. At any time and from time to
time, upon the Administrative Agent's request and at the expense of the relevant
Grantor, such Grantor shall cause independent public accountants or others
satisfactory to the Administrative Agent to furnish to the Administrative Agent
reports showing reconciliations, aging and test verifications of, and trial
balances for, the Receivables.
(b) The Administrative Agent hereby authorizes each Grantor to
collect such Grantor's Receivables, subject to the Administrative Agent's
direction and control, and the Administrative Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of an
Event of Default. If required by the Administrative Agent at any time after the
occurrence and during the continuance of an Event of Default, any payments of
Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any
event, within two Business Days) deposited by such Grantor in the exact form
received, duly indorsed by such Grantor to the Administrative Agent if required,
in a Collateral Account maintained under the sole dominion and control of the
Administrative Agent, subject to withdrawal by the Administrative Agent for the
account of the Lenders only as provided in Section 65, and (ii) until so turned
over, shall be held by such Grantor for the account of the Administrative Agent
and the Lenders, segregated from other funds of such Grantor. Each such deposit
of Proceeds of Receivables shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.
(c) At the Administrative Agent's request upon the occurrence of a
Default or an Event of Default, each Grantor shall deliver to the Administrative
Agent all original and other documents evidencing, and relating to, the
agreements and transactions which gave rise to the Receivables, including,
without limitation, all original orders, invoices and shipping receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The
----------------------------------------------------
Administrative Agent in its own name or in the name of others may at any time
communicate with obligors under the
<PAGE>
16
Receivables to verify with them to the Administrative Agent's satisfaction the
existence, amount and terms of any Receivables; provided, that prior to the
--------
occurrence of an Event of Default, the Administrative Agent shall not indicate
to any obligors that the verification is being done by a secured party.
(b) Upon the request of the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, each Grantor
shall notify obligors on the Receivables that the Receivables have been assigned
to the Administrative Agent for the ratable benefit of the Lenders and that
payments in respect thereof shall be made directly to the Administrative Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Receivables to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise thereto. Neither the
Administrative Agent nor any Lender shall have any obligation or liability under
any Receivable (or any agreement giving rise thereto) by reason of or arising
out of this Agreement or the receipt by the Administrative Agent or any Lender
of any payment relating thereto, nor shall the Administrative Agent or any
Lender be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have
-------------
occurred and be continuing and the Administrative Agent shall have given notice
to the relevant Grantor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive all cash dividends paid in respect of the Pledged Stock and all
payments made in respect of the Pledged Notes, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Securities; provided, however, that
-------- -------
no vote shall be cast or corporate right exercised or other action taken which,
in the Administrative Agent's reasonable judgment, would impair the Collateral
or which would be inconsistent with or result in any violation of any provision
of the Credit Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise its rights to
the relevant Grantor or Grantors, (i) the Administrative Agent shall have the
right to receive any and all cash dividends, payments or other Proceeds paid in
respect of the Pledged Securities and make application thereof to the
Obligations in such order as the Administrative Agent may determine, and (ii)
any or all of the Pledged Securities shall be registered in the name of the
Administrative Agent or its nominee, and the Administrative Agent or its nominee
may thereafter exercise (x) all voting, corporate and other rights pertaining to
such Pledged Securities at any meeting of shareholders of the relevant Issuer or
Issuers or otherwise and (y) any and all rights of conversion, exchange and
subscription and any other rights, privileges or options pertaining to such
Pledged Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization or
other fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Grantor or the Administrative Agent of any right, privilege or
option pertaining to such Pledged Securities, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Securities with any
committee, depositary, transfer agent, registrar or other designated agency
<PAGE>
17
upon such terms and conditions as the Administrative Agent may determine), all
without liability except to account for property actually received by it, but
the Administrative Agent shall have no duty to any Grantor to exercise any such
right, privilege or option and shall not be responsible for any failure to do so
or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Pledged Securities pledged by such Grantor hereunder, if an Event of Default
shall occur and be continuing and the Administrative Agent shall give notice of
its intent to exercise its rights to such Grantor to (i) comply with any
instruction received by it from the Administrative Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each Issuer
shall be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In addition
--------------------------------------------------
to the rights of the Administrative Agent and the Lenders specified in Section
6.1 with respect to payments of Receivables, if an Event of Default shall occur
and be continuing, all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor for the account
of the Administrative Agent and the Lenders, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Administrative Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Administrative Agent, if required). All
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a
Collateral Account (or by such Grantor in trust for the Administrative Agent and
the Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 65.
6.5 Application of Proceeds. If an Event of Default shall have
-----------------------
occurred and be continuing, at any time at the Administrative Agent's election,
the Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in payment of the Obligations in such order as the
Administrative Agent may elect, and any part of such funds which the
Administrative Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Administrative Agent to the Borrowers or to whomsoever may be lawfully entitled
to receive the same. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full, no Letters of Credit shall be
outstanding and the Commitments shall have terminated shall be paid over to the
Borrowers or to whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and
-----------------------
be continuing, the Administrative Agent, on behalf of the Lenders, may exercise,
in addition to all other rights and remedies granted to them in this Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels
<PAGE>
18
at public or private sale or sales, at any exchange, broker's board or office of
the Administrative Agent or any Lender or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in any Grantor, which right or equity is
hereby waived and released. Each Grantor further agrees, at the Administrative
Agent's request, to assemble the Collateral and make it available to the
Administrative Agent at places which the Administrative Agent shall reasonably
select, whether at such Grantor's premises or elsewhere. The Administrative
Agent shall apply the net proceeds of any action taken by it pursuant to this
Section 6.6, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, in such order as the Administrative Agent may elect, and
only after such application and after the payment by the Administrative Agent of
any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the New York UCC, need the Administrative
Agent account for the surplus, if any, to any Grantor. To the extent permitted
by applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Administrative Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.
6.7 Registration Rights. (a) If the Administrative Agent shall
-------------------
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 6.6, and if in the opinion of the Administrative Agent it is
necessary or advisable to have the Pledged Stock, or that portion thereof to be
sold, registered under the provisions of the Securities Act, the relevant
Grantor will cause the Issuer thereof to (i) execute and deliver, and cause
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Administrative Agent, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and (iii) make all amendments thereto and/or to the
related prospectus which, in the opinion of the Administrative Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. Each Grantor agrees to cause such Issuer to
comply with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Administrative Agent shall designate and to make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
(b) Each Grantor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a
<PAGE>
19
commercially reasonable manner. The Administrative Agent shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the Issuer thereof to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 6.7 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 6.7 will cause irreparable injury to the Administrative Agent and
the Lenders, that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section 6.7 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred under the Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert
------------------
any rights or privileges which it may acquire under Section 9-112 of the New
York UCC. Each Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc.
-----------------------------------------------------------
(a) Each Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, each
Grantor hereby gives the Administrative Agent the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of
the following:
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable or with respect to any other Collateral and file any claim or
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Administrative Agent for the purpose of
collecting any and all such moneys due under any Receivable or with respect
to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Administrative Agent may request to evidence the
Administrative Agent's and the Lenders' security interest in such
Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;
<PAGE>
20
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section 6.6
or 6.7, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(v) (i) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the Administrative
Agent shall direct; (ii ask or demand for, collect, and receive payment of
and receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral; (ii
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (iv commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect
of any Collateral; (v) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (vi settle, compromise
or adjust any such suit, action or proceeding and, in connection therewith,
give such discharges or releases as the Administrative Agent may deem
appropriate; (vi assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such conditions,
and in such manner, as the Administrative Agent shall in its sole
discretion determine; and (vi generally, sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Administrative Agent were the
absolute owner thereof for all purposes, and do, at the Administrative
Agent's option and such Grantor's expense, at any time, or from time to
time, all acts and things which the Administrative Agent deems necessary to
protect, preserve or realize upon the Collateral and the Administrative
Agent's and the Lenders' security interests therein and to effect the
intent of this Agreement, all as fully and effectively as such Grantor
might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in connection
with actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due ABR Loans under the Credit Agreement, from the date
of payment by the Administrative Agent to the date reimbursed by the relevant
Grantor, shall be payable by such Grantor to the Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations
and agencies contained in this Agreement are coupled
<PAGE>
21
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
7.2 Duty of Administrative Agent. The Administrative Agent's sole
----------------------------
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account. Neither the
Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section 9-402 of
---------------------------------
the New York UCC and any other applicable law, each Grantor authorizes the
Administrative Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of such Grantor in such form and in such offices as the Administrative
Agent reasonably determines appropriate to perfect the security interests of the
Administrative Agent under this Agreement. A photographic or other reproduction
of this Agreement shall be sufficient as a financing statement or other filing
or recording document or instrument for filing or recording in any jurisdiction.
7.4 Authority of Administrative Agent. Each Grantor acknowledges
---------------------------------
that the rights and responsibilities of the Administrative Agent under this
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Grantors, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
---------------------
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with subsection 11.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the
-------
Administrative Agent or any Grantor hereunder shall be effected in the manner
provided for in subsection 11.2 of the Credit Agreement; provided that any such
--------
notice, request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 1.
----------
<PAGE>
22
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
---------------------------------------------------
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor
-------------------------------------
agrees to pay or reimburse each Lender and the Administrative Agent for all its
costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any rights
under this Agreement and the other Loan Documents to which such Guarantor is a
party, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel) to each Lender
and of counsel to the Administrative Agent.
(b) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement to the
extent the Borrowers would be required to do so pursuant to subsection 11.5 of
the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns; provided
--------
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
-------
Administrative Agent and each Lender at any time and from time to time while an
Event of Default shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender to or for the credit or the
account of such Grantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Administrative Agent or
<PAGE>
23
such Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Grantor, in any currency,
whether arising hereunder, under the Credit Agreement, any other Loan Document
or otherwise, as the Administrative Agent or such Lender may elect, whether or
not the Administrative Agent or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Administrative Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof, provided that the failure to give
--------
such notice shall not affect the validity of such set-off and application. The
rights of the Administrative Agent and each Lender under this Section 8.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Administrative Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this Agreement
----------------
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
8.1 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Grantors, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Loan Documents.
8.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.1 Submission To Jurisdiction; Waivers. Each Grantor hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
<PAGE>
24
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Grantor at its address referred to in Section 8.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 8.12 any special, exemplary, punitive or consequential
damages.
8.1 Acknowledgements. Each Grantor hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a
party;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Administrative
Agent and Lenders, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Grantors and the Lenders.
8.1 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND
--------------------
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
8.1 Additional Grantors. Each Subsidiary of a Borrower that is
-------------------
required to become a party to this Agreement pursuant to subsection 6.10 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
8.1 Releases. (a) At such time as the Loans, the Reimbursement
--------
Obligations and the other then accrued Obligations shall have been paid in full,
the Commitments have been terminated and no Letters of Credit shall be
outstanding, the Collateral shall be released from the Liens created hereby, and
this Agreement and all obligations (other than those expressly stated to survive
such termination) of the Administrative Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors. At
the request and sole expense of any Grantor following any such termination, the
Administrative Agent shall deliver to such Grantor any Collateral held by the
Administrative Agent hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
<PAGE>
25
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. At the request and sole expense of the Borrowers, a Subsidiary
Guarantor shall be released from its obligations hereunder in the event that all
the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or
otherwise disposed of in a transaction permitted by the Credit Agreement;
provided that the Borrowers shall have delivered to the Administrative Agent, at
- --------
least ten Business Days prior to the date of the proposed release, a written
request for release identifying the relevant Subsidiary Guarantor and the terms
of the sale or other disposition in reasonable detail, including the price
thereof and any expenses in connection therewith, together with a certification
by the Borrowers stating that such transaction is in compliance with the Credit
Agreement and the other Loan Documents.
(c) Upon the occurrence of the Second Closing Date and the
contribution of all of the Capital Stock of DCI by New Intermediate Holdco to
Details Capital Corp., New Intermediate Holdco shall cease to be a Guarantor and
a Grantor without any further action on the part of New Intermediate Holdco, the
Administrative Agent or any of the Lenders. DCI shall remain a Guarantor and
Grantor for all purposes hereunder and the Capital Stock of DCI owned by Details
shall be deemed to be Pledged Stock pledged by Details pursuant to the terms
hereof. Furthermore, it is understood and agreed that prior to the Second
Closing Date DCI and Cuplex, Inc. shall be Guarantors and Grantors with respect
to the DCI Obligations only and shall not have any obligation with respect to
the Details Obligations.
<PAGE>
26
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
and Collateral Agreement to be duly executed and delivered as of the date first
above written.
DETAILS INTERMEDIATE HOLDING CORP.
By:
------------------------------
Title:
DETAILS, INC.
By:
-------------------------------
Title:
DYNAMIC CIRCUITS, INC.
By:
-------------------------------
Title:
CUPLEX, INC.
By:
-------------------------------
Title:
COLORADO SPRINGS CIRCUITS, INC.
By:
-------------------------------
Title:
<PAGE>
27
DETAILS CAPITAL CORP.
By:
-------------------------------
Title:
<PAGE>
Schedule 1
----------
NOTICE ADDRESSES OF GUARANTORS
<PAGE>
Schedule 2
----------
DESCRIPTION OF PLEDGED SECURITIES
<TABLE>
<CAPTION>
Pledged Stock:
<S> <C> <C> <C>
Issuer Class of Stock Stock Certificate No. No. of Shares
-------------------- -------------- --------------------- -------------
<CAPTION>
Pledged Notes:
<S> <C> <C>
Issuer Payee Principal Amount
- ---------------------------- ---------------- ---------------------------
</TABLE>
<PAGE>
Schedule 3
----------
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
-------------------------------
[List each office where a financing statement is to be filed]*
U.S. Patent & Trademark Office.
Patent and Trademark Filings
----------------------------
[List all filings]
Actions with respect to Pledged Stock**
----------------------------------------
Other Actions
-------------
[Describe other actions to be taken]
- --------------------------
* Note that perfection of security interests in patents and trademarks requires
filings under the UCC in the jurisdictions where filings would be made for
general intangibles, as well as filings in the U.S Copyright Office and the
** If the interest of a Grantor in Pledged Stock appears on the books of a
financial intermediary, the procedures for creation of the pledge specified
in 8-313(h) of the New York UCC will have to be followed. These procedures
involve notification to the financial intermediary.
<PAGE>
Schedule 4
----------
<TABLE>
<CAPTION>
LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE
<S> <C>
Grantor Location
------- --------
</TABLE>
<PAGE>
Schedule 5
----------
<TABLE>
<CAPTION>
LOCATION OF INVENTORY AND EQUIPMENT
<S> <C>
Grantor Locations
------- ---------
</TABLE>
<PAGE>
Schedule 6
----------
COPYRIGHTS AND COPYRIGHT LICENSES
PATENTS AND PATENT LICENSES
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
ACKNOWLEDGEMENT AND CONSENT***
The undersigned hereby acknowledges receipt of a copy of the Guarantee and
Collateral Agreement dated as of July 23, 1998 (the "Agreement"), made by the
---------
Grantors parties thereto for the benefit of The Chase Manhattan Bank, as
Administrative Agent. The undersigned agrees for the benefit of the
Administrative Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) of
the Agreement.
3. The terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
------- --------
pursuant to Section 6.3(a) or 6.7 of the Agreement.
[NAME OF ISSUER]
By
------------------------------------
Title
---------------------------------
Address for Notices:
---------------------------------------
---------------------------------------
Fax:
----------------------------------
- --------------------------
*** This consent is necessary only with respect to any Issuer which is not
also a Grantor. This consent may be modified or eliminated with respect to any
Issuer that is not controlled by a Grantor. If a consent is required, its
execution and delivery should be included among the conditions to the initial
borrowing specified in the Credit Agreement.
<PAGE>
Annex 1 to
Guarantee and Collateral Agreement
----------------------------------
ASSUMPTION AGREEMENT, dated as of , 199 , made by
---------------- -
, a corporation (the "Additional
- ------------------------------ -------------- ----------
Grantor"), in favor of THE CHASE MANHATTAN BANK, as administrative agent (in
- -------
such capacity, the "Administrative Agent") for the banks and other financial
--------------------
institutions (the "Lenders") parties to the Credit Agreement referred to below.
-------
All capitalized terms not defined herein shall have the meaning ascribed to them
in such Credit Agreement.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Details, Inc. (the "Details"), Dynamic Circuits, Inc.
-------
("DCI"), the Lenders and the Administrative Agent have entered into a Credit
---
Agreement, dated as of July 23, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement");
----------------
WHEREAS, in connection with the Credit Agreement, the Borrowers and
certain of their Affiliates (other than the Additional Grantor) have entered
into the Guarantee and Collateral Agreement, dated as of July 23, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Guarantee
---------
and Collateral Agreement") in favor of the Administrative Agent for the benefit
- ------------------------
of the Lenders;
WHEREAS, the Credit Agreement requires the Additional Grantor to
become a party to the Guarantee and Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Guarantee and Collateral
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee and Collateral Agreement. By executing and delivering
----------------------------------
this Assumption Agreement, the Additional Grantor, as provided in Section 8.15
of the Guarantee and Collateral Agreement, hereby becomes a party to the
Guarantee and Collateral Agreement as a Grantor thereunder with the same force
and effect as if originally named therein as a Grantor and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in Schedules ___________****
to the Guarantee and Collateral Agreement. The Additional Grantor hereby
represents and warrants that each of the representations and warranties
contained in Section 4 of the Guarantee and Collateral Agreement is true and
correct on and as the date hereof (after giving effect to this Assumption
Agreement) as if made on and as of such date.
2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
- ------------------------
**** Refer to each Schedule which needs to be supplemented.
<PAGE>
2
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
---------------------------------------
Name:
Title:
<PAGE>
EXHIBIT F-1
TO
CREDIT AGREEMENT
FORM OF TRANCHE [A/B] TERM LOAN NOTE
$[_________] New York, New York
July 23, 1998
FOR VALUE RECEIVED, the undersigned, Details, Inc., a California
corporation ("Details"), and Dynamic Circuits, Inc., a Delaware corporation
-------
("DCI", and collectively with Details, the "Borrowers"), hereby unconditionally
- ----- ---------
promise to pay to the order of [NAME OF LENDER] (the "Lender") at the office of
------
THE CHASE MANHATTAN BANK located at 270 Park Avenue, New York, New York 10017,
in lawful money of the United States of America and in immediately available
funds, (a) the principal amount of [___________________________] ($[_______])
or, if less, (b) the unpaid principal amount of the Tranche [A/B] Term Loan made
by the Lender pursuant to Section 2.1 of the Credit Agreement, as hereinafter
defined. The principal amount shall be paid in the amounts and on the dates
specified in Section 2.3 of the Credit Agreement. The Borrowers further agree
to pay interest in like money at such office on the unpaid principal amount
hereof from time to time outstanding at the rates and on the dates specified in
Sections 2.14 and 2.15 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereof (or on a continuation thereof which shall be
attached hereto and made a part hereof) the date, Type and amount of the Tranche
[A/B] Term Loan and the date and amount of each payment or prepayment of
principal with respect thereto, each conversion of all or a portion thereof to
another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurocurrency Loans, the length of each Interest Period with
respect thereto. Each such endorsement shall constitute prima facie evidence of
----- -----
the accuracy of the information endorsed. The failure to make any such
endorsement shall not affect the obligations of the Borrowers in respect of such
Tranche [A/B] Term Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement,
dated as of July 23, 1998 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among Details Capital Corp., a California
----------------
corporation (the "Company"), the Borrowers, the Lender, the other banks and
-------
financial institutions from time to time parties thereto and The Chase Manhattan
Bank, as Administrative Agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. This Note is secured and guaranteed
as provided in the Loan Documents. Reference is hereby made to the Loan
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security and the
guarantees, the terms and conditions upon which the security interests and each
guarantee were granted and the rights of the holder of this Note in respect
thereof.
<PAGE>
2
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
DETAILS, INC.
-------------------------------
Name:
Title:
DYNAMIC CIRCUITS, INC.
-------------------------------
Name:
Title:
<PAGE>
Schedule A
to Tranche [A/B] Term Loan Note
-------------------------------
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Amount Amount of Principal Amount of ABR Unpaid Principal
Converted to of ABR Loans Converted to Balance of ABR Notation Made
Date Amount of ABR Loans ABR Loans Loans Repaid Eurocurrency Loans Loans By
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule B
to Tranche [A/B] Term Loan Note
-------------------------------
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EUROCURRENCY LOANS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Period
Amount and Amount of Amount of
Amount of Converted to Eurocurrency Principal of Eurocurrency Unpaid Principal
Eurocurrency Eurocurrency Rate with Eurocurrency Loans Converted Balance of Notation
Date Loans Loans Respect Thereto Loans Repaid to ABR Loans Eurocurrency Loans Made by
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT F-2
TO
CREDIT AGREEMENT
FORM OF REVOLVING CREDIT NOTE
$[___________] New York, New York
July 23, 1998
FOR VALUE RECEIVED, the undersigned, Details, Inc., a California
corporation ("Details") and Dynamic Circuits, Inc., a Delaware corporation
-------
("DCI", and collectively with Details, the "Borrowers"), hereby unconditionally
---------
promise to pay to the order of [NAME OF LENDER] (the "Lender") at the office of
------
The Chase Manhattan Bank, located at 270 Park Avenue, New York, New York 10017,
in lawful money of the United States of America and in immediately available
funds, on the Scheduled Revolving Credit Commitment Termination Date or the
earlier date of termination of the Revolving Credit Commitments as provided in
the Credit Agreement, as hereinafter defined, the principal amount of (a)
( ) or, if less, (b) the aggregate unpaid principal
- ---------------- -------
amount of all Revolving Credit Loans made by the Lender to the Borrowers
pursuant to Section 2.4 of the Credit Agreement. The Borrowers further agree to
pay interest in like money at such office on the unpaid principal amount hereof
from time to time outstanding at the rates and on the dates specified in
Sections 2.14 and 2.15 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the date, Type and amount of each
Revolving Credit Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurocurrency Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall constitute prima facie evidence of the
----- -----
accuracy of the information endorsed. The failure to make any such endorsement
shall not affect the obligations of the Company in respect of such Revolving
Credit Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement dated
as of July 23, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Details Capital Corp., a California
----------------
corporation (the "Company"), the Borrowers, the Lender, the other banks and
-------
financial institutions from time to time parties thereto and The Chase Manhattan
Bank, as Administrative Agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. This Note is secured and guaranteed
as provided in the Loan Documents. Reference is hereby made to the Loan
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security and the
guarantees, the terms and conditions upon which the security interests and each
guarantee were granted and the rights of the holder of this Note in respect
thereof.
<PAGE>
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
DETAILS, INC.
---------------------------------
Name:
Title:
DYNAMIC CIRCUITS, INC.
----------------------------------
Name:
Title:
<PAGE>
Schedule A
to Revolving Credit Note
------------------------
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of ABR
Amount Amount of Principal of Loans Unpaid Principal Notation
Converted to ABR Converted to Balance Made
Date Amount of ABR Loans ABR Loans Loans Repaid Eurocurrency Loans of ABR Loans By
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule B
to Revolving Credit Note
------------------------
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EUROCURRENCY LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Period Unpaid
Amount and Amount of Amount of Principal
Amount of Converted to Eurocurrency Principal of Eurocurrency Balance of Notation
Eurocurrency Eurocurrency Rate with Eurocurrency Loans Converted Eurocurrency Made
Date Loans Loans Respect Thereto Loans Repaid to ABR Loans Loans By
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>
<PAGE>
EXHIBIT F-5
TO
CREDIT AGREEMENT
FORM OF SWING LINE NOTE
$[ ] New York, New York
------------ July 23, 1998
FOR VALUE RECEIVED, the undersigned, Details, Inc., a California
corporation ("Details") and Dynamic Circuits, Inc., a Delaware corporation
-------
("DCI", and collectively with Details, the "Borrowers"), hereby unconditionally
--- ---------
promise to pay to the order of THE CHASE MANHATTAN BANK (the "Swing Line
----------
Lender") and its successors and assigns, at the office of The Chase Manhattan
- ------
Bank, 270 Park Avenue, New York, New York 10017, in lawful money of the United
States of America and in immediately available funds, the principal amount of
the lesser of (a) [ ] ($ ) and (b) the
------------------------- ------------
aggregate unpaid principal amount of all Swing Line Loans made by the Swing Line
Lender to the undersigned pursuant to Section 2.6 of the Credit Agreement, as
hereinafter defined, which sum shall be payable on the Scheduled Revolving
Credit Commitment Termination Date or the earlier date of termination of the
Revolving Credit Commitments as provided in the Credit Agreement.
The Borrowers further agree to pay interest in like money at such
office on the unpaid principal amount hereof from time to time at the applicable
rates per annum for ABR Loans and on the dates set forth in Sections 2.14 and
2.15 of the Credit Agreement until paid in full (both before and after
judgment).
This Swing Line Note is one of the Notes referred to in the Credit
Agreement, dated as of July 23, 1998 (as amended, supplemented, waived or
otherwise modified from time to time, the "Credit Agreement"), among Details
----------------
Capital Corp., a California corporation (the "Company"), the Borrowers, the
-------
Swing Line Lender, and the other banks and financial institutions from time to
time parties thereto and The Chase Manhattan Bank, in its capacity as
Administrative Agent, and is entitled to the benefits thereof, is secured and
guaranteed as provided therein and is subject to optional and mandatory
prepayment in whole or in part as provided therein. Terms used herein which are
defined in the Credit Agreement shall have such defined meanings unless
otherwise defined herein or unless the context otherwise requires.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts remaining unpaid on this Swing
Line Note shall become, or may be declared to be, immediately due and payable
all as provided therein.
<PAGE>
2
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
DETAILS, INC.
-----------------------------------
Name:
Title:
DYNAMIC CIRCUITS, INC.
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT F-3
TO
CREDIT AGREEMENT
FORM OF ALTERNATIVE TERM NOTE
$ New York, New York
--------------- July 23, 1998
FOR VALUE RECEIVED, the undersigned, Details, Inc., a California
corporation ("Details") and Dynamic Circuits, Inc., a Delaware corporation
-------
("DCI", and collectively with Details, the "Borrowers"), hereby unconditionally
--- ---------
promise to pay to the order of [NAME OF LENDER] (the "Lender") and its
------
successors and assigns, at the office of The Chase Manhattan Bank, located at
270 Park Avenue, New York, New York 10017, in lawful money of the United States
of America and in immediately available funds, the principal amount of the
lesser of (a) DOLLARS ($ ) and (b) the
-------------------------- -------------
aggregate unpaid principal amount of the Tranche [A/B] Term Loan made by the
Lender to the undersigned pursuant to Section 2.1 of the Credit Agreement, which
sum shall be payable in accordance with Section 2.3 of the Credit Agreement.
The Borrowers further agree to pay interest in like money at such
office on the unpaid principal amount hereof from time to time at the applicable
rates per annum and on the dates set forth in Sections 2.14 and 2.15 of the
Credit Agreement until such principal amount is paid in full (both before and
after judgment).
This Note is one of the Notes referred to in the Credit Agreement,
dated as of July 23, 1998 (as amended, supplemented, waived or otherwise
modified from time to time, the "Credit Agreement"), among Details Capital
----------------
Corp., a California corporation (the "Company"), the Borrowers, the Lender, the
-------
several banks and other financial institutions from time to time parties thereto
and The Chase Manhattan Bank, as Administrative Agent, and is entitled to the
benefits thereof, is secured and guaranteed as provided therein and is subject
to optional and mandatory prepayment in whole or in part as provided therein.
Terms used herein which are defined in the Credit Agreement shall have such
defined meanings unless otherwise defined herein or unless the context otherwise
requires.
As provided in Section 11.6(f) of the Credit Agreement, this
Alternative Term Note and the obligations evidenced hereby may be assigned in
whole or in part only by registration of such assignment of this Alternative
Term Note and the obligations evidenced hereby on the Register described in
Section 11.6(d) of the Credit Agreement. Any assignment of all or part of such
obligations and this Alternative Term Note evidencing the same shall be
registered on the Register only upon surrender for registration of assignment of
this Alternative Term Note evidencing such obligations, duly endorsed by (or
accompanied by a written instrument of assignment duly executed by) the holder
of this Alternative Term Note, and thereupon one or more new Alternative Term
Notes in the same aggregate principal amount shall be issued to the designated
Assignee(s) and this Alternative Term Note shall be returned to the
<PAGE>
Borrowers marked "cancelled". No assignment of this Alternative Term Note and
the obligations evidenced hereby shall be effective unless such assignment shall
have been recorded in the Register as provided herein and in Section 11.6(f) of
the Credit Agreement. This Alternative Term Note may not be exchanged for
promissory notes that are not Alternative Term Notes.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on this
Alternative Term Note shall become, or may be declared to be, immediately due
and payable, all as provided therein.
THIS ALTERNATIVE TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
DETAILS, INC.
----------------------------------
Name:
Title:
DYNAMIC CIRCUITS, INC.
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT F-4
TO
CREDIT AGREEMENT
FORM OF ALTERNATIVE REVOLVING CREDIT NOTE
$ New York, New York
-------------- July 23, 1998
FOR VALUE RECEIVED, the undersigned, Details, Inc., a California
corporation ("Details") and Dynamic Circuits, Inc., a Delaware corporation
-------
("DCI", and collectively with Details, the "Borrowers"), hereby unconditionally
--- ---------
promise to pay to the order of [NAME OF LENDER] (the "Lender") and its
------
successors and assigns, at the office of The Chase Manhattan Bank, located at
270 Park Avenue, New York, New York 10017 in lawful money of the United States
of America and in immediately available funds, the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Lender to the undersigned
pursuant to Section 2.4 of the Credit Agreement, which sum shall be payable on
the Scheduled Revolving Credit Commitment Termination Date or the earlier date
of termination of the Revolving Credit Commitments as provided in the Credit
Agreement, as hereinafter defined.
The Borrowers further agree to pay interest in like money at such
office on the unpaid principal amount hereof from time to time at the applicable
rates per annum and on the dates set forth in Sections 2.14 and 2.15 of the
Credit Agreement until such principal amount is paid in full (both before and
after judgment).
This Note is one of the Notes referred to in the Credit Agreement,
dated as of July 23, 1998 (as amended, supplemented, waived or otherwise
modified from time to time, the "Credit Agreement"), among Details Capital
----------------
Corp., a California corporation (the "Company"), the Borrowers, the Lender, the
-------
other banks and financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as Administrative Agent, and is entitled to the benefits
thereof, is secured and guaranteed as provided therein and is subject to
optional and mandatory prepayment in whole or in part as provided therein.
Terms used herein which are defined in the Credit Agreement shall have such
defined meanings unless otherwise defined herein or unless the context otherwise
requires.
As provided in Section 11.6(f) of the Credit Agreement, this
Alternative Revolving Credit Note and the obligations evidenced hereby may be
assigned in whole or in part only by registration of such assignment of this
Alternative Revolving Credit Note and the obligations evidenced hereby on the
Register described in Section 11.6(d) of the Credit Agreement. Any assignment
of all or part of such obligations and this Alternative Revolving Credit Note
evidencing the same shall be registered on the Register only upon surrender for
registration of assignment of this Alternative Revolving Credit Note evidencing
such obligations,
<PAGE>
2
duly endorsed by (or accompanied by a written instrument of assignment duly
executed by) the holder of this Alternative Revolving Credit Note, and thereupon
one or more new Alternative Revolving Credit Notes in the same aggregate
principal amount shall be issued to the designated Assignee(s) and this
Alternative Revolving Credit Note shall be returned to the Borrowers marked
"cancelled". No assignment of this Alternative Revolving Credit Note and the
obligations evidenced hereby shall be effective unless such assignment shall
have been recorded in the Register as provided herein and in Section 11.6(f) of
the Credit Agreement. This Alternative Revolving Credit Note may not be
exchanged for promissory notes that are not Alternative Revolving Credit Notes.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on this
Alternative Revolving Credit Note shall become, or may be declared to be,
immediately due and payable, all as provided therein.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
DETAILS, INC.
-------------------------------
Name:
Title:
DYNAMIC CIRCUITS, INC.
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT H-1 to
Credit Agreement
----------------
FORM OF
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT, dated as of , 1997, made by
------------- ---
, a Delaware corporation (the "Successor Subsidiary") pursuant
- ---------------- --------------------
to the Credit Agreement, dated as of October 28, 1997 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among Details,
----------------
Inc., a California corporation (the "Company"), the banks and financial
-------
institutions from time to time parties thereto and The Chase Manhattan Bank, as
Administrative Agent. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
For good and valid consideration, the sufficiency of which hereby is
acknowledged, the Successor Subsidiary hereby agrees as follows:
(a) It assumes all liabilities and obligations and shall have all the rights
and responsibilities of the Company, in its capacity as the Borrower under
the Credit Agreement and shall be deemed to be the Borrower for all
purposes under the Credit Agreement and the other Loan Documents;
(b) It assumes all liabilities and obligations and shall have all the rights
and responsibilities of a Grantor under the Guarantee and Collateral
Agreement; and
(c) It shall (i) be bound by all covenants, agreements, acknowledgements and
other terms and provisions applicable to it, as the Borrower pursuant to
the Credit Agreement and the other Loan Documents to the same extent, and
in the same manner, as if it (in its capacity as the Borrower) were a
direct party thereto and (ii) perform all obligations required of it
pursuant to the Credit Agreement and such Loan Documents.
The Successor Subsidiary hereby acknowledges that it has received and
reviewed a copy (in execution form) of the Credit Agreement (including, without
limitation, all amendments, supplements and other modifications thereto) and
each of the Loan Documents referred to therein (including, without limitation,
all amendments, supplements and other modifications thereto).
The Successor Subsidiary hereby represents and warrants that (a) all
representations and warranties contained in the Credit Agreement and the other
Loan Documents which are applicable to it, in its capacity as Borrower (after
giving effect to this Assumption Agreement) are true and correct in all material
respects and (b) immediately prior to and
<PAGE>
2
immediately after the effectiveness of this Assumption Agreement, no Default or
Event of Default shall have occurred and be continuing.
This Assumption Agreement shall become effective upon (A) its
execution by the Successor Subsidiary and the Administrative Agent, (B) the
delivery of legal opinions substantially in the form of the legal opinions
delivered on the date of the Credit Agreement with respect to the Company and
such other documents as may be reasonably requested by the Administrative Agent
and (C) upon the contribution by the Company to the Successor Subsidiary of (i)
all of its material assets (other than the Capital Stock of the Successor
Subsidiary, the deferred financing fees relating to the Company Zeros or the
Company Interim Credit Facility and its right to receive tax refunds) and (ii)
all of its material liabilities (other than the Company Zeros or the loans under
the Company Interim Credit Facility).
THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first written above.
[NAME OF SUCCESSOR SUBSIDIARY]
By:
-------------------------------
Title:
ACKNOWLEDGED AND AGREED TO;
- --------------------------
THE CHASE MANHATTAN BANK, as Administrative Agent
By:
-----------------------------
Title:
<PAGE>
EXHIBIT C
TO
CREDIT AGREEMENT
FORM OF CLOSING CERTIFICATE
Pursuant to subsection 5.1(h) of the Credit Agreement, dated as of
July 23, 1998, among Details Capital Corp., a California corporation (the
"Company"), Details, Inc., a Delaware corporation ("Details") and Dynamic
- -------- -------
Circuits, Inc., a Delaware corporation ("DCI", and collectively with Details,
---
the "Borrowers"), the lenders and other financial institutions which are parties
---------
thereto (the "Lenders") and The Chase Manhattan Bank, as administrative agent
-------
for the Lenders (in such capacity, the "Administrative Agent") (the "Credit
-------------------- ------
Agreement"; terms defined therein being used herein as therein defined), the
- ---------
undersigned Officers of the Company/Borrowers hereby certify as follows:
1. The representations and warranties of each of the Loan
Parties made on the Closing Date and set forth in each of the Loan
Documents to which each is a party or which are contained in any
certificate, document or financial or other statement furnished by or
on behalf of each such Loan Party pursuant to or in connection with
any Loan Document are true and correct in all material respects on and
as of the date hereof, except for representations and warranties
stated to relate to a specific earlier date, in which case such
representations and warranties were true and correct in all material
respects as of such earlier date;
2. No Default or Event of Default has occurred and is continuing
as of the date hereof or after giving effect to the Loans to be made
on the date hereof and/or the issuance of any Letters of Credit to be
issued on the date hereof;
3. Since June 30, 1998, there has been no development or event
which has had or could reasonably be expected to have a Material
Adverse Effect;
4. There are no liquidation or dissolution proceedings pending or
to my knowledge threatened against the Company/Borrowers, nor has any
other event occurred affecting or threatening the corporate existence
of the Company/Borrowers;
5. Neither the Company/Borrowers nor any of their Subsidiaries or
Affiliates is subject to any litigation or other similar proceedings
the effect of which has had or could reasonably be expected to have a
Material Adverse Effect;
6. The chief executive office of the Company/Borrowers is located
at ;
-------------------
<PAGE>
-2-
7. The persons named below are duly authorized to execute and
deliver, on behalf of the Company/Borrowers, the Credit Agreement, the
Guarantee and Collateral Agreement and all certificates, notices,
requests, reports and other documents and instruments delivered
pursuant thereto or in connection therewith including, without
limitation, Uniform Commercial Code financing statements for filing
with any jurisdiction necessary to perfect the security interests of
the Lenders (collectively, the "Credit Agreement Documents"); such
--------------------------
persons are now duly elected and qualified officers of the Company,
holding the offices indicated next to their respective names (and such
officers have held such offices with the Company/Borrowers at all
times since [ ], to and including the date hereof) and
--------------
the signature set forth on the signature line opposite their
respective names is such officer's true and genuine signature:
Name Signature Office
---- --------- ------
8. Attached hereto as Annex A are true and correct copies of all
consents, authorizations and filings, if any, required in connection
with the execution, delivery and performance by the Company and the
validity and enforceability against the Company/Borrowers of the Loan
Documents to which it is a party and such consents, authorizations and
filings are in full force and effect;
9. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of California; attached
hereto as Annex B-1 is a true and complete copy of a Certificate,
dated as of a recent date, of the Secretary of State of California as
to the good standing of the Company under the laws of California;
10. Each of the Borrowers is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware;
attached hereto as Annex B-2 is a true and complete copy of a
Certificate, dated as of a recent date, of the Secretary of State of
Delaware as to the good standing of each of the Borrowers under the
laws of Delaware.
11. Attached hereto as Annex C is a true and complete copy of
resolutions duly adopted by the Board of Directors of the
Company/Borrowers on [ ], 1997 authorizing the execution,
------- --
delivery and performance by the Company/Borrowers of the Credit
Agreement Documents and of the Transaction Documents; such resolutions
have not in any way been amended, modified, revoked or rescinded and
such resolutions have been in full force and effect since
<PAGE>
-3-
their adoption to and including the date hereof and are now in full
force and effect and have been filed with the minutes of the
proceedings of the Board of Directors as required by Section
of the ; and such resolutions are the only
---------- -----------
corporate proceedings of the Company/Borrowers now in force relating
to or affecting the matters referred to therein;
12. Attached hereto as Annex D is a true and complete copy of
the By-Laws of the Company/Borrowers, in effect at all times since
[ ], to and including the date hereof; such By-Laws have not
----------
been amended, modified, revoked or rescinded and such By-Laws have
been in full force and effect since their adoption to and including
the date hereof and are now in full force and effect;
13. Attached hereto as Annex E is a true and complete copy of
the Certificate of Incorporation of the Company/Borrowers, in effect
at all times since [ ], to and including the date hereof;
----------
there has been no further amendment or other document filed affecting
any such Certificate of Incorporation of the Company/Borrowers and no
further amendment or other document has been authorized by the Board
of Directors or stockholders of the Company/Borrowers.
<PAGE>
-4-
IN WITNESS WHEREOF, the undersigned have hereunto set our names.
________________________
____________
Secretary
I, , President, hereby certify that is the
------------ --------------
duly elected Secretary of the Company/Borrowers and that the signature shown
above is his signature.
_______________________
Date: , 1998
------------
<PAGE>
EXHIBIT D
TO
CREDIT AGREEMENT
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of July 23, 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among Details Capital Corp., a California corporation (the
- ---------
"Company"), Details, Inc. ("Details"), and Dynamic Circuits, Inc., a Delaware
------- -------
corporation ("DCI", and collectively with Details, the "Borrowers"), the Lenders
--- ---------
named therein and The Chase Manhattan Bank, as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"). Unless otherwise defined
--------------------
herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
The Assignor identified on Schedule l hereto (the "Assignor") and the
--------
Assignee identified on Schedule l hereto (the "Assignee") agree as follows:
--------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), the interest described in Schedule 1 hereto
(the "Assigned Interest") in and to the Assignor's rights and obligations under
-----------------
the Credit Agreement with respect to those credit facilities contained in the
Credit Agreement as are set forth on Schedule 1 hereto (individually, an
"Assigned Facility"; collectively, the "Assigned Facilities"), in a principal
- ------------------ -------------------
amount for each Assigned Facility as set forth on Schedule 1 hereto.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that the Assignor has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrowers, any of its Subsidiaries or any other
obligor or the performance or observance by the Borrowers, any of their
respective Subsidiaries or any other obligor of any of their respective
obligations under the Credit Agreement or any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto; and (c) attaches
any Notes held by it evidencing the Assigned Facilities and (i) requests that
the Administrative Agent, upon request by the Assignee, exchange the attached
Notes for a new Note or Notes payable to the Assignee and (ii) if the Assignor
has retained any interest in the Assigned Facility, requests that the
Administrative Agent exchange the attached Notes for a new Note or Notes payable
to the Assignor, in each case in amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
<PAGE>
-2-
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to subsection 4.1 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement, the
other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; (d) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under the Credit Agreement, the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
incidental thereto; and (e) agrees that it will be bound by the provisions of
the Credit Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender including, if it is organized under the laws of a
jurisdiction outside the United States, its obligation pursuant to subsection
2.19(b) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be the
Effective Date of Assignment described in Schedule 1 hereto (the "Effective
---------
Date"). Following the execution of this Assignment and Acceptance, it will be
- ----
delivered to the Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to the Credit Agreement, effective as of the
Effective Date (which shall not, unless otherwise agreed to by the
Administrative Agent, be earlier than five Business Days after the date of such
acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to the Effective Date
and to the Assignee for amounts which have accrued subsequent to the Effective
Date. The Assignor and the Assignee shall make all appropriate adjustments in
payments by the Administrative Agent for periods prior to the Effective Date or
with respect to the making of this assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
<PAGE>
-3-
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
Schedule 1
to Assignment and Acceptance
Name of Assignor:
-----------------------------
Name of Assignee:
-----------------------------
Effective Date of Assignment:
------------------
Credit
Facility Assigned Amount Assigned Commitment Percentage Assigned
- --------------------- ----------------- ---------------------------------
$ . %
--------- -- --------
[Name of Assignee] [Name of Assignor]
By: By:
------------------------ ---------------------------
Title: Title:
Consented to: Consented To:
THE CHASE MANHATTAN BANK, DETAILS, INC.,
as Administrative Agent as Borrower
and as Issuing Lender
By: By:
------------------------ ---------------------------
Title: Title:
DYNAMIC CIRCUITS, INC.,
By:
---------------------------
Title:
<PAGE>
EXHIBIT H-2
to
Credit Agreement
FORM OF
LENDER ASSUMPTION AGREEMENT
LENDER ASSUMPTION AGREEMENT, dated as of the date set forth on
Schedule I hereto, made by the Lender designated on Schedule I hereto (the "New
---
Lender") pursuant to the Credit Agreement, dated as of October 28, 1997 (as
- ------
amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among Details, Inc. (the "Company"), the Lenders named therein and
- --------- -------
The Chase Manhattan Bank, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"). Unless otherwise defined herein, terms
--------------------
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
For good and valid consideration, the sufficiency of which hereby is
acknowledged, the undersigned hereby agrees that upon the transfer of the funds
described below it shall become a "Lender" under the Credit Agreement upon the
terms and subject to the conditions set forth therein.
The undersigned hereby:
(a) represents and warrants that it is legally authorized to enter into this
Lender Assumption Agreement and to become a Lender under the Credit
Agreement;
(b) confirms that it has received a copy of the Credit Agreement and the other
Loan Documents; and
(c) agrees that it will (i) be bound by the provisions of the Credit Agreement
and each other Loan Document and (ii) perform all obligations which are
required to be performed by it as a Lender pursuant to the Credit Agreement
and each other Loan Document.
The New Lender agrees that on Effective Date set forth on Schedule I
hereto it shall transfer in immediately available funds to The Chase Manhattan
Bank at the account notified by the Administrative Agent to the New Lender the
amount of its Tranche A Term Loan Commitment, its Tranche B Term Loan Commitment
and its pro rata share of the any outstanding Revolving Credit Loans on such
--- ----
date as notified by the Administrative Agent to the New Lender. From and after
the Effective Date, the undersigned shall have the rights and obligations of a
Lender under the Credit Agreement and the other Loan Documents with respect to
the Commitments set forth on Schedule I and shall be bound by the provisions
thereof and the Borrower shall have the rights and obligations with respect to
such Lender set forth in the Credit
<PAGE>
2
Agreement as if the New Lender were a direct party thereto with the Commitments
set forth on Schedule I.
THIS LENDER ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the New Lender has caused this Lender Assumption
Agreement to be executed on Schedule I hereto by its duly authorized officer as
of the date set forth on Schedule I hereto.
<PAGE>
SCHEDULE I
TO
LENDER ASSUMPTION AGREEMENT
relating to
the Credit Agreement, dated as of October 28, 1997 (as amended, supplemented or
otherwise modified from time to time) among Details, Inc., the Lenders named
therein and The Chase Manhattan Bank, as administrative agent for the Lenders
===============================================================================
Effective Date of Lender Assumption Agreement:
Name of New Lender:
Tranche A Term Loan Commitment of New Lender:
Tranche B Term Loan Commitment of New Lender:
Revolving Credit Commitment of New Lender:
[NAME OF NEW LENDER]
By:
--------------------
Title:
ACKNOWLEDGED AND AGREED:
DETAILS, INC.
By:
------------------------
Title:
THE CHASE MANHATTAN BANK, as Administrative Agent
By:
------------------------
Title:
<PAGE>
EXHIBIT B
TO
CREDIT AGREEMENT
FORM OF COMPLIANCE CERTIFICATE
To: The Lenders Parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to Section 6.2(b) of
the Credit Agreement, dated as of July 23, 1998, among Details Capital Corp., a
California corporation (the "Company"), Details, Inc. ("Details") and Dynamic
------- -------
Circuits, Inc., a Delaware corporation ("DCI", and collectively with Details,
---
the "Borrowers"), the Lenders party thereto and The Chase Manhattan Bank, as
---------
Administrative Agent (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"). Unless otherwise defined herein, the terms
----------------
used in this Compliance Certificate have the meanings ascribed thereto in the
Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Company/Borrower;
-----------------
2. I have reviewed the terms of the Credit Agreement and I have made,
or have caused to be made under my supervision, a detailed review of the
financial condition of the Company and Borrowers and its Subsidiaries for the
accounting period covered by the attached financial statements;
3. Except as set forth below, to the best of my knowledge, the
Company and each of the Borrowers and their Subsidiaries during the accounting
period covered by the attached financial statements observed or performed all of
its covenants and other agreements contained in the Credit Agreement and the
other Loan Documents to which it is a party to be observed or performed by it;
and the examinations described in paragraph 2 did not disclose, and I have no
knowledge of, the existence of any condition or event which constitutes a
Default or an Event of Default during or at the end of such accounting period or
as of the date of this Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and
computations evidencing the Company's, Borrowers' and each of their Subsidiary's
compliance with certain covenants of the Credit Agreement, all of which data and
computations are true, complete and correct.
Described below are the exceptions, if any, to paragraph 3, listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Company and the Borrowers or the relevant
Subsidiary has taken, is taking, or proposes to take with respect to each such
condition or event:
<PAGE>
2
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
The foregoing certifications, together with the computations set forth
in Schedule I hereto and the financial statements delivered with this
Certificate in support thereof, are made and delivered in my capacity described
in paragraph 1 above for and on behalf of the Company and the Borrowers this
day of , .
- ----- ---------------- ----
DETAILS, INC.
By
-----------------------------
Name:
Title:
DYNAMIC CAPITAL INC.
By
-----------------------------
Name:
Title:
DETAILS CAPITAL CORP.
By
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE I TO COMPLIANCE CERTIFICATE
Schedule of Compliance as of , with
----------- -- ----
Section 7.1 of the Credit Agreement
(All calculations for trailing four quarters
except as otherwise required by the Credit Agreement)
(S)7.1(a) Consolidated Leverage Ratio.
- --------------------------------------
The ratio of
(a) Consolidated Total Debt
----------------------- -----
Consolidated Total Debt is, at any date, the aggregate
principal amount of all Indebtedness of Details and its
Subsidiaries at such date, determined on a consolidated
basis in accordance with GAAP.
To
-- -----
(b) Consolidated EBITDA
-------------------
which is the Consolidated Net Income for -----
Details and its Subsidiaries
plus the sum of
---- -----
(i) total income tax expenses
(ii) total interest expense
-----
(iii) amortization or writeoff of debt discount and debt
issuance costs and commissions, discounts and other -----
fees and charges associated with Indebtedness
(including the Loans)
(iv) total depreciation expense
(v) total amortization expense (including amortization of
intangibles (including, but not limited to, goodwill) -----
and organization costs)
<PAGE>
2
(vi) any extraordinary or non-recurring expenses or losses
(including, whether or not otherwise includable as a -----
separate item in the statement of such Consolidated Net
Income for such period, losses on the sales of assets
outside of the ordinary course of business)
(vii) charges for the write-off of any step-up in basis in
inventory required in a transaction which is accounted -----
for under the purchase method of accounting
(viii) any other non-cash charges
-----
(ix) all management fees paid to Bain Capital and the Bain
Affiliates permitted by Section 7.10,
minus (to the extent included in the statement of such
-----
Consolidated Net Income for such period)
(i) interest income
-----
(ii) any extraordinary or non-recurring income or gains
(including, whether or not otherwise includable as a -----
separate item in the statement of such Consolidated Net
Income for such period, gains on the sales of assets
outside of the ordinary course of business)
(iii) any other non-cash income (other than non-cash income
resulting from the Company's accrual method of -----
accounting in accordance with past practice)
Notwithstanding the foregoing, there shall be added to
Consolidated EBITDA on a pro forma basis for purposes of
computing the financial covenants for any period set forth in
Section 7.1:
(i) the amount of compensation and other payments paid to
James I. Swenson (not to exceed $[ ]) which -----
-----------
were deducted in computing Consolidated Net Income for
such period
<PAGE>
3
(ii) the expenses deducted in computing Consolidated Net
Income for such period which were associated with the -----
vesting and exercise by existing management of the
Company of options on the Capital Stock of the Company
on or prior to the Closing Date and the bonuses paid to
such existing management pursuant to Section 1.11 of the
Transaction Agreement.
Consolidated Net Income for any period is the consolidated net
income (or loss) of the Borrower and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP; provided that
--------
there shall be excluded therefrom (a) the income (or deficit) of
any Person accrued prior to the date it becomes a Subsidiary of
the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) the income (or deficit) of
any Person (other than a Subsidiary of the Borrower) in which
the Borrower or any of its Subsidiaries has an ownership
interest, except to the extent that any such income is actually
received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed
earnings of any Subsidiary of the Borrower to the extent that the
declaration or payment of dividends or similar distributions by
such Subsidiary is not at the time permitted by the terms of any
Contractual Obligation (other than under any Loan Document) or
Requirement of Law applicable to such Subsidiary.
For purposes of determining the Consolidated Leverage Ratio at
a time when less than four full fiscal quarters of the Company
have begun after and fully elapsed since the Closing Date,
Consolidated EBITDA for the relevant period shall be deemed to
be the sum of (x) the aggregate Consolidated EBITDA of the
Company for those fiscal quarters which have begun after and
fully elapsed since the Closing Date and (y) the aggregate
Consolidated EBITDA determined on a pro forma basis, as if
the Four Transactions had occurred on the first day of such
period) of Details for the requisite number of consecutive fiscal
quarters commencing prior to the Closing Date.
CONSOLIDATED LEVERAGE RATIO (a)(b)
-----
Must be less than or equal to [Insert from Table]
<PAGE>
4
(S)7.1(b) Consolidated Interest Coverage Ratio.
-----------------------------------------------
The ratio of
(a) Consolidated EBITDA (see above)
To
--
(b) Consolidated Interest Expense
-----
Consolidated Interest Expense for any period is all
cash interest expense (including that attributable
to Capital Lease Obligations) of the Company and
its Subsidiaries for such period with respect to
all outstanding Indebtedness of the Company and its
Subsidiaries (including, without limitation, all
commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest
Rate Protection Agreements to the extent such net
costs are allocable to such period in accordance
with GAAP) and the amount of the AHYDO Payment.
For the purposes of determining the Consolidated
Interest Coverage Ratio described above at a time
when less than four full fiscal quarters of New
Intermediate Holdco have begun after and fully
elapsed since the Closing Date, (x) Consolidated
EBITDA for the relevant period shall be deemed to
be the sum of (i) the aggregate Consolidated EBITDA
of the Company for those fiscal quarters which have
begun after and fully elapsed since the Closing
Date and (ii) the aggregate Consolidated EBITDA
(determined on a pro forma basis, as if the Four
Transactions had occurred on the first day of such
period) of the Company for the requisite number of
consecutive fiscal quarters commencing prior to the
Closing Date and (y) Consolidated Interest Expense
shall be determined by annualizing the Consolidated
Interest Expense of New Intermediate Holdco for
those fiscal quarters which have begun after and
fully elapsed since the Closing Date.
CONSOLIDATED INTEREST COVERAGE RATIO (a)(b)
<PAGE>
5
Must be greater than or equal to [Insert from Table]
(S)7.1(c) Consolidated Fixed Charge Coverage Ratio (commencing
---------------------------------------------------
with the period of four fiscal quarters ending on December 31,
1998).
The ratio of
(a) The difference between:
(i) Consolidated EBITDA (see above) and
-----
(ii) The sum of:
<PAGE>
Must be greater than or equal to [Insert from table]
(S)7.1(c) Consolidated Fixed Charge Coverage Ratio (commencing
- --------------------------------------------------
with the period of four fiscal quarters ending December 31, 1998).
The ratio of
(a) The difference between:
(i) Consolidated EBITDA (see above) and -----
(ii) The sum of:
. the aggregate amount actually paid by -----
Details and its Subsidiaries in cash during
such period on account of Capital Expenditures
. any provision for cash income taxes made
by Details and its Subsidiaries on a
consolidated basis in respect of such period.
To
- -- -----
(b) Consolidated Fixed Charges
Consolidated Fixed Charges is equal to the sum (without
duplication) of (a) Consolidated Interest Expense for such
period and (b) scheduled payments made during such period
on account of principal of Indebtedness of Details or any of
its Subsidiaries (including the Term Loans).
CONSOLIDATED FIXED CHARGE COVERAGE RATIO (a)/(b) -----
Must be greater than or equal to 1.05
(S)7.1(d) Minimum EBITDA.
- ------------------------
Consolidated EBITDA (see above) must be greater [Insert from table]
than or equal to
<PAGE>
EXHIBIT G
TO THE CREDIT AGREEMENT
-----------------------
FORM OF PREPAYMENT OPTION NOTICE
Attention of [ ]
Telecopy No. [ ]
[Date]
Ladies and Gentlemen:
The undersigned, The Chase Manhattan Bank, as administrative agent (in
such capacity, the "Administrative Agent") for the Lenders, refers to the Credit
--------------------
Agreement dated as of July 23, 1998 (as amended, modified, extended or restated
from time to time, the "Credit Agreement"), among Details Capital Corp., a
----------------
California corporation (the "Company"), Details, Inc. ("Details") and Dynamic
------- -------
Circuits, Inc., a Delaware corporation ("DCI", and collectively with Details the
---
"Borrowers") the Lenders from time to time parties thereto and the
---------
Administrative Agent. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The Administrative Agent hereby gives notice of an offer of prepayment made by
the Borrower pursuant to Section 2.17(d) of the Credit Agreement of the Tranche
B Prepayment Amount. Amounts applied to prepay the Tranche B Term Loans shall
be applied pro rata to the Tranche B Term Loan held by you. The portion of the
prepayment amount to be allocated to the Tranche B Term Loan held by you and the
date on which such prepayment will be made to you (should you elect to receive
such prepayment) are set forth below:
(A) Total Tranche B Prepayment Amount
---------
(B) Portion of Tranche B Prepayment Amount to be
received by you
---------
(C) Mandatory Prepayment Date (10 Business
Days after the date of this Prepayment
Option Notice)
---------
<PAGE>
If you wish to receive the portion of the Tranche B Prepayment Amount
to be allocated to you on the Mandatory Prepayment Date indicated in paragraph
(B) above, please sign this notice in the space provided below as evidence of
your acceptance and return it via telecopy to the attention of Janet Belden at
The Chase Manhattan Bank, c/o The Loan and Agency Services Group, no later than
--
10:00 a.m., New York time, on the Mandatory Prepayment Date, at Telecopy No.
(212) 552-5658.
THE CHASE MANHATTAN BANK, as Administrative
Agent
By:
--------------------------------
Name:
Title:
[Lender]
By:
---------------------------------
Name:
Title:
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of March 10, 1999 (this "Amendment") to the
----------
Credit Agreement, dated as of July 23, 1998 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), among (i) DDI Capital
----------------
Corp., formerly known as Details Capital Corp. (the "Company"), (ii) Dynamic
-------
Details, Incorporated, formerly known as Details, Inc. ("Details"); (iii)
-------
Dynamic Details Incorporated, Silicon Valley, formerly known as Dynamic
Circuits, Inc. ("DCI", and collectively with Details, the "Borrowers"); (iv) the
---------
several banks and other financial institutions from time to time parties
thereto, (individually, a "Lender," and collectively, the "Lenders"); (v)
------ -------
BANKERS TRUST COMPANY., as documentation and co-syndication agent; and (vi) THE
CHASE MANHATTAN BANK ("Chase"), as collateral, co-syndication and administrative
-----
agent (in such capacity, the "Administrative Agent").
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement the Lenders have agreed to
make, and have made, certain Loans to the Borrowers;
WHEREAS, the Borrowers have requested that the Lenders amend, and the
Lenders have agreed to amend, certain of the provisions of the Credit Agreement
upon the terms and subject to the conditions set forth below;
WHEREAS, the Lenders are willing to effect such amendments to the
Credit Agreement, but only upon the terms and subject to the conditions set
forth below;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined are used herein as defined in the Credit Agreement.
2. Addition of Definitions. Subsection 1.1 of the Credit Agreement
-----------------------
is hereby amended by inserting therein the following new defined term in
appropriate alphabetical order:
"Design Business" : shall mean the business of designing and
---------------
developing electronic products and components of such products and
providing services related thereto.
"Designco" : Dynamic Details Design, LLC, a Delaware limited
--------
liability company, a wholly owned subsidiary of New Intermediate Holdco
engaged only in the Design Business.
3. Amendments to Subsection 7.6. (i) Section 7.6 of the Credit
----------------------------
Agreement is hereby amended by adding the following clause (f) at the end
thereof:
(f) dividends to the Company in an aggregate amount during the term
of this Agreement, which when combined with the aggregate amount of
<PAGE>
investments made in reliance on Section 7.8(j), shall not exceed the
sum of $10,000,000 and the then unused Permitted Expenditure Amount on
the date such dividend is made. The proceeds of such dividends shall
then be paid as a dividend by the Company to New Intermediate Holdco
for investment in Designco.
(ii) Section 7.6 of the Credit Agreement (as amended by the
immediately preceding provision) is further amended by adding at the end thereof
(as a new paragraph which modifies the entire proviso thereto) the following:
Notwithstanding anything to the contrary in this Section 7.6, no
Restricted Payment shall be made in reliance upon clause (b), (d), (e)
or (f) above at any time when Holdings and its Subsidiaries (other
than the Company and its Subsidiaries) shall have cash or Cash
Equivalents in an aggregate amount in excess of $500,000.
4. Amendment to Section 7.8. Subsection 7.8(j) of the Credit
------------------------
Agreement hereby is amended by deleting clause (j) thereof in its entirety and
by substituting therefor the following:
(j) in addition to investments otherwise expressly permitted by this
Section 7.8, investments by Details or any of its Subsidiaries in an
aggregate amount (valued at cost, but net of returns of capital from
such investments) during the term of this Agreement, which when
combined with the aggregate amount of dividends paid in reliance on
Section 7.6(f), shall not exceed the sum of $10,000,000 and the then
unused Permitted Expenditure Amount on the date upon which such
investment is made.
5. Amendment to Section 8(m). Section 8 of the Credit Agreement
-------------------------
hereby is amended by deleting clause (m) thereof in its entirety and by
substituting therefor the following:
"(m) (i) Holdings shall conduct, transact or otherwise engage in, or
commit to conduct, transact or otherwise engage in, any business or
operations, other than those incidental to its ownership of the Capital
Stock of New Intermediate Holdco; (ii) New Intermediate Holdco shall
conduct, transact or otherwise engage in, or commit to conduct, transact or
otherwise engage in, any business or operations, other than (A) those
incidental to its ownership of the Capital Stock of the Company and DCI and
all the membership interests in Designco and (B) the making of the loan
referred to in Section 5.1(b)(iii) prior to the Second Closing Date; (iii)
Designco shall conduct, transact or otherwise engage in, or commit to
conduct, transact or otherwise engage in, any business or operations, other
than the Design Business; (iv) Holdings or New Intermediate Holdco shall
incur, create, assume or suffer to exist any Indebtedness or other
liabilities or financial obligations, other than (A) nonconsensual
obligations imposed by operation of law, (B) in the case of New
Intermediate Holdco, the New Intermediate Holdco Notes,
<PAGE>
(C) obligations with respect to its Capital Stock, (D) in the case of
Holdings or New Intermediate Holdco, Indebtedness incurred to finance AHYDO
Payment and (E) the obligations of Holdings under its cash bonus plan on
terms in existence on the date hereof; (v) Holdings shall own, lease,
manage or otherwise operate any properties or assets (including cash and
Cash Equivalents), other than Capital Stock of New Intermediate Holdco; or
(vi) New Intermediate Holdco shall own, lease, manage or otherwise operate
any properties or assets (including cash and Cash Equivalents), other than
(A) the Capital Stock of the Company, all the membership interests in
Designco and (prior to the Second Closing Date) the Capital Stock of DCI
and (B) cash received directly or indirectly in connection with dividends
paid by Details in accordance with Section 7.6 pending application in the
manner contemplated by said Section; or"
6. Effectiveness. This Amendment shall become effective on the date
-------------
on which the following conditions precedent shall have been satisfied (such
date, the "Effective Date"):
--------------
(a) the Administrative Agent shall have received counterparts of this
Amendment, duly executed and delivered by Holdings, the Borrowers and the
Required Lenders;
(b) such amendments to the Guarantee and Collateral Agreement as the
Administrative Agent reasonably shall request in order to provide to the
Administrative Agent a first priority perfected security interest in all of
the membership interests of Designco; and
(d) such other documents, instruments and agreements with respect to
the matters contemplated by this Amendment as the Administrative Agent
reasonably shall request; all such documents, instruments and agreements
shall be reasonably satisfactory to the Administrative Agent.
7. Representations and Warranties. As of the date hereof and after
------------------------------
giving effect to this Amendment, Holdings and each Borrower hereby confirms,
reaffirms and restates the representations and warranties made by it in Section
4 of the Credit Agreement and otherwise in the Credit Documents to which it is a
party; provided that each reference to the Credit Agreement therein shall be
--------
deemed to be a reference to the Credit Agreement after giving effect to this
Consent. No Default or Event of Default has occurred and is continuing.
8. Continuing Effect; No Other Amendments. Except as expressly
--------------------------------------
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments and waivers contained herein shall not constitute an
amendment or waiver of any other provision of the Credit Agreement or the other
Loan Documents or for any purpose except as expressly set forth herein.
<PAGE>
9. GOVERNING LAW; Counterparts. (a) THIS AMENDMENT SHALL BE
---------------------------
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
(b) This Amendment may be executed in any number of counterparts, all
of which counterparts, taken together, shall constitute one and the same
instrument. This Amendment may be delivered by facsimile transmission of the
relevant signature pages hereof.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered by their respective proper and duly authorized officers
as of the day and year first above written.
DDI CAPITAL CORP.
By:_________________________________________________
Title:
DYNAMIC DETAILS, INCORPORATED
By:_________________________________________________
Title:
DYNAMIC DETAILS INCORPORATED, SILICON
VALLEY
By:_________________________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent, Collateral Agent,
Co-Syndication Agent and as a Lender
By:_________________________________________________
Title:
BANKERS TRUST COMPANY, as
<PAGE>
Documentation Agent, Co-Syndication Agent
and as a Lender
By:_________________________________________________
Title:
<PAGE>
BANK AUSTRIA CREDITANSTALT
By:____________________________________________
Title:
THE BANK OF NOVA SCOTIA
By:____________________________________________
Title:
BANKBOSTON, N.A.
By:____________________________________________
Title:
DRESDNER BANK AG
By:____________________________________________
Title:
FLEET BANK, N.A.
By:____________________________________________
Title:
STATE STREET BANK & TRUST CO.
By:____________________________________________
Title:
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By:_________________________________________________
Title:
CYPRESSTREE INVESTMENT PARTNERS I, Ltd.,
By: CypressTree Investment Management Company, Inc.,
as Portfolio Manager
By:_________________________________________________
Title:
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management Company, Inc.,
its Managing Member
By:_________________________________________________
Title:
CYPRESSTREE SENIOR FLOATING RATE FUND
By: CypressTree Investment Management Company, Inc.,
as Portfolio Manager
By:_________________________________________________
Title:
INDOSUEZ CAPITAL FUNDING IIA, LTD.
By:_________________________________________________
Title:
<PAGE>
INDOSUEZ CAPITAL FUNDING IV, L.P.
By:____________________________________________
Title:
IBJ WHITEHALL BANK & TRUST COMPANY
(formerly known as IBJ Schroder Bank & Trust Company)
By:____________________________________________
Title:
KZH CRESCENT-2 LLC
By:____________________________________________
Title:
KZH CRESCENT-3 LLC
By:____________________________________________
Title:
KZH CRESCENT LLC
By:____________________________________________
Title:
KZH IV LLC
By:____________________________________________
Title:
<PAGE>
KZH SHENKMAN LLC
By:____________________________________________
Title:
KZH CYPRESSTREE-1 LLC
By:____________________________________________
Title:
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By:____________________________________________
Title:
MASS MUTUAL HIGH YIELD PARTNERS II
By:____________________________________________
Title:
MASSACHUSETTS MUTUAL LIFE
INSURANCE
By:____________________________________________
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By:____________________________________________
Title:
<PAGE>
MERRILL LYNCH SR. FLOATING RATE FUND
By:____________________________________________
Title:
PILGRIM AMER. HIGH INCOME INVEST. LTD.
By:____________________________________________
Title:
PILGRIM PRIME RATE TRUST
By:____________________________________________
Title:
SANKATY HIGH YIELD ASSET PARTNERS
By:____________________________________________
Title:
SOMERS CDO, LIMITED
By:____________________________________________
Title:
TORONTO DOMINION (NEW YORK) INC.
By:____________________________________________
Title:
VAN KAMPEN SENIOR FLOATING RATE FUND
By:____________________________________________
Title:
<PAGE>
EXHIBIT 10.6
DETAILS HOLDINGS CORP.
DYNAMIC CIRCUITS 1996 STOCK OPTION PLAN
ARTICLE I
Purpose of Plan
This Stock Option Plan (the "Plan") of Details Holdings Corp. (the
"Company"), adopted by the Board of Directors and stockholders of the Company
effective as of the Closing Date (as defined in the Stock Contribution and
Merger Agreement (the "Agreement") dated as of July 23, 1998 among the Company,
Dynamic Circuits Inc. ("DCI") and the stockholders of DCI) (the "Effective
Date"), is intended to advance the best interests of the Company by providing
directors, executive officers and other key employees of the Company and its
Subsidiaries who have substantial responsibility for the management and growth
of the Company with additional incentives by allowing such employees to acquire
an ownership interest in the Company. The Plan is a compensatory benefit plan
within the meaning of Rule 701 under the Securities Act of 1933, as amended (the
"Securities Act").
ARTICLE II
Definitions
For purposes of the Plan the following terms have the indicated meanings:
"Board" means the Board of Directors of the Company.
"Cause" means cause as defined in a Participant's employment agreement with
the Company or, if no employment agreement exists, shall mean (i) a
Participant's willful and repeated failure to comply with the lawful directives
of the Board or such Participant's supervisory personnel consistent with his
employment agreement (if any) with the Company, (ii) any criminal act or act of
dishonesty, disloyalty, misconduct or moral turpitude by a Participant that is
injurious in any significant respect to the property, operations, business or
reputation of the Company or any subsidiary thereof after, in the case of non-
criminal conduct, notice and an opportunity to cure if such conduct is capable
of cure within a reasonable period of time or (iii) material breach by a
Participant of his employment agreement (if any) with the Company after notice
and opportunity to cure.
"Change of Control" has the meaning set forth in the Stockholders Agreement
dated as of October 28, 1997 among the Company and its Stockholders (as defined
therein), as amended from time to time (the "Stockholders Agreement").
<PAGE>
"Class A-5 Common Stock" means the Class A-5 Common Stock, no par value, of
the Company.
"Class L Common Stock" means the Class L Common Stock, no par value, of the
Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Committee" means the Compensation Committee or such other committee of the
Board as the Board may designate to administer the Plan or, if for any reason
the Board has not designated such a committee, the Board.
"Common Stock" means the Class A-5 Common Stock and the Class L Common
Stock.
"Fair Market Value" of the Class A-5 Common Stock or Class L Common Stock,
as of any date, means the fair market value of one share of such Common Stock as
of such date, as determined in good faith by the Committee based on the
consolidated results of operations, financial condition and future prospects of
the Company and such other factors as the Committee may deem appropriate. Fair
Market Value shall be determined without regard to any restriction on
transferability of the Common Stock other than any such restriction which by its
terms will never lapse.
"Participant" means any executive or other key employee of the Company or
any Subsidiary who has been selected to participate in the Plan by the Committee
or the Board.
"Subsidiary" means any subsidiary corporation (as such term is defined in
Section 424(f) of the Code) of the Company.
ARTICLE III
Administration
The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to: (i) interpret the Plan and adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(ii) correct any defect or omission or reconcile any inconsistency in the Plan
or in any Options granted under the Plan and (iii) make all other determinations
and take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within
its authority shall be conclusive and binding upon the Participants, the Company
and all other persons. All expenses associated with the administration of the
Plan shall be borne by the Company. The Committee may, as approved by the Board
and
-2-
<PAGE>
to the extent permissible by law, delegate any of its authority hereunder to
such persons or entities as it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
The number of shares of Class A-5 Common Stock with respect to which stock
purchase options ("Class A Options") may be granted under the Plan shall not
exceed, in the aggregate, 222,600 shares, and the number of shares of Class L
Common Stock with respect to which stock purchase options ("Class L Options" and
together with the Class A Options, the "Options") may be granted under the Plan
shall not exceed, in the aggregate, 28,300 shares, in each case subject to
adjustment in accordance with paragraph 6.5. To the extent any Options expire
unexercised or are canceled, terminated or forfeited in any manner without the
issuance of Common Stock thereunder, such shares shall not be available to be
granted under the Plan. The shares of Common Stock available under the Plan may
consist of authorized and unissued shares, treasury shares or a combination
thereof, as the Committee shall determine.
ARTICLE V
Awards
5.1 Grant of Options. As provided in the Agreement and in accordance with
Section 6.5 of DCI's 1996 Stock Option Plan, options to acquire common stock,
$.001 par value, of DCI have been converted into Options as of the Closing Date.
Options granted under the Plan shall be nonqualified stock options within the
meaning of the Code. The exercise price per share of Common Stock under each
Option shall be as set forth in the applicable Employment Agreement or Option
Agreement, as appropriately adjusted pursuant to the provisions of paragraph
6.5. The term of each Option shall be as set forth in the applicable Employment
Agreement or Option Agreement. As a condition to the receipt of Options, the
Participant shall agree to be bound by the Stockholders Agreement. No Options
shall be granted hereunder after the Closing Date.
5.2 Exercise Procedure. Options shall be exercisable by written notice to
the Company (to the attention of the Company's Secretary) accompanied by payment
in full of the applicable exercise price. Payment of such exercise price may be
made (i) in cash (including check, bank draft or money order), (ii) at the
discretion of the Committee, by delivery of a full recourse promissory note
bearing interest at a rate not less than the applicable federal rate determined
pursuant to Section 1274 of the Code as of the date of purchase or exercise (a
"Note"), (iii) in shares of Common Stock valued at their Fair Market Value as of
the date of exercise or (iv) a combination of the foregoing.
5.3 Conditions and Limitations on Exercise.
-3-
<PAGE>
(a) Options shall vest and become exercisable as set forth in the
applicable Employment Agreement or Option Agreement.
(b) Except to the extent set forth in any Employment Agreement or
Option Agreement or in clause (c) below, in the event of (i) a consolidation or
merger in which the Company is not the surviving corporation or which results in
the acquisition of all or substantially all of the Company's then outstanding
common stock by a single person or entity or by a group of persons and/or
entities acting in concert or (ii) a dissolution or liquidation of the Company
(any of the foregoing, a "Covered Transaction"), all outstanding Options (other
than shares of Stock that are outstanding and fully vested) will be forfeited as
of the effective time of the Covered Transaction unless assumed by an acquiring
or surviving entity or its affiliate as provided in the following sentence. In
connection with any Covered Transaction in which there is an acquiring or
surviving entity, the Committee may provide for substitute or replacement awards
from, or the assumption of Options by, the acquiring or surviving entity or its
affiliates, any such substitution, replacement or assumption to be on such terms
as the Committee determines; but if there is no acquiring or surviving entity,
or if the Committee does not so provide for the substitution, replacement or
assumption of Options in connection with the Covered Transaction, all Options
which shall not have theretofore expired and/or been canceled, terminated or
forfeited shall automatically vest in full and become exercisable immediately
prior to the Covered Transaction.
(c) Notwithstanding the foregoing, all Options which shall not have
theretofore expired and/or been canceled, terminated or forfeited shall
automatically vest in full upon a Change of Control. In the event of a Change
of Control, the Committee may provide, in its discretion, that the outstanding
Options shall become immediately exercisable and/or that such Options shall
terminate if not exercised as of the date of the Change of Control or any other
designated date or that such Options shall thereafter represent only the right
to receive the excess of the consideration per share of Common Stock offered in
such Change of Control over the exercise price of such Options.
5.4 Expiration of Options.
(a) Normal Expiration. In no event shall any part of any Option be
exercisable after August 19, 2006 or earlier stated date of expiration thereof.
(b) Early Expiration Upon Termination of Employment. Except as
otherwise provided in the applicable Employment Agreement or Option Agreement,
upon termination for any reason of a Participant's employment by the Company and
its Subsidiaries, all Options or portions thereof held by such Participant that
are not vested and exercisable on the date of such termination shall expire and
be forfeited as of such date. Subject to the provisions of Section 5.3, all
vested Options held by such Participant upon such termination shall expire to
the extent not theretofore exercised within 90 days following the date of such
termination (or 12 months following the date of such termination in the case of
termination because of the Participant's
-4-
<PAGE>
death). Subject to the provisions of Section 5.3, all unvested Options held by
such Participant which vest after such termination in accordance with such
Participant's Employment Agreement shall expire as set forth in such Employment
Agreement. Notwithstanding the foregoing, in the event of termination of a
Participant's employment for Cause, all Options held by such Participant
(whether or not vested) shall expire and be forfeited on the date of such
termination.
ARTICLE VI
General Provisions
6.1 Written Agreement. Each Option granted hereunder shall be embodied in
a written agreement (an "Employment Agreement" or "Option Agreement", as
applicable) which shall be signed by the Participant to whom the Option is
granted and shall be subject to the terms and conditions set forth herein.
6.2 Listing, Registration and Legal Compliance. If at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
6.3 Options Not Transferable. Options may not be transferred other than
by will or the laws of descent and distribution and, during the lifetime of the
Participant to whom they were granted, may be exercised only by such Participant
(or his or her legal guardian or legal representative). In the event of the
death of a Participant, exercise of Options granted hereunder to such
Participant may be made only by the executor or administrator of such
Participant's estate or the person or persons to whom such Participant's rights
under the Options will pass by will or the laws of descent and distribution.
-5-
<PAGE>
6.4 Withholding of Taxes. The Company may, if necessary or desirable,
withhold from any amounts due and payable by the Company to any Participant (or
secure payment from such Participant in lieu of withholding) the amount of any
withholding or other tax due from the Company with respect to any issuance or
exercise of Options granted under the Plan to such Participant, and the Company
may defer such issuance or exercise unless indemnified to its satisfaction
against the payment of any such amount.
6.5 Adjustments. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the Common
Stock, the Board or the Committee may, in order to prevent the dilution or
enlargement of rights under outstanding Options, make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by outstanding Options and the exercise prices specified therein as may
be determined to be appropriate and equitable.
6.6 Rights of Participants. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such Participant's current (or
other) rate of compensation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.
6.7 Amendment, Suspension and Termination of Plan. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by
law, agreement or the rules of any exchange upon which the Common Stock is
listed, and no such amendment, suspension or termination shall impair the rights
of Participants under outstanding Options without the consent of the
Participants affected thereby, except as provided below.
6.8 Amendment of Outstanding Options. The Committee may amend or modify
any Option in any manner; provided that, except as expressly contemplated
elsewhere herein or in any Employment Agreement or Option Agreement, no such
amendment or modification shall impair the rights of any Participant under any
outstanding Option without the consent of such Participant.
6.9 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted under the
Plan, and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by
-6-
<PAGE>
them in satisfaction of a judgment in any such action, suit or proceeding;
provided, however, that any such Committee member shall be entitled to the
indemnification rights set forth in this paragraph 6.9 only if such member has
acted in good faith and in a manner that such member reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Committee member shall give the Company written
notice thereof and an opportunity to handle and defend the same before such
Committee member undertakes to handle and defend it on his own behalf.
********
-7-
<PAGE>
EXHIBIT 10.7
DETAILS HOLDINGS CORP.
DYNAMIC CIRCUITS 1997 STOCK OPTION PLAN
ARTICLE I
Purpose of Plan
This Stock Option Plan (the "Plan") of Details Holdings Corp. (the
"Company"), adopted by the Board of Directors and stockholders of the Company
effective as of the Closing Date (as defined in the Stock Contribution and
Merger Agreement (the "Agreement") dated as of July 23, 1998 among the Company,
Dynamic Circuits Inc. ("DCI") and the stockholders of DCI) (the "Effective
Date"), is intended to advance the best interests of the Company by providing
directors, executive officers and other key employees of the Company and its
Subsidiaries who have substantial responsibility for the management and growth
of the Company with additional incentives by allowing such employees to acquire
an ownership interest in the Company. The Plan is a compensatory benefit plan
within the meaning of Rule 701 under the Securities Act of 1933, as amended (the
"Securities Act").
ARTICLE II
Definitions
As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (i) a Participant's willful and repeated failure to
comply with the lawful directives of the Board or such Participant's supervisory
personnel or (ii) any criminal act or act of dishonesty, disloyalty, misconduct
or moral turpitude by a Participant that is injurious in any significant respect
to the property, operations, business or reputation of the Company or any
subsidiary thereof after, in the case of non-criminal conduct, notice and an
opportunity to cure if such conduct is capable of cure within a reasonable
period of time.
(c) "Change of Control" has the meaning set forth in the Stockholders
Agreement dated as of October 28, 1997 among the Company and its Stockholders
(as defined therein), as amended from time to time (the "Stockholders
Agreement").
(d) "Class A-5 Common Stock" means the Class A-5 Common Stock, no par
value, of the Company.
<PAGE>
(e) "Class L Common Stock" means the Class L Common Stock, no par value, of
the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and any
successor statutes.
(g) "Committee" means the Compensation Committee or such other committee of
the Board as the Board may designate to administer the Plan or, if for any
reason the Board has not designated such a committee, the Board.
(h) "Common Stock" means the Class A-5 Common Stock and the Class L Common
Stock.
(i) "Fair Market Value" of the Class A-5 Common Stock or Class L Common
Stock, as of any date, means the fair market value of one share of such Common
Stock as of such date, as determined in good faith by the Committee based on the
consolidated results of operations, financial condition and future prospects of
the Company and such other factors as the Committee may deem appropriate. Fair
Market Value shall be determined without regard to any restriction on
transferability of the Common Stock other than any such restriction which by its
terms will never lapse.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Option Agreement" means written agreement between the Company and a
Participant evidencing the terms and conditions of an individual Option grant,
which agreement shall be subject to the terms and conditions of the Plan. To
the extent that there shall be any inconsistency between the terms of the Option
Agreement and this Plan, the terms of this Plan shall govern.
(l) "Participant" means each employee of the Company or of any Subsidiary
who has been granted Options on the Closing Date.
(m) "Subsidiary" means any subsidiary corporation (as such term is defined
in Section 424(f) of the Code) of the Company.
ARTICLE III
Administrative
The Plan shall be administrated by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to:
2
<PAGE>
(i) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan;
(ii) correct any defect or omission or reconcile any inconsistency in
the Plan or in any Options granted under the Plan; and
(iii) make all other determinations and take all other actions
necessary or advisable for the implementation and administration of the Plan.
The Committee's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other persons.
All expenses associated with the administration of the Plan shall be borne by
the Company. The Committee may, as approved by the Board and to the extent
permissible by law, delegate any of its authority hereunder to such persons or
entities as it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
The number of shares of Class A-5 Common Stock with respect to which
Options ("Class A Options") may be granted under the Plan shall not exceed, in
the aggregate, 46,000 shares, and the number of shares of Class L Common Stock
with respect to which Options ("Class L Options") may be granted under the Plan
shall not exceed, in the aggregate, 5,850 shares, in each case subject to
adjustment in accordance with Section 7.7 hereto. To the extent any Options
expire unexercised or are canceled, terminated or forfeited in any manner
without the issuance of Common Stock thereunder, such shares shall not be
available to be granted under the Plan. The shares of Common Stock available
under the Plan may consist of authorized and unissued shares, treasury shares or
a combination thereof, as the Committee shall determine.
ARTICLE V
Awards
5.1 Grant of Options. As provided in the Agreement and in accordance
with Section 7.8 of DCI's 1997 Stock Option Plan, options to acquire common
stock, $.001 par value, of DCI have been converted into Options as of the
Closing Date. Options granted under the Plan shall be nonqualified stock
options within the meaning of the Code. The exercise price per share of Common
Stock under each Option shall be as set forth in the applicable Option
Agreement, as appropriately adjusted pursuant to the provisions of Section 7.7
hereto. The term of each Option shall be as set forth in the applicable Option
Agreement. As a condition to the receipt of Options, the Participant shall
agree to be bound by the Stockholders Agreement. No Options shall be granted
hereunder after the Closing Date.
3
<PAGE>
5.2 Exercise Procedure. Options shall be exercisable by written notice to
the Company (to the attention of the Company's Secretary) accompanied by payment
in full of the applicable exercise price. Payment of such exercise price may be
made:
(i) in cash (including check, bank draft or money order);
(ii) at the discretion of the Committee, by delivery of a full
recourse promissory note bearing interest at a rate not less than the applicable
federal rate determined pursuant to Section 1274 of the Code as of the date of
purchase or exercise (a "Note");
(iii) in shares of Common Stock valued at their Fair Market Value as
of the date of exercise; or
(iv) any combination of the foregoing methods of payment.
5.3 Conditions and Limitations on Exercise.
(a) Options shall vest and become exercisable as set forth in the
applicable Option Agreement.
(b) Except to the extent set forth in any Option Agreement or in clause (c)
below, in the event of (i) a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of all or
substantially all of the Company's then outstanding common stock by a single
person or entity or by a group of persons and/or entities acting in concert or
(ii) a dissolution or liquidation of the Company (any of the foregoing, a
"Covered Transaction"), all outstanding Options (other than shares of Stock that
are outstanding and fully vested) will be forfeited as of the effective time of
the Covered Transaction unless assumed by an acquiring or surviving entity or
its affiliate as provided in the following sentence. In connection with any
Covered Transaction in which there is an acquiring or surviving entity, the
Committee may provide for substitute or replacement awards from, or the
assumption of Options by, the acquiring or surviving entity or its affiliates,
any such substitution, replacement or assumption to be on such terms as the
Committee determines; but if there is no acquiring or surviving entity, or if
the Committee does not so provide for the substitution, replacement or
assumption of Options in connection with the Covered Transaction, all Options
which shall not have theretofore expired and/or been canceled, terminated or
forfeited shall automatically vest in full and become exercisable immediately
prior to the Covered Transaction.
(c) Notwithstanding the foregoing, all Options which shall not have
theretofore expired and/or been canceled, terminated or forfeited shall
automatically vest in full and become exercisable upon a Change of Control. In
the event of a Change of Control, the Committee may provide, in its discretion,
that the outstanding Options shall become immediately exercisable and/or that
such Options shall terminate if not exercised as of the date of the Change of
Control
4
<PAGE>
or any other designated date or that such Options shall thereafter represent
only the right to receive the excess of the consideration per share of Common
Stock offered in such Change of Control over the exercise price of such Options.
5.4 Expiration of Options.
(a) Normal Expiration Period. In no event shall any part of any Option be
exercisable after March 31, 2008 or the earlier stated date of expiration.
(b) Termination of Employment. Except as otherwise provided in the Option
Agreement or in Section 5.4(c) of this Plan, upon termination for any reason of
the Participant's employment by the Company or its Subsidiaries, the Participant
may exercise his or her Options only to the extent that the Participant was
entitled to exercise such Options at the date of termination (but in no event
later than the expiration of the term of such Options as set forth in the Option
Agreement), within ninety (90) days following the date of termination. If, after
termination, the Participant does not exercise his or her Options within the
foregoing ninety (90) day period, such Options shall terminate, expire and be
forfeited. If, on the date of termination, the Participant is not entitled to
exercise all of his other Options, the unexercisable portion of the Options
shall terminate, expire and be forfeited.
(c) Death of Participant. In the event of termination of a Participant's
employment as a result of his or her death, the Options may be exercised at any
time within twelve (12) months following the date of death (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement), by that Participant's estate or by a persons who acquired the right
to exercise his or her Options by bequest or inheritance, but only to the extent
that such Participant was entitled to exercise the Options at the date of death.
If, at the time of death, the Participant was not entitled to exercise all of
his or her Options, the unexercisable portion of the Options shall immediately
terminate, expire and be forfeited. If, after death, the Participant's estate
or a person who acquired the right to exercise the Options by bequest or
inheritance does not exercise the Options (that were not exercisable by
Participant at the date of death) within twelve (12) months following the date
of the Participant's death, such Options shall terminate, expire and be
forfeited.
ARTICLE VI
Repurchase Rights of Company
6.1 Repurchase Rights on Termination of Employment. In the event of a
voluntary or involuntary termination of a Participant's employment with the
Company or its Subsidiaries for any reason, whether with or without cause, the
Company shall have the right to repurchase all of the shares of the Common Stock
acquired upon exercise of any Option hereunder by the Participant, his or her
assigns, heirs, legatees or legal representatives, together with any shares of
stock issued by the Company as a dividend or other distribution on,
5
<PAGE>
in exchange for or upon conversion of such Common Stock (collectively, the
"Subject Shares"). Within sixty (60) days after the termination of employment
(with respect to shares held or owned on the termination), the Company may give
written notice to the Participant, or if appropriate, to his or her assigns,
heirs, legatees or legal representatives, setting forth the Company's decision
to exercise such repurchase right, the repurchase price of the Subject Shares
and a date for closing as soon as is reasonably practicable after the date of
such written notice. The repurchase price per share shall be the Fair Market
Value per share of the Subject Shares on the date of termination.
6.2 Stock Repurchase Procedures.
(i) The closing for the repurchase of any Subject Shares by the
Company pursuant to this Article VI shall take place at the Company's principal
office. At the closing, the holder of the certificate(s) for the shares being
transferred shall deliver the certificate(s) evidencing those shares to the
Company, together with a duly executed stock power, and the Company shall
deliver the purchase price. The purchase price shall be payable in full in cash
or by check.
(ii) The right of the Company to repurchase the Subject Shares
pursuant to this Article VI shall be assignable in whole or in part by the
Company to one or more persons or entities. Every designee shall have the right
to exercise the repurchase rights in the designee's own name for the designee's
own account and in the same manner provided for the Company hereinabove.
(iii) If any transfer of the shares to be repurchased hereunder
requires the consent of or a filing with or notice to the Securities and
Exchange Commission or any other applicable federal or state agency charged with
the administration of applicable securities laws, the time period specified
herein for the closing shall be extended for such periods as the necessary
consent, filing or notice period is pending.
(iv) The Company and the Participant may waive (but not unilaterally
extend) any of the time periods specified herein with respect to the exercise of
any repurchase rights.
6.3 Termination of Repurchase Rights. The repurchase rights described in
this Article VI shall terminate and no longer be of effect with respect to any
termination of the Participant's status as an Employee occurring after:
(i) The mutual agreement of the Company and the Participant or other
holder of the Subject Shares; or
(ii) The effectiveness of a registration statement under the
Securities Act of 1933 offering Common Stock of the Company to the general
public in a bona fide, firm commitment underwriting.
6
<PAGE>
6.4 Certificates. So long as the repurchase rights granted to the Company
are in effect as to any Subject Shares, the certificates representing such
Subject Shares together with a duly executed stock power shall be held by the
Company.
ARTICLE VII
General Provisions
7.1 Written Agreement. Each Option granted hereunder shall be embodied in
an Option Agreement which shall be signed by the Participant to whom the Option
is granted and shall be subject to the terms and conditions set forth herein.
7.2 Listing, Registration and Legal Compliance. If at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary, or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
7.3 Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan. The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any shares of Common Stock hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares of Common Stock as to which such requisite authority shall not have
been obtained.
7.4 Information to Participants and Purchasers. The Company shall provide
each Participant with copies of its annual financial statements within a
reasonable period of
7
<PAGE>
time after such statements are provided to the Company's shareholders. The
Company shall also provide such statements to each individual who acquires
shares of Common Stock pursuant to the exercise of Options granted under the
Plan while such individual owns such shares. The Company shall not be required
to provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.
7.5 Options Not Transferable. Options may not be transferred other than
by will or the laws of descent and distribution and, during the lifetime of the
Participant to whom they were granted, may be exercised only by such Participant
(or his or her legal guardian or legal representative). In the event of the
death of a Participant, exercise of Options granted hereunder to such
Participant may be made only by the executor or administrator of such
Participant's estate or the person or persons to whom such Participant's rights
under the Options will pass by will or the laws of descent and distribution.
7.6 Withholding of Taxes. The Company shall have the right to withhold
from amounts due Participants, or to collect from Participants directly, the
amount which the Company deems necessary to satisfy any taxes required by law to
be withheld at any time by reason of participation in the Plan, and the
obligations of the Company under the Plan shall be conditional on payment of
such taxes. The Participant may, prior to the due date of any taxes, pay such
amounts to the Company in cash, or with the consent of the Committee or Board,
in Common Stock (which shall be valued at their Fair Market Value on the date of
payment). The Company shall have no obligation to any Participant to determine
either (i) the existence of any tax or (ii) the correct amount of any tax.
Without limiting the generality of the foregoing, in any case where it
determines that a tax is or will be required to be withheld in connection with
the issuance or transfer or vesting of Common Stock under this Plan, the Company
may, pursuant to such rules as the Committee or Board may establish, reduce the
number of Common Stock so issued or transferred by such number of Common Stock
as the Company may deem appropriate in its sole discretion to accomplish such
withholding or make such other arrangements as it deems satisfactory.
7.7 Adjustment. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the Common Stock, the
Board or the Committee may, in order to prevent the dilution or enlargement of
rights under outstanding Options, make such adjustments in the number and type
of shares authorized by the Plan, the number and type of shares covered by
outstanding Options and the exercise prices specified therein as may be
determined to be appropriate and equitable.
7.8 Rights of Participants. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such Participant's current (or
other) rate of compensation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.
8
<PAGE>
7.9 Amendment, Suspension and Termination of Plan. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by
law, agreement or the rules of any exchange upon which the Common Stock is
listed, and no such amendment, suspension or termination shall impair the rights
of Participants under outstanding Options without the consent of the
Participants affected thereby, except as permitted below.
7.1 Amendment of Outstanding Options. The Committee may amend or modify
any Option in any manner; provided that, except as expressly contemplated
elsewhere herein or in any Option Agreement, no such amendment or modification
shall impair the rights of any Participant under any outstanding Option without
the consent of such Participant.
7.1 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted under the
Plan, and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided, however, that any such Committee member shall be entitled
to the indemnification rights set forth in this Section 7.11 only if such member
has acted in good faith and in a manner that such member reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Committee member shall give the Company written
notice thereof and an opportunity to handle and defend the same before such
Committee member undertakes to handle and defend it on his own behalf.
9
<PAGE>
EXHIBIT 10.8
DETAILS HOLDINGS CORP.
BONUS PLAN
1. PURPOSE
The purpose of this Plan is to provide a financial incentive to retain key
employees of the Company and any of its Subsidiaries and to facilitate the
exercise by that key employee of his or her options to purchase shares of Common
Stock of Details Holdings Corp., a California corporation ("Details").
-------
2. DEFINITIONS
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Cash Bonus Units" means the Class A Cash Bonus Units and the Class L
----------------
Cash Bonus Units.
(b) "Class A Cash Bonus Units" means the Class A cash bonus units subject
------------------------
to the Plan.
(b) "Class L Cash Bonus Units" means the Class L cash bonus units subject
------------------------
to the Plan.
(c) "Committee" means the members of the Company's Compensation Committee.
---------
(d) "Company" means Dynamic Circuits, Inc., a Delaware corporation.
-------
(e) "Participant" means an employee of the Company entitled to receive an
-----------
award of Cash Bonus Units as set forth in a Letter of Grant.
(f) "Plan" means this Cash Bonus Plan, as amended from time to time.
----
3. PLAN ADMINISTRATION
3.1 POWERS. The Plan shall be administered by the Committee, and the
Committee shall interpret and apply all of its provisions and resolve any and
all questions arising under the Plan. The Committee may establish, interpret,
enforce, amend and revoke from time to time such rules and regulations for the
administration of the Plan, consistent with the terms of the Plan. Any action
taken or decision made by the Committee shall be final, conclusive and binding
upon all Participants and upon any other persons who claim benefits or payments
under the Plan. The Committee shall act by majority vote taken at a meeting or
by a written consent signed by a majority of Committee members; provided,
however, that a Committee member who
<PAGE>
is also a Participant shall not vote on any matter which directly affects that
member's benefits under the Plan.
3.2 EXEMPTION FROM LIABILITY. The members of the Committee and the
members of the Board, and each of them, shall be free from all liability, joint
or several, for their acts, omissions and conduct, and for the acts, omissions
and conduct of their duly appointed agents, in the administration of the Plan,
except for those acts or omissions and conduct which constitute willful
misconduct.
4. TERM OF PLAN
This Plan shall be effective as of July 23, 1998 and shall continue in
effect for ten (10) years unless sooner terminated in accordance with Section
7.5 hereto.
5. GRANTING OF CASH BONUS UNITS
The Committee shall reserve a total of up to 261,930.2009 Class A Cash
Bonus Units and up to 33,260.4275 Class L Cash Bonus Units for issuance to the
Participants. The Company may grant such Cash Bonus Units to the Participant by
delivering a Letter of Grant to the Participant setting forth the number of Cash
Bonus Units so granted. The Cash Bonus Units granted, subject to satisfaction of
the conditions and limitations of Section 6.1 of this Plan, shall entitle the
Participant to receive a payment in the amount set forth in the Letter of Grant
per Cash Bonus Unit (the "Payment Value") from the Company.
-------------
6. PAYMENT OF CASH BONUS UNITS
6.1 CONDITIONS AND LIMITATIONS TO PAYMENT. The Participant shall be
entitled to receive from the Company the Payment Value for each Cash Bonus Unit
only if and to the extent that (i) the Participant has exercised his or her
Option to purchase a share of Details' Class A-5 Common Stock or Class L Common
Stock, as applicable, pursuant to the Option Agreement or Employment Agreement,
as applicable, dated July 23, 1998 entered into by Details, the Company and the
Participant under the 1996 Details' Dynamic Circuits 1996 Stock Option Plan (the
"1996 Plan") or the Details' Dynamic Circuits 1997 Stock Option Plan (the "1997
--------- ----
Plan") and (ii) the Payment Value is applied to the exercise price of the Option
- ----
so exercised. The terms "Option," "Shares" and "Option Agreement" are as defined
in the 1996 Plan or the 1997 Plan as applicable. Notwithstanding anything to the
contrary set forth in this Plan, the Participant's entitlement to payment under
the Plan, and all Cash Bonus Units allocated to a Participant under the Plan,
shall lapse and terminate on the date that Participant's ability to exercise his
or her Option under the 1996 Plan or the 1997 Plan, as applicable, and the
Option Agreement terminates.
-2-
<PAGE>
6.2 PAYROLL TAXES. All payments under this Plan shall be subject to
reduction for any required income tax withholding and other payroll tax
obligations of the Company with respect to such payments.
7. MISCELLANEOUS
7.1 EMPLOYMENT RIGHTS. This Plan shall not be deemed to create a contract
of employment between Details or the Company and any Participant and shall
create no right in any Participant to continue in the employ of Details or the
Company for any specific period of time, or to create any other rights in any
Participant or obligations on the part of the Company, except as are set forth
expressly in this Plan. Except as may be otherwise set forth in a written
agreement between a Particant and the Company, each Participant is an "at will"
employee of the Company and under no circumstances shall this Plan or the
existence of this Plan restrict the Company's right to terminate the employment
of any Participant.
7.2 NO OWNERSHIP OR OTHER RIGHTS. THE CASH BONUS UNITS DO NOT REPRESENT
SHARES OF STOCK OR OTHER SECURITIES OR INTERESTS OF ANY KIND IN DETAILS, THE
COMPANY OR ANY OF ITS AFFILIATES. This Plan is a compensation program only and
shall not be deemed to give any Participant any ownership or other right, power
or interest (investment, voting or otherwise) in the Company or any of its
affiliates or create any partnership, joint venture or fiduciary relationship of
any kind between any Participant and the Company or any of its affiliates.
7.3 BENEFITS UNFUNDED AND UNSECURED. The rights of a Participant shall be
solely those of an unsecured general creditor of the Company, and the Company's
obligation shall be an unfunded and unsecured promise to pay the cash amounts
set forth in this Plan. Neither the Participant nor any other persons shall have
any rights, interest or claims whatsoever in any of the Company's assets. The
Company's obligations under this Plan shall be satisfied from the general assets
of the Company, and any asset which may be used or acquired by the Company in
connection with the liabilities it has assumed under this Plan shall not be
deemed to be held under any trust or escrow for the benefit of the Participant
or his/her beneficiaries, nor shall it be considered security for the
performance of the obligations of the Company.
7.4 NO ASSIGNMENT. No payment, benefit or rights of a Participant under
this Plan shall be subject in any manner to sale, transfer, alienation,
assignment, pledge, encumbrance, or attachment and any attempt to effect such a
transfer shall be void.
7.5 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by law
and no such amendment, suspension or termination shall
-3-
<PAGE>
impair the rights of Participants under outstanding Cash Bonus Units without the
consent of the Participants affected thereby.
7.6 GOVERNING LAW. This Plan shall be governed and construed under the
laws of the State of California.
-4-
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of the 23rd day of July, 1998, is by and
between Details Holdings Corp., a California corporation (the "Company"), and
-------
Charles D. Dimick ("Employee").
--------
WHEREAS, pursuant to a Stock Contribution and Merger Agreement (the "Stock
-----
Contribution and Merger Agreement") dated as of the date hereof among the
- ---------------------------------
Company, Dynamic Circuits, Inc. ("DCI") and the stockholders of DCI, (i) the
---
stockholders of DCI are contributing a portion of their shares of common stock,
$.001 par value per share, of DCI (the "DCI Common Stock") to the Company in
----------------
exchange for shares of its voting common stock and options to purchase shares of
its voting common stock, (ii) the stockholders of DCI will receive cash
consideration for their remaining issued and outstanding shares of DCI Common
Stock as merger consideration in connection with the mergers of Details Merger
Corp. I and Details Merger Corp. II. with and into DCI and (iii) DCI is making,
or agreeing to make, certain cash payments to the holders of vested and unvested
options to acquire DCI Common Stock (the "DCI Options");
-----------
WHEREAS, the Company desires that Employee continue as President of DCI and
become chairman of the Company, and Employee desires to accept such employment;
WHEREAS, pursuant to the Stock Contribution and Merger Agreement, options
to purchase DCI Common Stock are being converted into options to purchase shares
of Class A-5 Common Stock, no par value per share, of the Company (the "Class A
-------
Common Stock") and Class L Common Stock, no par value per share, of the Company
- ------------
(the "Class L Common Stock", and together with the Class A Common Stock, the
--------------------
"Company Common Stock");
- ---------------------
WHEREAS, Employee currently holds (i) 962,000 shares of DCI Common Stock,
(ii) vested options to purchase 84,678 shares of DCI Common Stock (the "Vested
------
Options") and (iii) unvested options to purchase 131,522 shares of DCI Common
- -------
Stock (the "Unvested Options"); and
----------------
WHEREAS, Employee and DCI are parties to an employment agreement which they
intend to terminate as of the Closing (as defined below) and concurrently with
the effectiveness of this Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. EMPLOYMENT AND DUTIES
---------------------
1.1 Employment. The Company hereby agrees to employ Employee as its
----------
chairman and to cause DCI to continue to employ Employee as the President of DCI
and Employee hereby accepts such employment upon the terms and conditions set
forth herein.
1.2 Services. Employee agrees to perform, in good faith, his employment
--------
duties as determined from time to time by the Board of Directors of the Company
(the "Board of Directors"); provided, however, that such duties shall be duties
------------------
customarily performed by a chairman of the Company and a President of DCI.
Employee shall report only to the Board of Directors. Except to the extent
otherwise permitted under Section 2.1 of the Non-Compete Agreement (as defined
below), Employee shall devote his full time and best efforts to his duties to
the Company and DCI during the term of his employment and shall not be an
officer or director of any other business enterprise without the Company's prior
written consent.
1.3 Board of Directors. During the term hereof, the Company shall use its
------------------
best efforts to have Employee elected a member of the Board of Directors.
2. TERM.
----
The employment of Employee by the Company and DCI shall be for the period
beginning upon the closing under the Stock Contribution and Merger Agreement
(the "Closing") and expiring on the earlier of (a) the third anniversary of the
-------
Closing and (b) the date on which termination of employment is effective
pursuant to Section 7 hereof (the "Termination Date").
----------------
3. COMPENSATION
------------
3.1 Initial Base Salary. For all services he may render to the Company
-------------------
and its subsidiaries and affiliates during the term of this Agreement, Employee
shall be paid a base salary at an annual rate of $420,000 during the Company's
1998 fiscal year (as increased from time to time, the "Base Salary").
-----------
Employee's Base Salary, which shall not be decreased during the term of this
Agreement, shall be paid in accordance with the normal payroll practices of the
Company.
3.2 Base Salary Increases. At any time the Company increases the base
---------------------
salary of Bruce McMaster in accordance with his Employment Agreement dated as of
September 1, 1995 (as amended or extended from time to time, the "McMaster
--------
Agreement") prior to the Termination Date, the Company shall increase the Base
- ---------
Salary of Employee by a percentage which is equal to the percentage increase in
Bruce McMaster's base salary; provided, however,
-2-
<PAGE>
that Employee's Base Salary may be further increased from time to time by the
Board of Directors in its sole discretion.
3.3 Expenses. The Company shall reimburse Employee for reasonable and
--------
necessary business expenses incurred by Employee in the course of his employment
upon presentation by Employee of reasonably detailed statements of expenses for
which reimbursement is claimed.
3.4 Annual Bonus. Employee and Bruce McMaster will attempt to jointly
------------
submit to the Board of Directors a bonus program for the senior executives of
the Company which is based on the consolidated performance of the Company.
Until Employee and Bruce McMaster agree on, and the Board of Directors approves,
such a bonus program, Employee shall be entitled to an annual bonus, payable in
accordance with the current practice of DCI, of 20.11% of the aggregate amount
available under an annual bonus program which shall be instituted by the Company
for the benefit of the senior executives of DCI (the "DCI Stand Alone Annual
Bonus Plan") which, in the aggregate, provides for bonuses consistent with
Exhibit B.
For so long as the DCI Stand Alone Annual Bonus Plan shall be in effect,
Employee shall be entitled to an additional bonus for each fiscal year of the
Company equal to 22.74% of the amount, if any, by which (a) the annual bonus to
which Thomas P. Caldwell would be entitled under the DCI Stand Alone Annual
Bonus Plan if he were continuously employed by the Company and DCI during such
fiscal year exceeds (b) the sum of (i) the amount of such annual bonus paid or
-------
payable to Mr. Caldwell and (ii) the amount of such annual bonus (or similar
bonus) paid to any employee(s) who replace Mr. Caldwell at DCI.
Amounts payable under this Section 3.4 shall be referred to herein as the
"Annual Bonus."
- -------------
3.5 Additional Bonus. Employee is hereby granted 39,007.9674 Class A Cash
----------------
Bonus Units with a Payment Value (as defined in the Bonus Plan) of $1.5725 per
unit and 4,953.3105 Class L Bonus Units with a Payment Value of $363.2381 per
unit under the Company's 1998 Cash Bonus Plan (the "Additional Bonus").
----------------
4. OTHER BENEFITS
--------------
In addition to the compensation payable pursuant to Section 3 hereof,
Employee shall be entitled to, and shall receive:
4.1 Health Benefits, etc. Benefits and conditions of employment which are
---------------------
available generally to executives of DCI (including, without limitation,
hospital, surgical, medical, dental or other group health insurance benefits,
life insurance benefits and disability benefits, holidays, company cars and
related expenses and travel insurance).
-3-
<PAGE>
4.2 Office. Use of a private office at DCI's executive offices suitable
------
for the chairman of the Company and the President of DCI and reasonable
secretarial support.
5. VACATION
--------
Employee shall have the right to four (4) weeks of vacation each year from
his duties as herein prescribed. During such vacation periods, the compensation
payable to Employee pursuant to this Agreement shall be paid. Employee shall be
entitled to cumulate any unused vacation period (up to sixty (60) days) from
year to year. Upon the Closing, Employee shall be credited with unused vacation
days cumulated under that certain Employment Agreement between Employee and DCI
dated as of August 19, 1996 with respect to which Employee has not theretofore
been compensated in accordance with this Section 5. At Employee's option, the
Company will annually compensate Employee for up to twenty (20) vacation days
unused during the prior calendar year, based on Employee's Base Salary as in
effect at the time of Employee's election. At the termination of his employment
with the Company, Employee shall be compensated for all unused vacation days (up
to sixty (60) days) for which compensation has not been received pursuant to the
preceding sentence, based on Employee's Base Salary in effect on the Termination
Date.
6. EQUITY PROVISIONS
-----------------
6.1 Vested Options. The Vested Options shall be converted into (a) vested
--------------
options to purchase the number of shares of Class A Common Stock set forth on
Schedule 1 with an exercise price per share equal to $1.5762 (the "Vested Class
------------
A Options"), (b) vested options to purchase the number of shares of Class L
- ---------
Common Stock set forth on Schedule 1 with an exercise price per share equal to
$364.0909 (the "Vested Class L Options", and together with the Vested Class A
----------------------
Options, the "Vested Replacement Options") and (c) the right to receive a cash
--------------------------
payment to be made one day prior to the Closing Date (as defined in the Stock
Contribution and Merger Agreement) in the aggregate amount set forth on Schedule
1.
6.2 Unvested Options. The Unvested Options shall be converted into (a)
----------------
unvested options to purchase the number of shares of Class A Common Stock set
forth on Schedule 1 with an exercise price per share equal to $1.5762 (the
"Unvested Class A Options"), (b) unvested options to purchase the number of
- -------------------------
shares of Class L Common Stock set forth on Schedule 1 with an exercise price
per share equal to $364.0909 (the "Unvested Class L Options", and together with
------------------------
the Unvested Class A Options, the "Unvested Replacement Options", and
----------------------------
collectively with the Vested Replacement Options, the "Replacement Options") and
-------------------
(c) the right to receive deferred cash payments in the aggregate amount set
forth on Schedule 1 (the "Deferred Payments"). The Unvested Replacement Options
-----------------
and the right to receive the Deferred Payments shall vest as set forth in
Section 6.5 and 6.6, respectively.
6.3 $61 Options. Effective upon the Closing Date, the Company hereby
-----------
grants options to acquire the number of shares of Class A Common Stock set forth
on Schedule 1 with
-4-
<PAGE>
an exercise price of $61.17 per share (the "$61 Options"). Of the total number
of $61 Options granted to Employee hereunder (a) the $61 Options designated as
Vested on Schedule 1 shall be immediately vested and exercisable and (b) the $61
Options designated as Unvested on Schedule 1 (the "Unvested $61 Options")
--------------------
shall vest in accordance with the schedule set forth in Section 6.5.
6.4 DCI Option Plan. The Replacement Options and the $61 Options are
---------------
being granted under, and are subject to the terms of, the Company's Dynamic
Circuits 1996 Stock Option Plan (the "Plan"). The Replacement Options and the
----
$61 Options are also subject to the terms set forth on Exhibit A hereto.
6.5 Option Vesting Schedule. For so long as Employee is employed by the
-----------------------
Company or any of its subsidiaries, and thereafter solely to the extent set
forth in Sections 8.5(b) and 8.6(b), the Unvested Class A Options, the Unvested
Class L Options and the Unvested $61 Options shall vest in accordance with the
following schedule (or as otherwise set forth in Exhibit A hereto):
(1) 35% upon Closing; and
(2) 65% in equal monthly installments beginning on the 28th day of the
month during which the Closing occurs and ending on October 28, 2000;
provided, however, that 50% of the Unvested Replacement Options which vest on
any date shall become "Escrow Options." Thereafter, any cash, Company Common
--------------
Stock or other securities of any entity which are received upon the exercise,
sale, transfer or other disposition of any Escrow Option or the proceeds thereof
shall be deposited (net of applicable taxes payable in respect thereof (such
amount referred to herein as the "Taxes")) into an escrow account established
pursuant to a mutually acceptable escrow agreement (the "Escrow Account"). All
--------------
assets held in the Escrow Account shall be released to Employee on the earlier
of (i) the fourth anniversary of the Closing and (ii) the termination date of
the Noncompetition Period set forth in the Non-Compete and Technology Transfer
Agreement between Employee and the Company dated as of the date hereof (as may
be amended or otherwise modified from time to time, the "Non-Compete Agreement")
---------------------
(such date, the "Release Date"); provided, however, that upon a determination by
------------
the Board of Directors that a material violation of the Non-Compete Agreement by
Employee has occurred prior to the Release Date (such determination to be made
only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), (x) all assets
in the Escrow Account shall be immediately released to the Company and (y)
Employee shall pay to the Company an amount equal to the Taxes.
-5-
<PAGE>
6.6 Deferred Payments Vesting Schedule.
----------------------------------
(1) Vesting. The right to receive Deferred Payments shall vest in
-------
accordance with the following schedule (or as otherwise set forth in Exhibit A
hereto):
(1) 35% upon Closing; and
(2) 65% in equal monthly installments beginning on the 28th day
of the month during which the Closing occurs and ending on
October 28, 2000.
(2) Timing of Payments. At the end of each month, a payment shall be
------------------
made to Employee in respect of that portion of the Deferred Payments which shall
have vested during such month. The Deferred Payments, once made, shall be
retained by Employee in all circumstances.
(3) Effect of Termination of Employment. The provisions of clauses
-----------------------------------
(a) and (b) shall apply equally before and after the Termination Date (without
regard to the reason for termination of employment) except to the extent set
forth in clause (d).
(4) Forfeiture of Future Payments. Notwithstanding the foregoing,
-----------------------------
Employee shall forfeit his rights to, and the Company shall be under no
obligation to make, any further payments to Employee in respect of Deferred
Payments if the Board of Directors determines that there shall have occurred
(before or after the Termination Date) a material violation of the terms of
Section 2 of the Non-Compete Agreement (such determination to be made only if
Employee has failed to cure such violation to the reasonable satisfaction of the
Board of Directors within a reasonable period of time after having been given
ten (10) business days written notice thereof).
6.7 Repurchase of Company Common Stock upon Termination of Employment.
-----------------------------------------------------------------
-6-
<PAGE>
(1) Repurchase Rights. Upon termination of Employee's employment for
-----------------
any reason prior to August 19, 1999, the Company may elect to repurchase all or
any portion of the Company Common Stock originally issued to Employee (whether
held by Employee or any person or entity to whom DCI Common Stock or DCI Options
originally issued, or granted, to Employee were transferred prior to the
Closing) from Employee or any subsequent holder thereof at a cash price per
share equal to the Fair Market Value of such Company Common Stock as of the
Termination Date; provided, however, that if Employee's employment is terminated
by the Company for Cause, (i) the cash price per share of Option Stock shall be
the lesser of the Fair Market Value of such Option Stock as of the Termination
Date and the exercise price per share of Option Stock of the option which was
exercised to acquire such Option Stock and (ii) the cash price per share of
Company Common Stock that is not Option Stock shall be the Fair Market Value of
such Company Common Stock as of the Termination Date); it being understood and
agreed that the "exercise price" per share of Option Stock issued at Closing
shall be deemed to be the applicable exercise price per share of Company Common
Stock set forth on Schedule 1.
For purposes of this Agreement:
(i) "Option Stock" shall mean Company Common Stock issued (A) at
------------
Closing in respect of DCI Common Stock issued upon exercise of a DCI Option
originally granted on or after August 20, 1998 or (B) upon exercise of a
Replacement Option granted hereunder in respect of a DCI Option originally
granted on or after August 20, 1998; and
(ii) "Fair Market Value" shall mean, as of any date, the closing
-----------------
sales price of the Company Common Stock on the principal national
securities exchange on which the Company Common Stock is listed at the time
or, if the Company Common Stock is not so listed, the sales price of the
Company Common Stock as reported on the NASDAQ National Market System as of
4:00 P.M. (New York time) on such date, in either case averaged over a
period of 21 trading days consisting of the day as of which Fair Market
Value is being determined and the 20 consecutive trading days prior to such
day. If at any time the Company Common Stock is not listed on any national
securities exchange or quoted in the NASDAQ National Market System, Fair
Market Value shall be determined in good faith by the Board of Directors or
a duly authorized committee thereof. In the event that Employee objects to
the Board of Directors' determination of Fair Market Value within 20 days
after written notice thereof, a mutually acceptable valuation firm shall be
engaged to determine Fair Market Value. The determination of such firm
shall be final and binding on the Company and Employee, and the fees and
expenses of such firm shall be borne 75% by the Company and 25% by
Employee.
(2) Exercise. The Company may exercise its option to purchase Company
--------
Common Stock pursuant to Section 6.7(a) by delivery to Employee of a written
notice specifying the number of shares of Company Common Stock to be repurchased
(i) within
-7-
<PAGE>
60 days after the Termination Date and (ii) if applicable, thereafter from time
to time within 60 days after the Employee, or any transferee, exercises a
Replacement Option (or any option granted in replacement thereof). Employee and
the Company will use all commercially reasonable efforts to consummate any
repurchase of securities pursuant to this Section 6.7 not later than 45 days
following delivery of such written notice to Employee.
(3) Common Stock. For purposes of this Section 6.7, "Company Common
------------
Stock" shall be deemed to include any proceeds of Company Common Stock; it being
understood and agreed that the Company's right set forth in this Section 6.7 may
only be exercised once.
6.8 Stockholders Agreement. Employee hereby agrees to be a party to the
----------------------
Stockholders Agreement among the Company and its equity holders dated as of
October 28, 1997 (as amended from time to time, the "Stockholders Agreement") as
----------------------
a "Manager," and the Company Common Stock, Replacement Options and $61 Options
originally issued or granted to Employee (whether held by Employee or any person
or entity to whom DCI Common Stock or DCI Options originally issued, or granted,
to Employee were transferred prior to the Closing) shall be "Management Stock"
thereunder. The Stockholders Agreement shall terminate according to its terms
and not as a result of any termination of this Agreement.
7. TERMINATION
-----------
7.1 Mutual Agreement. The employment of Employee may be terminated at any
----------------
time by the Company, DCI and Employee by mutual agreement.
7.2 Death or Disability. The employment of Employee (a) shall be
-------------------
terminated automatically upon his death and (b) may be terminated at any time by
the Company and DCI upon the physical inability of Employee to perform his
duties hereunder for a period of six (6) consecutive months ("Disability").
----------
7.3 Company for Cause. The employment of Employee may be terminated at
-----------------
any time by the Company and DCI upon the occurrence of any of the following
events (each of which shall constitute "Cause"):
-----
(1) Employee's conviction of any crime involving moral turpitude which
is a felony;
(2) repeated insobriety at the work place;
(3) theft of material Company assets;
(4) material violation of the Non-Compete Agreement; or
-8-
<PAGE>
(5) the failure to materially perform material duties consistent with
this Agreement reasonably requested by the Board of Directors which also has a
material adverse effect on the Company.
In each instance of conduct described in clause (d) or (e), Employee must
be given, prior to termination of employment, ten (10) business days' written
notice of such conduct and a reasonable period of time after such notice to cure
the effects thereof to the reasonable satisfaction of the Board of Directors.
In the event of such cure, Employee's employment will not be terminated as a
result of the conduct and effect so cured.
7.4 Company for Good Reason.
-----------------------
(1) Subject to clause (b) below, the employment of Employee may be
terminated at any time by the Company and DCI for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean (i) the failure of Employee to use his
-----------
best efforts to meet the goals reasonably established for Employee by the Board
of Directors, such determination to be made by the Board of Directors in its
reasonable discretion, (ii) continued and repeated absence of Employee from his
employment during usual working hours for reasons other than vacation,
disability or sickness or (iii) the failure to materially perform material
duties consistent with this Agreement reasonably requested by the Board of
Directors.
(2) At least five (5) business days prior to termination of Employee's
employment pursuant to this Section 7.4, Employee must be given written notice
setting forth in reasonable detail the conduct with respect to which the Company
and DCI intend to terminate his employment pursuant to this Section 7.4. During
such five (5) business day period, Employee may propose a cure reasonably
acceptable to the Board of Directors and if acceptable, Employee's employment
will not be terminated pursuant to this Section 7.4 until he has had a
reasonable opportunity to implement such proposal. Having been given notice of
any such conduct once during the term of his employment, Employee shall not
thereafter be entitled to any additional notice prior to termination of his
employment under this Section 7.4 by reason of such conduct.
7.5 Company without Cause or Good Reason. The employment of Employee may
------------------------------------
be terminated at any time by the Company and DCI other than for Cause, Good
Reason or Disability.
7.6 Employee for Just Cause. The employment of Employee may be terminated
-----------------------
by Employee upon not less than 30 days' written notice to the Company given
within 30 days of the occurrence of any of the following (each of which shall
constitute "Just Cause"): (a) material violation by the Company of this
----------
Agreement (including, without limitation, the willful and continued failure of
the Company to timely provide Employee compensation set forth in Section 3), (b)
a change in Employee's title or a material diminution in the nature of
-9-
<PAGE>
Employee's duties or responsibilities to the Company or DCI without his consent,
(c) requiring Employee to relocate from his primary residence in order to
perform his duties hereunder, subject to ordinary and necessary business travel
or (d) termination of Employee's service as a member of the Board of Directors
without his consent. In the event of termination of Employee pursuant to this
Section 7.6, the Company may elect to waive the period of notice, or any portion
thereof. Any such waiver shall be given only by a written instrument authorized
by the Board of Directors.
In each instance of conduct described in clause (a), (b) or (c), the
Company must be given, prior to termination of employment, ten (10) business
days' written notice of such breach or material diminution and a reasonable
period of time after such notice to cure the effects thereof to the reasonable
satisfaction of Employee. In the event of such cure, Employee's employment may
not be terminated for Just Cause as a result of the conduct and effect so cured.
7.7 Employee without Just Cause. The employment of Employee may be
---------------------------
terminated at any time by Employee upon not less than 30 days' prior written
notice to the Company other than for Just Cause. In the event of termination of
Employee pursuant to this Section 7.7, the Company may elect to waive the period
of notice, or any portion thereof. Any such waiver shall be given only by a
written instrument authorized by the Board of Directors.
8. EFFECT OF TERMINATION.
---------------------
8.1 Mutual Agreement. If Employee's employment is terminated pursuant to
----------------
Section 7.1, the obligations of the Company and its subsidiaries shall be as set
forth in a written agreement between the Company and Employee. Except as set
forth in such written agreement (a) neither the Company nor any of its
subsidiaries shall have any further obligation to Employee after the Termination
Date other than payment of the Additional Bonus to the extent and in the manner
set forth in the Company's Cash Bonus Plan and (b) without limiting the
generality of the foregoing, (i) all vested Replacement Options and $61 Options
shall expire 90 days following the Termination Date and (ii) all unvested
Replacement Options and $61 Options shall immediately expire and be forfeited.
Notwithstanding the foregoing, each of the Company and Employee hereby
acknowledge and agree that the terms of such written agreement shall be the
subject of negotiation at the time of the termination of Employee's employment
and that nothing in the preceding sentence is intended to, nor shall it,
establish any expectations for such negotiation.
8.2 Death or Disability. Upon termination of Employee's employment upon
-------------------
his death or by the Company for Disability, neither the Company nor any of its
subsidiaries shall have any further obligation to Employee other than as set
forth in Section 6.6 and in clauses (a) and (b) below:
-10-
<PAGE>
(1) Compensation. The Company shall pay to Employee (or, if
------------
applicable, his designated beneficiary or, if no beneficiary shall have been
designated by Employee, to his estate), (i) Base Salary earned and unpaid
through the Termination Date, (ii) any amounts due pursuant to Section 5, (iii)
at the time of the release of the audited financial statements of the Company
for the fiscal year during which termination on account of death or Disability
occurs, an amount equal to (x) the Annual Bonus that Employee would otherwise
have earned for such fiscal year if termination had not occurred multiplied by
(y) a fraction, the numerator of which is the number of days from the beginning
of such fiscal year until the Termination Date and the denominator of which is
365 and (iv) the Additional Bonus to the extent and in the manner set forth in
the Company's Cash Bonus Plan. In addition, for 12 months following the
Termination Date, the Company (or, if applicable, its subsidiary) will pay the
same share of the premium cost that it pays for active employees in respect of
the participation of Employee and his eligible dependents in the group health
and life insurance plans described in Section 4.1 hereof, subject, in the case
of such group health plans, to proper election to continue participation of
Employee and/or that of his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire one year, in the case of termination on
account of death, or six months, in the case of termination on account of
Disability, following the Termination Date and (ii) all unvested Replacement
Options and $61 Options shall immediately expire and be forfeited.
8.3 By the Company for Cause. Upon termination of Employee's employment
------------------------
by the Company for Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date, (ii) any amounts due pursuant to Section 5 and (iii) such
obligations as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall immediately expire and be forfeited and (ii) all
unvested Replacement Options and $61 Options shall immediately expire and be
forfeited.
-11-
<PAGE>
8.4 By the Company for Good Reason. Upon termination of Employee's
------------------------------
employment by the Company for Good Reason:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the date on which the Noncompetition Period set forth in the Non-Compete
Agreement terminates (or, if earlier, the date on which the Company releases
Employee from his obligations under Section 2.1 thereof), (ii) any amounts due
pursuant to Section 5, (iii) payment of the Additional Bonus to the extent and
in the manner set forth in the Company's Cash Bonus Plan and (iv) such
obligations as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited.
8.5 By the Company without Cause or Good Reason. Upon termination of
-------------------------------------------
Employee's employment by the Company other than for Cause, Good Reason or
Disability, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than as set forth in Section 6.6 and in
clauses (a) and (b) below:
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (such determination to be
made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), the Company
shall pay to Employee (w) any amounts due pursuant to Section 5, (x) his Base
Salary and his Annual Bonus through the third anniversary of the Closing and (y)
if the Noncompetition Period set forth in the Non-Compete Agreement shall not
have expired on or before the third anniversary of the Closing, his Base Salary
during the period beginning on the day following the third anniversary of the
Closing and ending on the date on which the Noncompetition Period set forth in
the Non-Compete Agreement terminates. Amounts payable under this Section 8.5
shall be paid in accordance with the normal payroll practices of the Company.
Employee shall also be entitled to receive payment of the Additional Bonus to
the extent and in the manner set forth in the Company's Cash Bonus Plan. In
addition, for 12 months following the Termination Date, the Company (or, if
applicable, its subsidiary) will pay the same share of the premium cost that it
pays for active employees in respect of the participation of Employee and his
eligible dependents in the group health and life insurance plans described in
Section 4.1 hereof, subject, in the case of such group health plans, to proper
election to continue participation of Employee and/or that of his eligible
dependents in such plans under COBRA.
-12-
<PAGE>
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) unless and until the Board of Directors determines that either of the
following events shall have occurred (before or after the Termination Date):
(A) theft of material Company assets or (B) material violation of the terms of
the Non-Compete Agreement (such determination to be made only if Employee has
failed to cure such violation to the reasonable satisfaction of the Board of
Directors within a reasonable period of time after having been given ten (10)
business days written notice thereof), all unvested Replacement Options and $61
Options shall continue to vest in accordance with the schedule set forth in
Section 6.5 and shall expire 90 days following the date of vesting.
8.6 By Employee for Just Cause. Upon termination of Employee's employment
--------------------------
by Employee for Just Cause, neither the Company nor any of its subsidiaries
shall have any further obligation to Employee other than as set forth in Section
6.6 and in clauses (a) and (b) below:
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (such determination to be
made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), the Company
shall pay to Employee (w) any amounts due pursuant to Section 5, (x) his Base
Salary and his Annual Bonus through the third anniversary of the Closing and (y)
if the Noncompetition Period set forth in the Non-Compete Agreement shall not
have expired on or prior to the third anniversary of the Closing, his Base
Salary during the period beginning on the day following the third anniversary of
the Closing and ending on the date on which the Noncompetition Period set forth
in the Non-Compete Agreement terminates. Amounts payable under this Section 8.6
shall be paid in accordance with the normal payroll practices of the Company.
Employee shall also be entitled to receive payment of the Additional Bonus to
the extent and in the manner set forth in the Company's Cash Bonus Plan. In
addition, for 12 months following the Termination Date, the Company (or, if
applicable, its subsidiary) will pay the same share of the premium cost that it
pays for active employees in respect of the participation of Employee and his
eligible dependents in the group health and life insurance plans described in
Section 4.1 hereof, subject, in the case of such group health plans, to proper
election to continue participation of Employee and/or that of his eligible
dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) unless and until the Board of Directors determines that either of the
following events shall have occurred (before or after the Termination Date):
(A) theft of material Company assets or (B) material violation of the terms of
the Non-Compete Agreement (such determination to be made
-13-
<PAGE>
only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), all unvested
Replacement Options and $61 Options shall continue to vest in accordance with
the schedule set forth in Section 6.5 and shall expire 90 days following the
date of vesting.
8.7 By Employee without Just Cause. Upon termination of Employee's
------------------------------
employment by Employee other than for Just Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date, (ii) any amounts due pursuant to Section 5, (iii) payment
of the Additional Bonus to the extent and in the manner set forth in the
Company's Cash Bonus Plan and (iv) such obligations as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited.
8.8 Liquidated Damages. If a court of competent jurisdiction issues a
------------------
final nonappealable judgment in any action brought by Employee alleging non-
payment of severance benefits to which Employee is entitled under the provisions
of the subsection of this Section 8 which correspond to the provisions of
Section 7 pursuant to which notice of termination was given by the Company or
Employee, as applicable, Employee shall be entitled to liquidated damages in an
amount equal to three times the amount of such non-payment; it being understood
and agreed that the provisions of Section 9.10 shall apply to an action
described in this Section 8.8.
9. MISCELLANEOUS
-------------
9.1 Governing Laws. IT IS THE INTENTION OF THE PARTIES HERETO THAT THE
--------------
INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE OF
LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF
THE PARTIES HERETO.
9.2 Parachute Payments. In the event of a Change of Control prior to the
------------------
initial public offering of the Company's Common Stock, and provided Employee
requests in writing, the Company will use its best efforts to prepare and
distribute such materials as it shall consider necessary or desirable to permit
the shareholders to approve any "excess parachute
-14-
<PAGE>
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended.
9.3. Binding upon Successors and Assigns. Subject to, and unless otherwise
-----------------------------------
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto. The rights and benefits of the Company under
this Agreement shall be transferable to successors of the Company pursuant to a
reorganization and all covenants and agreements hereunder shall inure to the
benefit of, and be enforceable by or against, such successors in interest. This
Agreement is personal to Employee and cannot be assigned nor may duties
hereunder be delegated. Any attempted assignment or delegation by Employee shall
render this Agreement null and void at the option of the Company.
9.4. Withholding. All payments made by the Company under this Agreement
-----------
shall be net of any tax or other amounts required to be withheld by the Company
under any applicable law or legal requirement.
9.5. Amendment of McMaster Agreement. The Company shall not offer to
-------------------------------
amend, supplement or otherwise modify the McMaster Agreement during the term of
this Agreement unless an offer to amend, supplement or otherwise modify this
Agreement on a comparable basis is also extended to Employee.
9.6. Entire Agreement. This Agreement, the exhibits hereto, the documents
----------------
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. Without limiting the
generality of the foregoing, this Agreement supersedes in its entirety (i) that
certain Employment Agreement between Employee and DCI dated as of August 19,
1996, as modified through the date hereof and (ii) that certain Grant of Stock
Purchase Option between Employee and DCI dated August 19, 1996, as modified
through the date hereof. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction of this Agreement. The express terms hereof control
and supersede any course of performance or usage of the trade inconsistent with
any of the terms hereof.
9.7. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
-15-
<PAGE>
9.8. Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or succeeding breach or default.
9.9. No Waiver. No failure or delay of any party to enforce any of the
---------
provisions hereof shall be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
9.10. Attorneys' Fees. Should suit or arbitration be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit or arbitration and not as damages,
reasonable attorneys' fees to be fixed by the court (including without
limitation, costs, expenses and fees on any appeal). The prevailing party shall
be the party entitled to recover its costs of suit or arbitration, regardless of
whether such suit or arbitration proceeds to final judgment. A party not
entitled to recover its costs shall not be entitled to recover attorneys' fees.
No sum for attorneys' fees shall be counted in calculating the amount of a
judgment for purposes of determining if a party is entitled to recover costs or
attorneys' fees.
9.11. Notices. Whenever any party hereto desires or is required to give any
-------
notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States certified mail, postage prepaid,
addressed as follows:
-16-
<PAGE>
If to Company: Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
with a copy to: Dynamic Circuits, Inc.
1831 Tarob Court
Milpitas, CA 95035
Attention: President
and
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Alfred O. Rose, Esq.
If to Employee: Mr. Charles D. Dimick
P.O. Box 7911
Incline Village, NV 89452
or
for Overnight/Messenger delivery:
794 Ida Court
Incline Village, NV 89451
with a copy to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention William F. Schwitter, Esq.
Such communication shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United States
mail. Any party may change its address for such communications by giving notice
thereof to the other party in conformity with this Section.
-17-
<PAGE>
Dimick Employment Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
Details Holdings Corp.
By:_____________________________
Name:
Title:
________________________________
Charles D. Dimick
Acknowledged and Agreed
with respect to Sections 6 and 9.6
Dynamic Circuits, Inc.
By:_______________________
Name:
Title:
<PAGE>
Dimick Employment Agreement
CONSENT OF SPOUSE
The undersigned spouse of Employee has read and hereby approves the terms
and conditions of the foregoing Agreement. In consideration of the Company's
granting his or her spouse the right to purchase the shares of Details Common
Stock as set forth in the Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints Employee as attorney-in-fact for the undersigned
with respect to any amendment or exercise of rights under the Agreement.
__________________________________
Name:
Spouse of Employee
<PAGE>
Exhibit A
---------
The Replacement Options and the $61 Options which are referenced in the
attached Agreement have been issued under the Company's Dynamic Circuits 1996
Stock Option Plan (the "Plan") (a copy of which has been provided to Employee)
as provided below. Capitalized terms used and not defined herein or in the
attached Agreement have the meanings set forth in the Plan.
1. OPTION TERMS.
1. REPLACEMENT OPTIONS AND $61 OPTIONS. The Replacement Options and the
$61 Options will expire at the close of business on August 19, 2006 (the
"Expiration Date"), subject to earlier expiration in connection with the
termination of your employment to the extent set forth in the Agreement.
Neither the Replacement Options nor the $61 Options are intended to be
"incentive stock options" within the meaning of Section 442 of the Internal
Revenue Code of 1986, as amended.
2. EXERCISABILITY/VESTING.
1. VESTING. The Replacement Options and the $61 Options will be
exercisable only to the extent they have vested.
2. ACCELERATION OF VESTING. In the event of a Change of Control (A)
during the term of your employment with the Company and/or any of
its subsidiaries or (B) at a time when the Unvested Replacement
Options and the Unvested $61 Options are vesting pursuant to the
terms of Section 8.5(b) or 8.6(b), the Replacement Options, the
$61 Options and the Deferred Payments will automatically become
100% vested. In connection with any Change of Control, the
Company may provide on not less than 20 days' notice to you that
any portion of the Replacement Options and the $61 Options that
have not been exercised prior to or in connection with the Change
of Control will be forfeited. In lieu of requiring such exercise,
the Company may provide for the cancellation of the Replacement
Options and the $61 Options in exchange for a payment equal to the
excess (if any) of the consideration per share of Company Common
Stock receivable in connection with such Change of Control over
the exercise price of the Replacement Options and the $61 Options,
respectively.
3. TERMINATION OF OPTION. In no event shall any part of the Replacement
Options or the $61 Options be exercisable after the Expiration Date set
forth in paragraph 1(a).
<PAGE>
2. PROCEDURE FOR EXERCISE. You may exercise all or any portion of the
Replacement Options or the $61 Options to the extent permitted hereby, at
any time and from time to time by delivering written notice to the Company
(to the attention of the Company's Secretary) accompanied by payment in
full of an amount equal to the product of (i) the Exercise Price of the
subject option multiplied by (ii) the number of shares of Option Stock to
be acquired (such date of delivery the "Exercise Date"). The Company may
delay effectiveness of any exercise of the Replacement Options or the $61
Options for such period of time as may be necessary to comply with any
legal or contractual provisions to which it may be subject relating to the
issuance of its securities; provided, however, that no such delay shall
affect your right to purchase the shares of Option Stock, and the Exercise
Date shall be deemed the date of your acquisition of the shares of Option
Stock for all corporate and tax purposes regardless of such delay. As a
condition to any exercise of the Replacement Options or the $61 Options,
you will permit the Company to deliver to you all financial and other
information regarding the Company necessary to enable you to make an
informed investment decision, and you will make all customary investment
representations which the Company requires.
3. SECURITIES LAW RESTRICTIONS. You represent that when you exercise the
Replacement Options or the $61 Options you will be purchasing the shares of
Option Stock for your own account and not on behalf of others. You may not
sell, transfer or dispose of any Company Common Stock issued pursuant to
the Replacement Options or the $61 Options (except pursuant to an effective
registration statement under the Securities Act of 1933) without first
delivering to the Company an opinion of counsel reasonably acceptable to
the Company that registration under the Securities Act or any applicable
state securities laws is not required in connection with such transfer.
You further understand that the certificates for any Company Common Stock
you purchase will bear such legends as the Company deems necessary or
desirable in connection with the Securities Act or other rules, regulations
or laws.
4. OPTION NOT TRANSFERABLE. The Replacement Options and the $61 Options are
personal to you and are not transferable by you other than by will or the
laws of descent and distribution. During your lifetime only you (or your
guardian or legal representative) may exercise the Replacement Options and
the $61 Options. In the event of your death, the Replacement Options and
the $61 Options may be exercised only by the executor or administrator of
your estate to he person or persons to whom your rights under the
Replacement Options and the $61 Options shall pass by will or the laws of
intestate succession.
5. CONFORMITY WITH PLAN. The Replacement Options and the $61 Options are
intended to conform in all respects with, and are subject to all applicable
provisions of, the Plan, which is incorporated herein by reference.
Inconsistencies between the terms of the
<PAGE>
Agreement and this Exhibit, on the one hand, and the Plan, on the other
hand, shall be resolved in accordance with the terms of the Plan. By
executing the Agreement, you acknowledge your receipt of this Exhibit A and
the Plan and agree to be bound by all of the terms contained herein and
therein.
6. RIGHTS OF PARTICIPANTS. Nothing in this Exhibit A shall interfere with or
limit in any way the right of the Company and/or its subsidiaries to
terminate your employment in accordance with the Agreement or confer upon
you any right not set forth in the Agreement to continue in the employ of
the Company and/or its subsidiaries for any period of time or to continue
to receive your current (or other) rate of compensation. Nothing in this
Exhibit A shall confer upon you any right to be selected to receive
additional options under the Plan or otherwise.
7. WITHHOLDING OF TAXES. The Company may, if necessary or desirable, withhold
from any amounts due and payable by the Company to you (or secure payment
from you in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to the issuance or exercise of the
Replacement Options or the $61 Options, and the Company may defer such
issuance or exercise unless indemnified by you to its satisfaction against
the payment of any such amount. To the extent permitted by law, such
withholding may be effected through the delivery by you of shares of
Company Common Stock valued at Fair Market Value as of the Exercise Date.
8. ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the shares of
Common Stock, the Company may, in order to prevent the dilution or
enlargement of rights under the Replacement Options or the $61 Options,
make such adjustments in the number and type of shares authorized by the
Plan, the number and type of shares covered by the Replacement Options and
the $61 Options and the respective Exercise Prices specified herein as may
be determined to be appropriate and equitable.
A-3
<PAGE>
Exhibit A-1
-----------
DETAILS DYNAMIC CIRCUITS INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
The undersigned hereby notifies Details Holdings Corp. of his or her
decision to exercise the Option as to _______________________ shares of Details
Common Stock.
Dated: _______________________
__________________________
(signature of Option Holder)
_____________________________
(printed)
<PAGE>
Exhibit A-2
-----------
INVESTMENT REPRESENTATION STATEMENT
PARTICIPANT:
COMPANY : DETAILS HOLDINGS CORP.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Option Holder represents to Details the following:
(a) Option Holder current residence is as set forth in the signature
page hereto.
(b) Option Holder is aware of Details' business affairs and financial
condition and has acquired sufficient information about Details to reach an
informed and knowledgeable decision to acquire the Shares. Option Holder is
acquiring the Shares for investment for Option Holder's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(c) Option Holder acknowledges and understands that the Shares
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Option Holder's investment intent as expressed herein. Option Holder
further understands that the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Option Holder further acknowledges and understands
that Details is under no obligation to register the Shares except as set forth
in the Details Holdings Corp. Stockholders Agreement dated as of October 28,
1998, as amended from time to time. Option Holder understands that the
certificate evidencing the Shares will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to Details.
(d) Option Holder is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to Option
Holder, the exercise will be exempt from registration under the Securities Act.
In the event that Details becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"),
<PAGE>
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Shares exempt under Rule 701 may be resold, subject
to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Exchange Act); and, in the case of an affiliate, (2)
the availability of certain public information about Details, (3) the amount of
Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that Details does not qualify under Rule 701 at the time
of grant of the Option, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Shares were sold
by Details or the date the Shares were sold by an affiliate of Details, within
the meaning of Rule 144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2),
(3) and (4) of the paragraph immediately above.
(e) Option Holder further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A under the Securities Act, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Option Holder understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Option Holder:
_____________________________________________
Date:______________________________ , 199__
Option Holder's Address:
_______________________________________________
_______________________________________________
2
<PAGE>
Exhibit B
---------
STANDALONE ANNUAL BONUS PROGRAM
(dollar amounts in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
FISCAL YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1998 1999 2000
<S> <C> <C> <C> <C>
DYNAMIC CIRCUITS INC.
EBITDA $26,309 $31,734 $36,727 $42,196
- % Growth 20.6% 15.7% 14.9%
EBITDA Thresholds:
-----------------
% of Plan
-----------
90% $27,560 $33,054 37,976
95% $29,147 $34,890 40,086
Target 100% $31,734 $36,727 42,196
105% $33,320 $38,563 44,306
110% $34,907 $40,399 46,416
115% $36,494 $42,236 48,525
120% $38,080 $44,072 50,635
Bonus Payouts:
-------------
Bonus Pool $753.80 $992.50 $1,037.00 $1,112.00
</TABLE>
<TABLE>
<CAPTION>
% of Plan Bonus % of EBITDA Bonus % of EBITDA Bonus % of EBITDA
------------- ------- Change ------- Change ----- Change
------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
90% $ 450 20.0% $ 466 35.3% $ 490 39.2%
95% $ 721 18.8% $ 753 23.9% $ 801 23.8%
Target 100% $ 993 18.3% $ 1,037 20.8% $ 1,112 20.3%
105% $ 1,147 16.4% $ 1,203 17.6% $ 1,287 17.0%
110% $ 1,302 15.1% $ 1,367 15.8% $ 1,463 15.1%
115% $ 1,456 14.3% $ 1,530 14.6% $ 1,638 13.9%
120% $ 1,611 13.7% $ 1,694 13.7% $ 1,814 13.0%
Percentage of Incremental 9.7% 8.9% 8.3%
EBITDA to be added to the
Bonus Pool
</TABLE>
<PAGE>
Schedule I
Option Holder: Charles D. Dimick
Existing Options: Exercise Price Vested Unvested Tranche
- ---------------- -------------- ------ -------- -------
$0.05 84,678.00 131,522.00 N/A
Replacement Options:
- -------------------
Vested Options: Class A-5 Class L Tranche
--------- ------- -------
15,278.0604 1,940.0390 N\A
Cash Payment on
the Closing Date: $1,074,690.51
Unvested Options: Class A-5 Class L Tranche
--------- ------- -------
23,729.9070 3,013.2715 N/A
Deferred Payment(s): Amount Tranche
------ -------
$1,669,210.97 N/A
$61 Options: Vested Unvested Tranche
- ----------- ------ -------- -------
833.1594 1,294.0644 N/A
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of the 23rd day of July, 1998, is by and
between Details Holdings Corp., a California corporation (the "Company"), and
-------
Gregory O. Halvorson ("Employee").
--------
WHEREAS, pursuant to a Stock Contribution and Merger Agreement (the "Stock
-----
Contribution and Merger Agreement") dated as of the date hereof among the
- ---------------------------------
Company, Dynamic Circuits, Inc. ("DCI") and the stockholders of DCI, (i) the
---
stockholders of DCI are contributing a portion of their shares of common stock,
$.001 par value per share, of DCI (the "DCI Common Stock") to the Company in
----------------
exchange for shares of its voting common stock and options to purchase shares of
its voting common stock, (ii) the stockholders of DCI will receive cash
consideration for their remaining issued and outstanding shares of DCI Common
Stock as merger consideration in connection with the mergers of Details Merger
Corp. I and Details Merger Corp. II with and into DCI and (iii) DCI is making,
or agreeing to make, certain cash payments to the holders of vested and unvested
options to acquire DCI Common Stock (the "DCI Options");
-----------
WHEREAS, the Company desires that Employee continue as Senior Vice
President of Operations of DCI and become a Vice President of the Company, and
Employee desires to accept such employment;
WHEREAS, pursuant to the Stock Contribution and Merger Agreement, options
to purchase DCI Common Stock are being converted into options to purchase shares
of Class A-5 Common Stock, no par value per share, of the Company (the "Class A
-------
Common Stock") and Class L Common Stock, no par value per share, of the Company
- ------------
(the "Class L Common Stock", and together with the Class A Common Stock, the
--------------------
"Company Common Stock");
- ---------------------
WHEREAS, Employee currently holds (i) vested options to purchase 156,375
shares of DCI Common Stock issued under DCI's 1996 Stock Option Plan (the "1996
----
Plan") and vested options to purchase 10,427 shares of DCI Common Stock issued
- ----
under a Nonqualified Stock Option Agreement dated as of March 31, 1998 between
Employee and DCI (as modified through the date hereof, the "1997 Option
-----------
Agreement") (collectively, the "Vested Options") and (ii) unvested options to
- --------- --------------
purchase 48,125 shares of DCI Common Stock issued under the 1996 Plan and
options to purchase 72,987 shares of DCI Common Stock under the 1997 Option
Agreement (the "Unvested Options"); and
----------------
WHEREAS, Employee and DCI are parties to an employment agreement which they
intend to terminate as of the Closing (as defined below) and concurrently with
the effectiveness of this Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. EMPLOYMENT AND DUTIES
---------------------
1.1 Employment. The Company hereby agrees to employ Employee as a Vice
----------
President and to cause DCI to continue to employ Employee as the Senior Vice
President of Operations of DCI and Employee hereby accepts such employment upon
the terms and conditions set forth herein.
1.2 Services. Employee agrees to perform, in good faith, his employment
--------
duties as determined from time to time by the Board of Directors of the Company
(the "Board of Directors") and the President of DCI; provided, however, that
------------------
such duties shall be duties customarily performed by a Vice President of the
Company and a Senior Vice President of Operations of DCI. Employee shall report
only to the Board of Directors and the President of DCI. Except to the extent
otherwise permitted under Section 2.1 of the Non-Compete Agreement (as defined
below), Employee shall devote his full time and best efforts to his duties to
the Company and DCI during the term of his employment and shall not be an
officer or director of any other business enterprise without the Company's prior
written consent.
2. TERM.
----
The employment of Employee by the Company and DCI shall be for the period
beginning upon the closing under the Redemption and Stock Contribution Agreement
(the "Closing") and expiring on the earlier of (a) October 28, 2000 and (b) the
-------
date on which termination of employment is effective pursuant to Section 7
hereof (the "Termination Date").
----------------
3. COMPENSATION
------------
3.1 Initial Base Salary. For all services he may render to the Company
-------------------
and its subsidiaries and affiliates during the term of this Agreement, Employee
shall be paid a base salary at an annual rate of $250,000 during the Company's
1998 fiscal year (as increased from time to time, the "Base Salary").
-----------
Employee's Base Salary, which shall not be decreased during the term of this
Agreement, shall be paid in accordance with the normal payroll practices of the
Company.
3.2 Base Salary Increases. At any time the Company increases the base
---------------------
salary of Terry L. Wright in accordance with his Employment Agreement dated as
of September 1, 1995 (as amended through the date hereof, the "Wright
------
Agreement") prior to the Termination Date, the Company shall increase the Base
- ---------
Salary of Employee by a percentage which is equal to the percentage increase in
Terry Wright's base salary; provided, however, that Employee's Base Salary may
be further increased from time to time by the Board of Directors in its sole
discretion.
-2-
<PAGE>
3.3 Expenses. The Company shall reimburse Employee for reasonable and
--------
necessary business expenses incurred by Employee in the course of his employment
upon presentation by Employee of reasonably detailed statements of expenses for
which reimbursement is claimed.
3.4 Annual Bonus. Chuck Dimick and Bruce McMaster will attempt to jointly
------------
submit to the Board of Directors a bonus program for the senior executives of
the Company which is based on the consolidated performance of the Company.
Until Chuck Dimick and Bruce McMaster agree on, and the Board of Directors
approves, such a bonus program, Employee shall be entitled to an annual bonus,
payable in accordance with the current practice of DCI, of 15.07% of the
aggregate amount available under an annual bonus program which shall be
instituted by the Company for the benefit of the senior executives of DCI (the
"DCI Stand Alone Annual Bonus Plan") which, in the aggregate, provides for
bonuses consistent with Exhibit B.
For so long as the DCI Stand Alone Annual Bonus Plan shall be in effect,
Employee shall be entitled to an additional bonus for each fiscal year of the
Company equal to 17.04% of the amount, if any, by which (a) the annual bonus to
which Thomas P. Caldwell would be entitled under the DCI Stand Alone Annual
Bonus Plan if he were continuously employed by the Company and DCI during such
fiscal year exceeds (b) the sum of (i) the amount of such annual bonus paid or
-------
payable to Mr. Caldwell and (ii) the amount of such annual bonus (or similar
bonus) paid to any employee(s) who replace Mr. Caldwell at DCI.
Amounts payable under this Section 3.4 shall be referred to herein as the
"Annual Bonus."
- -------------
3.5 Additional Bonus. Employee is hereby granted 36,896.9904 Tranche A
----------------
Class A Cash Bonus Units with a Payment Value (as defined in the Bonus Plan) of
$1.5725 per unit, 15,050.0027 Tranche B Class A Cash Bonus Units with a Payment
Value of $0.6163 per unit, 4,685.2544 Tranche A Class L Bonus Units with a
Payment Value of $363.2381 per unit and 1,911.0798 Tranche B Class L Bonus Units
with a Payment Value of $142.3681 per unit under the Company's 1998 Cash Bonus
Plan (the Additional Bonus").
----------------
4. OTHER BENEFITS
--------------
In addition to the compensation payable pursuant to Section 3 hereof,
Employee shall be entitled to, and shall receive:
4.1 Health Benefits, etc. Benefits and conditions of employment which are
---------------------
available generally to executives of DCI (including, without limitation,
hospital, surgical, medical, dental or other group health insurance benefits,
life insurance benefits and disability benefits, holidays, company cars and
related expenses and travel insurance).
-3-
<PAGE>
4.2 Office. Use of a private office at DCI's executive offices suitable
------
for a Vice President of the Company and a Senior Vice President of Operations of
DCI and reasonable secretarial support.
5. VACATION
--------
Employee shall have the right to three weeks of vacation each year from his
duties as herein prescribed. During such vacation periods, the compensation
payable to Employee pursuant to this Agreement shall be paid.
6. EQUITY PROVISIONS
-----------------
6.1 Vested Options. The Vested Options shall be converted into (a) vested
--------------
options to purchase the number of shares of Class A Common Stock set forth on
Schedule 1 with an exercise price per share equal to $1.5762 (the "Vested Class
------------
A Options"), (b) vested options to purchase the number of shares of Class L
- ---------
Common Stock set forth on Schedule 1 with an exercise price per share equal to
$364.0909 (the "Vested Class L Options", and together with the Vested Class A
----------------------
Options, the "Vested Replacement Options") and (c) the right to receive a cash
--------------------------
payment to be made one day prior to the Closing Date (as defined in the
Redemption and Stock Contribution Agreement) in the aggregate amount set forth
on Schedule 1.
6.2 Unvested Options. The Unvested Options shall be converted into (a)
----------------
unvested options to purchase the number of shares of Class A Common Stock set
forth on Schedule 1 with an exercise price per share equal to $1.5762 (the
"Unvested Class A Options"), (b) unvested options to purchase the number of
- -------------------------
shares of Class L Common Stock set forth on Schedule 1 with an exercise price
per share equal to $364.0909 (the "Unvested Class L Options", and together with
------------------------
the Unvested Class A Options, the "Unvested Replacement Options", and
----------------------------
collectively with the Vested Replacement Options, the "Replacement Options") and
-------------------
(c) the right to receive deferred cash payments in the aggregate amount set
forth on Schedule 1 (the "Deferred Payments"). The Unvested Replacement Options
-----------------
and the right to receive the Deferred Payments shall vest as set forth in
Section 6.5 and 6.6, respectively.
6.3 $61 Options. Effective upon the Closing Date, the Company hereby
-----------
grants options to acquire the number of shares of Class A Common Stock set forth
on Schedule 1 with an exercise price of $61.17 per share (the "$61 Options").
-----------
Of the total number of $61 Options granted to Employee hereunder (a) the $61
Options designated as Vested on Schedule 1 shall be immediately vested and
exercisable and (b) the $61 Options designated as Unvested on Schedule 1 (the
"Unvested $61 Options") shall vest in accordance with the schedule set forth in
- ---------------------
Section 6.5.
6.4 DCI Option Plan. The Replacement Options and the $61 Options are
---------------
being granted under, and are subject to the terms of, the Company's Dynamic
Circuits 1996 Stock
-4-
<PAGE>
Option Plan (the "Plan"). The Replacement Options and the $61 Options are also
subject to the terms set forth on Exhibit A hereto.
6.5 Option Vesting Schedule. For so long as Employee is employed by the
-----------------------
Company or any of its subsidiaries, and thereafter solely to the extent set
forth in Sections 8.5(b) and 8.6(b) (or as otherwise set forth in Exhibit A
hereto):
(a) the Unvested Class A Options and the Unvested Class L Options
designated as Tranche A on Schedule 1 as well as the Unvested $61 Options shall
vest in accordance with the following schedule: (i) 31% shall vest in nine
equal quarterly installments beginning on August 19, 1998 and ending on August
19, 2000 and (ii) 69% shall vest in five equal annual installments beginning on
August 19, 1998 and ending on August 19, 2002; and
(b) the Unvested Class A Options and the Unvested Class L Options
designated as Tranche B on Schedule 1 shall vest in fourteen equal quarterly
installments beginning on September 30, 1998 and ending on December 31, 2001.
6.6 Deferred Payments Vesting Schedule.
----------------------------------
(a) Vesting. The right to receive Deferred Payments shall vest in
-------
accordance with the following schedule (or as otherwise set forth in Exhibit A
hereto):
(1) (A) 31% of the Deferred Payments designated as Tranche A on
Schedule 1 shall vest in nine equal quarterly installments beginning
on August 19, 1998 and ending on August 19, 2000 and (B) 69% of the
Deferred Payments designated as Tranche A on Schedule 1 shall vest in
five equal annual installments beginning on August 19, 1998 and ending
on August 19, 2002; and
(2) the Deferred Payments designated as Tranche B on Schedule 1
shall vest in fourteen equal quarterly installments beginning on
September 30, 1998 and ending on December 31, 2001.
(2) Timing of Payments. At the end of each month, a payment shall be
------------------
made to Employee in respect of that portion of the Deferred Payments which shall
have vested during such month. The Deferred Payments, once made, shall be
retained by Employee in all circumstances.
(3) Effect of Termination of Employment. The provisions of clauses
-----------------------------------
(a) and (b) shall apply equally before and after the Termination Date (without
regard to the reason for termination of employment) except to the extent set
forth in clause (d).
(4) Forfeiture of Future Payments. Notwithstanding the foregoing,
-----------------------------
Employee shall forfeit his rights to, and the Company shall be under no
obligation to make,
-5-
<PAGE>
any further payments to Employee in respect of Deferred Payments if the Board of
Directors determines that there shall have occurred (before or after the
Termination Date) a material violation of the terms of Section 2 of the Non-
Compete Agreement (such determination to be made only if Employee has failed to
cure such violation to the reasonable satisfaction of the Board of Directors
within a reasonable period of time after having been given ten (10) business
days written notice thereof).
6.7 Repurchase of Company Common Stock upon Termination of Employment.
-----------------------------------------------------------------
(1) Repurchase Rights. Upon termination of Employee's employment for
-----------------
any reason prior to August 19, 1999, the Company may elect to repurchase all or
any portion of the Company Common Stock originally issued to Employee (whether
held by Employee or any person or entity to whom DCI Common Stock or DCI Options
originally issued, or granted, to Employee were transferred prior to the
Closing) from Employee or any subsequent holder thereof at a cash price per
share equal to the Fair Market Value of such Company Common Stock as of the
Termination Date; provided, however, that if Employee's employment is terminated
by the Company for Cause, (i) the cash price per share of Option Stock shall be
the lesser of the Fair Market Value of such Option Stock as of the Termination
Date and the exercise price per share of Option Stock of the option which was
exercised to acquire such Option Stock and (ii) the cash price per share of
Company Common Stock that is not Option Stock shall be the Fair Market Value of
such Company Common Stock as of the Termination Date); it being understood and
agreed that the "exercise price" per share of Option Stock issued at Closing
shall be deemed to be the applicable exercise price per share of Company Common
Stock set forth on Schedule 1.
For purposes of this Agreement:
(i) "Option Stock" shall mean Company Common Stock issued (A) at
------------
Closing in respect of DCI Common Stock issued upon exercise of a DCI Option
originally granted on or after August 20, 1998 or (B) upon exercise of a
Replacement Option granted hereunder in respect of a DCI Option originally
granted on or after August 20, 1998; and
(ii) "Fair Market Value" shall mean, as of any date, the closing
-----------------
sales price of the Company Common Stock on the principal national
securities exchange on which the Company Common Stock is listed at the time
or, if the Company Common Stock is not so listed, the sales price of the
Company Common Stock as reported on the NASDAQ National Market System as of
4:00 P.M. (New York time) on such date, in either case averaged over a
period of 21 trading days consisting of the day as of which Fair Market
Value is being determined and the 20 consecutive trading days prior to such
day. If at any time the Company Common Stock is not listed on any national
securities exchange or quoted in the NASDAQ National Market System, Fair
Market Value shall be determined in good faith by the Board of Directors or
a duly authorized committee
-6-
<PAGE>
thereof. In the event that Employee objects to the Board of Directors'
determination of Fair Market Value within 20 days after written notice
thereof, a mutually acceptable valuation firm shall be engaged to determine
Fair Market Value. The determination of such firm shall be final and
binding on the Company and Employee, and the fees and expenses of such firm
shall be borne 75% by the Company and 25% by Employee.
(2) Exercise. The Company may exercise its option to purchase Company
--------
Common Stock pursuant to Section 6.7(a) by delivery to Employee of a written
notice specifying the number of shares of Company Common Stock to be repurchased
(i) within 60 days after the Termination Date and (ii) if applicable, thereafter
from time to time within 60 days after the Employee, or any transferee,
exercises a Replacement Option (or any option granted in replacement thereof).
Employee and the Company will use all commercially reasonable efforts to
consummate any repurchase of securities pursuant to this Section 6.7 not later
than 45 days following delivery of such written notice to Employee.
(3) Common Stock. For purposes of this Section 6.7, "Company Common
------------
Stock" shall be deemed to include any proceeds of Company Common Stock; it being
understood and agreed that the Company's right set forth in this Section 6.7 may
only be exercised once.
6.8 Stockholders Agreement. Employee hereby agrees to be a party to the
----------------------
Stockholders Agreement among the Company and its equity holders dated as of
October 28, 1997 (as amended from time to time, the "Stockholders Agreement") as
----------------------
a "Manager," and the Company Common Stock, Replacement Options and $61 Options
originally issued or granted to Employee (whether held by Employee or any person
or entity to whom DCI Common Stock or DCI Options originally issued, or granted,
to Employee were transferred prior to the Closing) shall be "Management Stock"
thereunder. The Stockholders Agreement shall terminate according to its terms
and not as a result of any termination of this Agreement.
7. TERMINATION
-----------
7.1 Mutual Agreement. The employment of Employee may be terminated at any
----------------
time by the Company, DCI and Employee by mutual agreement.
7.2 Death or Disability. The employment of Employee (a) shall be
-------------------
terminated automatically upon his death and (b) may be terminated at any time by
the Company and DCI upon the physical inability of Employee to perform his
duties hereunder for a period of six (6) consecutive months ("Disability").
7.3 Company for Cause. The employment of Employee may be terminated at
-----------------
any time by the Company and DCI upon the occurrence of any of the following
events (each of which shall constitute "Cause"):
-7-
<PAGE>
(1) Employee's conviction of any crime involving moral turpitude
which is a felony;
(2) repeated insobriety at the work place;
(3) theft of material Company assets;
(4) from and after August 19, 1999, or, if later, the date on which
Charles Dimick's full time employment with the Company terminates, the event
described in Section 7.4(a)(ii);
(5) material violation of Employee's Non-Compete and Technology
Transfer Agreement dated as of the date hereof (as may be amended or otherwise
modified from time to time, the "Non-Compete Agreement"); or
---------------------
(6) the failure to materially perform material duties consistent with
this Agreement reasonably requested by the Board of Directors which, at any time
prior to August 19, 1999 and thereafter for so long as Charles Dimick is in the
full time employ of the Company, also has a material adverse effect on the
Company.
In each instance of conduct described in clause (d), (e) or (f), Employee
must be given, prior to termination of employment, ten (10) business days'
written notice of such conduct and a reasonable period of time after such notice
to cure the effects thereof to the reasonable satisfaction of the Board of
Directors. In the event of such cure, Employee's employment will not be
terminated as a result of the conduct and effect so cured.
7.4 Company for Good Reason.
-----------------------
(1) Subject to clause (b) below, the employment of Employee may be
terminated by the Company and DCI for Good Reason at any time on or prior to
August 19, 1999 and at any time thereafter only for so long as Charles Dimick is
in the full time employ of the Company. For purposes of this Agreement, "Good
----
Reason" shall mean (i) the failure of Employee to use his best efforts to meet
- ------
the goals reasonably established for Employee by the Board of Directors, (ii)
continued and repeated absence of Employee from his employment during usual
working hours for reasons other than vacation, disability or sickness or (iii)
the failure to materially perform material duties consistent with this Agreement
reasonably requested by the Board of Directors, such determination relating to
(i), (ii) and (ii) to be made by Mr. Dimick in his reasonable discretion for so
long as Mr. Dimick is in the full time employ of the Company or, at any other
time, the Board of Directors in its reasonable discretion.
(2) At least five (5) business days prior to termination of
Employee's employment pursuant to this Section 7.4, Employee must be given
written notice setting forth
-8-
<PAGE>
in reasonable detail the conduct with respect to which the Company and DCI
intend to terminate his employment pursuant to this Section 7.4. If such notice
is given at a time Mr. Dimick is not in the full time employ of the Company, it
shall contain the name and telephone number of a person designated by the Board
of Directors to whom Employee shall communicate regarding such notice. During
such five (5) business day period, Employee may propose a cure reasonably
acceptable to Mr. Dimick (or the designee if Mr. Dimick is no longer in the full
time employ of the Company) the manner in which he intends to cure the conduct
set forth in such notice and if acceptable, Employee's employment will not be
terminated pursuant to this Section 7.4 until he has had a reasonable
opportunity to implement such proposal. Having been given notice of any such
conduct once during the term of his employment, Employee shall not thereafter be
entitled to any additional notice prior to termination of his employment under
this Section 7.4 by reason of such conduct.
7.5 Company without Cause or Good Reason. The employment of Employee may
------------------------------------
be terminated at any time by the Company and DCI other than for Cause, Good
Reason or Disability.
7.6 Employee for Just Cause. The employment of Employee may be terminated
-----------------------
by Employee upon not less than 30 days' written notice to the Company given
within 30 days of the occurrence of any of the following (each of which shall
constitute "Just Cause"): (a) material violation by the Company of this
----------
Agreement (including, without limitation, the willful and continued failure of
the Company to timely provide Employee compensation set forth in Section 3), (b)
a change in Employee's title or a material diminution in the nature of
Employee's duties or responsibilities to DCI without his consent or (c)
requiring Employee to relocate from his primary residence in order to perform
his duties hereunder, subject to ordinary and necessary business travel. In the
event of termination of Employee pursuant to this Section 7.6, the Company may
elect to waive the period of notice, or any portion thereof. Any such waiver
shall be given only by a written instrument authorized by the Board of
Directors.
In each instance of conduct described in clause (a), (b) or (c), the
Company must be given, prior to termination of employment, ten (10) business
days' written notice of such breach or material diminution and a reasonable
period of time after such notice to cure the effects thereof to the reasonable
satisfaction of Employee. In the event of such cure, Employee's employment may
not be terminated for Just Cause as a result of the conduct and effect so cured.
7.7 Employee without Just Cause. The employment of Employee may be
---------------------------
terminated at any time by Employee upon not less than 30 days' prior written
notice to the Company other than for Just Cause. In the event of termination of
Employee pursuant to this Section 7.7, the Company may elect to waive the period
of notice, or any portion thereof. Any such waiver shall be given only by a
written instrument authorized by the Board of Directors.
-9-
<PAGE>
8. EFFECT OF TERMINATION.
---------------------
8.1 Mutual Agreement. If Employee's employment is terminated pursuant to
----------------
Section 7.1, the obligations of the Company and its subsidiaries shall be as set
forth in a written agreement between the Company and Employee. Except as set
forth in such written agreement (a) neither the Company nor any of its
subsidiaries shall have any further obligation to Employee after the Termination
Date other than payment of the Additional Bonus to the extent and in the manner
set forth in the Company's Cash Bonus Plan and (b) without limiting the
generality of the foregoing, (i) all vested Replacement Options and $61 Options
shall expire 90 days following the Termination Date and (ii) all unvested
Replacement Options and $61 Options shall immediately expire and be forfeited.
Notwithstanding the foregoing, each of the Company and Employee hereby
acknowledge and agree that the terms of such written agreement shall be the
subject of negotiation at the time of the termination of Employee's employment
and that nothing in the preceding sentence is intended to, nor shall it,
establish any expectations for such negotiation.
8.2 Death or Disability. Upon termination of Employee's employment upon
-------------------
his death or by the Company for Disability, neither the Company nor any of its
subsidiaries shall have any further obligation to Employee other than as set
forth in Section 6.6 and in clauses (a) and (b) below:
(1) Compensation. The Company shall pay to Employee (or, if
------------
applicable, his designated beneficiary or, if no beneficiary shall have been
designated by Employee, to his estate), (i) Base Salary earned and unpaid
through the Termination Date, (ii) at the time of the release of the audited
financial statements of the Company for the fiscal year during which termination
on account of death or Disability occurs, an amount equal to (x) the Annual
Bonus that Employee would otherwise have earned for such fiscal year if
termination had not occurred multiplied by (y) a fraction, the numerator of
which is the number of days from the beginning of such fiscal year until the
Termination Date and the denominator of which is 365 and (iii) the Additional
Bonus to the extent and in the manner set forth in the Company's Cash Bonus
Plan. In addition, for 12 months following the Termination Date, the Company
(or, if applicable, its subsidiary) will pay the same share of the premium cost
that it pays for active employees in respect of the participation of Employee
and his eligible dependents in the group health and life insurance plans
described in Section 4.1 hereof, subject, in the case of such group health
plans, to proper election to continue participation of Employee and/or that of
his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire one year, in the case of termination on
account of death, or six months, in the case of termination on account of
Disability, following the Termination Date and (ii) all unvested Replacement
Options and $61 Options shall immediately expire and be forfeited.
-10-
<PAGE>
8.3 By the Company for Cause. Upon termination of Employee's employment
------------------------
by the Company for Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date and (ii) such obligations as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall immediately expire and be forfeited and (ii) all
unvested Replacement Options and $61 Options shall immediately expire and be
forfeited.
8.4 By the Company for Good Reason. Upon termination of Employee's
------------------------------
employment by the Company for Good Reason:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the date on which the Noncompetition Period set forth in the Non-Compete
Agreement terminates (or, if earlier, the date on which the Company releases
Employee from his obligations under Section 2.1 thereof), (ii) payment of the
Additional Bonus to the extent and in the manner set forth in the Company's Cash
Bonus Plan and (iii) such obligations as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited.
8.5 By the Company without Cause or Good Reason. Upon termination of
-------------------------------------------
Employee's employment by the Company other than for Cause, Good Reason or
Disability, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than as set forth in Section 6.6 and in
clauses (a) and (b) below:
-11-
<PAGE>
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (such determination to be
made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), the Company
shall pay to Employee (x) his Base Salary and his Annual Bonus through October
28, 2000 and (y) if the Noncompetition Period set forth in the Non-Compete
Agreement shall not have expired on or before October 28, 2000, his Base Salary
during the period beginning on October 29, 2000 and ending on the date on which
the Noncompetition Period set forth in the Non-Compete Agreement terminates.
Amounts payable under this Section 8.5 shall be paid in accordance with the
normal payroll practices of the Company. Employee shall also be entitled to
receive payment of the Additional Bonus to the extent and in the manner set
forth in the Company's Cash Bonus Plan. In addition, for 12 months following
the Termination Date, the Company (or, if applicable, its subsidiary) will pay
the same share of the premium cost that it pays for active employees in respect
of the participation of Employee and his eligible dependents in the group health
and life insurance plans described in Section 4.1 hereof, subject, in the case
of such group health plans, to proper election to continue participation of
Employee and/or that of his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) unless and until the Board of Directors determines that either of the
following events shall have occurred (before or after the Termination Date):
(A) theft of material Company assets or (B) material violation of the terms of
the Non-Compete Agreement (such determination to be made only if Employee has
failed to cure such violation to the reasonable satisfaction of the Board of
Directors within a reasonable period of time after having been given ten (10)
business days written notice thereof), all unvested Replacement Options and $61
Options shall continue to vest in accordance with the schedule set forth in
Section 6.5 and shall expire 90 days following the date of vesting.
8.6 By Employee for Just Cause. Upon termination of Employee's employment
--------------------------
by Employee for Just Cause, neither the Company nor any of its subsidiaries
shall have any further obligation to Employee other than as set forth in Section
6.6 and in clauses (a) and (b) below:
-12-
<PAGE>
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (such determination to be
made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), the Company
shall pay to Employee (x) his Base Salary and his Annual Bonus through October
28, 2000 and (y) if the Noncompetition Period set forth in the Non-Compete
Agreement shall not have expired on or before October 28, 2000, his Base Salary
during the period beginning on October 29, 2000 and ending on the date on which
the Noncompetition Period set forth in the Non-Compete Agreement terminates.
Amounts payable under this Section 8.6 shall be paid in accordance with the
normal payroll practices of the Company. Employee shall also be entitled to
receive payment of the Additional Bonus to the extent and in the manner set
forth in the Company's Cash Bonus Plan. In addition, for 12 months following
the Termination Date, the Company (or, if applicable, its subsidiary) will pay
the same share of the premium cost that it pays for active employees in respect
of the participation of Employee and his eligible dependents in the group health
and life insurance plans described in Section 4.1 hereof, subject, in the case
of such group health plans, to proper election to continue participation of
Employee and/or that of his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) unless and until the Board of Directors determines that either of the
following events shall have occurred (before or after the Termination Date):
(A) theft of material Company assets or (B) material violation of the terms of
the Non-Compete Agreement (such determination to be made only if Employee has
failed to cure such violation to the reasonable satisfaction of the Board of
Directors within a reasonable period of time after having been given ten (10)
business days written notice thereof), all unvested Replacement Options and $61
Options shall continue to vest in accordance with the schedule set forth in
Section 6.5 and shall expire 90 days following the date of vesting.
8.7 By Employee without Just Cause. Upon termination of Employee's
------------------------------
employment by Employee other than for Just Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date, (ii) payment of the Additional Bonus to the extent and in
the manner set forth in the Company's Cash Bonus Plan and (iii) such obligations
as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited.
-13-
<PAGE>
8.8 Liquidated Damages. If a court of competent jurisdiction issues a
------------------
final nonappealable judgment in any action brought by Employee alleging non-
payment of severance benefits to which Employee is entitled under the provisions
of the subsection of this Section 8 which correspond to the provisions of
Section 7 pursuant to which notice of termination was given by the Company or
Employee, as applicable, Employee shall be entitled to liquidated damages in an
amount equal to three times the amount of such non-payment; it being understood
and agreed that the provisions of Section 9.10 shall apply to an action
described in this Section 8.8.
9. MISCELLANEOUS
-------------
9.1 Governing Laws. IT IS THE INTENTION OF THE PARTIES HERETO THAT THE
--------------
INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE OF
LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF
THE PARTIES HERETO.
9.2 Parachute Payments. In the event of a Change of Control prior to the
------------------
initial public offering of the Company's Common Stock, and provided Employee
requests in writing, the Company will use its best efforts to prepare and
distribute such materials as it shall consider necessary or desirable to permit
the shareholders to approve any "excess parachute payments" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended.
9.3 Binding upon Successors and Assigns. Subject to, and unless otherwise
-----------------------------------
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto. The rights and benefits of the Company under
this Agreement shall be transferable to successors of the Company pursuant to a
reorganization and all covenants and agreements hereunder shall inure to the
benefit of, and be enforceable by or against, such successors in interest. This
Agreement is personal to Employee and cannot be assigned nor may duties
hereunder be delegated. Any attempted assignment or delegation by Employee
shall render this Agreement null and void at the option of the Company.
9.4 Withholding. All payments made by the Company under this Agreement
-----------
shall be net of any tax or other amounts required to be withheld by the Company
under any applicable law or legal requirement.
9.5 Amendment of Wright Agreement. The Company shall not offer to amend,
------------------------------
supplement or otherwise modify the Wright Agreement during the term of this
Agreement
-14-
<PAGE>
unless an offer to amend, supplement or otherwise modify this Agreement on a
comparable basis is also extended to Employee.
9.6 Entire Agreement. This Agreement, the exhibits hereto, the documents
----------------
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. Without limiting the
generality of the foregoing, this Agreement supersedes in its entirety (i) that
certain Employment Agreement between Employee and DCI dated as of August 19,
1996, as modified through the date hereof, (ii) that certain Grant of Stock
Purchase Option between Employee and DCI as modified through the date hereof and
(iii) the 1997 Option Agreement. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction of this Agreement. The express terms hereof control
and supersede any course of performance or usage of the trade inconsistent with
any of the terms hereof.
9.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
9.8 Amendment and Waivers. Any term or provision of this Agreement may
---------------------
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or succeeding breach or default.
9.9 No Waiver. No failure or delay of any party to enforce any of the
---------
provisions hereof shall be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
9.10 Attorneys' Fees. Should suit or arbitration be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit or arbitration and not as damages,
reasonable attorneys' fees to be fixed by the court (including without
limitation, costs, expenses and fees on any appeal). The prevailing party shall
be the party entitled to recover its costs of suit or arbitration, regardless of
whether such suit or arbitration proceeds to final judgment. A party not
entitled to recover its costs shall not be entitled to recover attorneys' fees.
No sum for attorneys' fees shall be counted in
-15-
<PAGE>
calculating the amount of a judgment for purposes of determining if a party is
entitled to recover costs or attorneys' fees.
9.11 Notices. Whenever any party hereto desires or is required to give any
-------
notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States certified mail, postage prepaid,
addressed as follows:
If to Company: Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
with a copy to: Dynamic Circuits, Inc.
1831 Tarob Court
Milpitas, CA 95035
Attention: President
and
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Alfred O. Rose, Esq.
If to Employee: Mr. Gregory Halvorson
1705 Jasper Court
Livermore, CA 94550
with a copy to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention: William F. Schwitter, Esq.
Such communication shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United States
mail. Any party may change its address for such communications by giving notice
thereof to the other party in conformity with this Section.
-16-
<PAGE>
[Halvorson Employment Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
Details Holdings Corp.
By:_____________________________
Name:
Title:
________________________________
Gregory O. Halvorson
Acknowledged and Agreed
with respect to Sections 6 and 9.6
Dynamic Circuits, Inc.
By:_______________________
Name:
Title
<PAGE>
[Halvorson Employment Agreement]
CONSENT OF SPOUSE
The undersigned spouse of Employee has read and hereby approves the terms
and conditions of the foregoing Agreement. In consideration of the Company's
granting his or her spouse the right to purchase the shares of Details Common
Stock as set forth in the Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints Employee as attorney-in-fact for the undersigned
with respect to any amendment or exercise of rights under the Agreement.
_______________________________________
Name:
Spouse of Employee
<PAGE>
Exhibit A
---------
The Replacement Options and the $61 Options which are referenced in the
attached Agreement have been issued under the Company's Dynamic Circuits 1996
Stock Option Plan (the "Plan") (a copy of which has been provided to Employee)
as provided below. Capitalized terms used and not defined herein or in the
attached Agreement have the meanings set forth in the Plan.
1. OPTION TERMS.
1. REPLACEMENT OPTIONS AND $61 OPTIONS. The Replacement Options and the
$61 Options will expire at the close of business on August 19, 2006 (the
"Expiration Date"), subject to earlier expiration in connection with the
termination of your employment to the extent set forth in the Agreement.
Neither the Replacement Options nor the $61 Options are intended to be
"incentive stock options" within the meaning of Section 442 of the Internal
Revenue Code of 1986, as amended.
2. EXERCISABILITY/VESTING.
1. VESTING. The Replacement Options and the $61 Options will be
exercisable only to the extent they have vested.
2. ACCELERATION OF VESTING. In the event of a Change of Control (A)
during the term of your employment with the Company and/or any of
its subsidiaries or (B) at a time when the Unvested Replacement
Options and the Unvested $61 Options are vesting pursuant to the
terms of Section 8.5(b) or 8.6(b), the Replacement Options, the
$61 Options and the Deferred Payments will automatically become
100% vested. In connection with any Change of Control, the
Company may provide on not less than 20 days' notice to you that
any portion of the Replacement Options and the $61 Options that
have not been exercised prior to or in connection with the Change
of Control will be forfeited. In lieu of requiring such
exercise, the Company may provide for the cancellation of the
Replacement Options and the $61 Options in exchange for a payment
equal to the excess (if any) of the consideration per share of
Company Common Stock receivable in connection with such Change of
Control over the exercise price of the Replacement Options and
the $61 Options, respectively.
3. TERMINATION OF OPTION. In no event shall any part of the Replacement
Options or the $61 Options be exercisable after the Expiration Date set
forth in paragraph 1(a).
<PAGE>
2. PROCEDURE FOR EXERCISE. You may exercise all or any portion of the
Replacement Options or the $61 Options to the extent permitted hereby, at
any time and from time to time by delivering written notice to the Company
(to the attention of the Company's Secretary) accompanied by payment in
full of an amount equal to the product of (i) the Exercise Price of the
subject option multiplied by (ii) the number of shares of Option Stock to
be acquired (such date of delivery the "Exercise Date"). The Company may
delay effectiveness of any exercise of the Replacement Options or the $61
Options for such period of time as may be necessary to comply with any
legal or contractual provisions to which it may be subject relating to the
issuance of its securities; provided, however, that no such delay shall
affect your right to purchase the shares of Option Stock, and the Exercise
Date shall be deemed the date of your acquisition of the shares of Option
Stock for all corporate and tax purposes regardless of such delay. As a
condition to any exercise of the Replacement Options or the $61 Options,
you will permit the Company to deliver to you all financial and other
information regarding the Company necessary to enable you to make an
informed investment decision, and you will make all customary investment
representations which the Company requires.
3. SECURITIES LAW RESTRICTIONS. You represent that when you exercise the
Replacement Options or the $61 Options you will be purchasing the shares of
Option Stock for your own account and not on behalf of others. You may not
sell, transfer or dispose of any Company Common Stock issued pursuant to
the Replacement Options or the $61 Options (except pursuant to an effective
registration statement under the Securities Act of 1933) without first
delivering to the Company an opinion of counsel reasonably acceptable to
the Company that registration under the Securities Act or any applicable
state securities laws is not required in connection with such transfer.
You further understand that the certificates for any Company Common Stock
you purchase will bear such legends as the Company deems necessary or
desirable in connection with the Securities Act or other rules, regulations
or laws.
4. OPTION NOT TRANSFERABLE. The Replacement Options and the $61 Options are
personal to you and are not transferable by you other than by will or the
laws of descent and distribution. During your lifetime only you (or your
guardian or legal representative) may exercise the Replacement Options and
the $61 Options. In the event of your death, the Replacement Options and
the $61 Options may be exercised only by the executor or administrator of
your estate to he person or persons to whom your rights under the
Replacement Options and the $61 Options shall pass by will or the laws of
intestate succession.
5. CONFORMITY WITH PLAN. The Replacement Options and the $61 Options are
intended to conform in all respects with, and are subject to all applicable
provisions of, the Plan, which is incorporated herein by reference.
Inconsistencies between the terms of the
<PAGE>
Agreement and this Exhibit, on the one hand, and the Plan, on the other
hand, shall be resolved in accordance with the terms of the Plan. By
executing the Agreement, you acknowledge your receipt of this Exhibit A and
the Plan and agree to be bound by all of the terms contained herein and
therein.
6. RIGHTS OF PARTICIPANTS. Nothing in this Exhibit A shall interfere with or
limit in any way the right of the Company and/or its subsidiaries to
terminate your employment in accordance with the Agreement or confer upon
you any right not set forth in the Agreement to continue in the employ of
the Company and/or its subsidiaries for any period of time or to continue
to receive your current (or other) rate of compensation. Nothing in this
Exhibit A shall confer upon you any right to be selected to receive
additional options under the Plan or otherwise.
7. WITHHOLDING OF TAXES. The Company may, if necessary or desirable, withhold
from any amounts due and payable by the Company to you (or secure payment
from you in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to the issuance or exercise of the
Replacement Options or the $61 Options, and the Company may defer such
issuance or exercise unless indemnified by you to its satisfaction against
the payment of any such amount. To the extent permitted by law, such
withholding may be effected through the delivery by you of shares of
Company Common Stock valued at Fair Market Value as of the Exercise Date.
8. ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the shares of
Common Stock, the Company may, in order to prevent the dilution or
enlargement of rights under the Replacement Options or the $61 Options,
make such adjustments in the number and type of shares authorized by the
Plan, the number and type of shares covered by the Replacement Options and
the $61 Options and the respective Exercise Prices specified herein as may
be determined to be appropriate and equitable.
A-3
<PAGE>
Exhibit A-1
-----------
DETAILS DYNAMIC CIRCUITS INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
The undersigned hereby notifies Details Holdings Corp. of his or her
decision to exercise the Option as to _______________________ shares of Details
Common Stock.
Dated: _______________________
____________________________
(signature of Option Holder)
____________________________
(printed)
<PAGE>
Exhibit A-2
-----------
INVESTMENT REPRESENTATION STATEMENT
PARTICIPANT:
COMPANY : DETAILS HOLDINGS CORP.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Option Holder represents to Details the following:
(a) Option Holder current residence is as set forth in the signature
page hereto.
(b) Option Holder is aware of Details' business affairs and financial
condition and has acquired sufficient information about Details to reach an
informed and knowledgeable decision to acquire the Shares. Option Holder is
acquiring the Shares for investment for Option Holder's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(c) Option Holder acknowledges and understands that the Shares
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Option Holder's investment intent as expressed herein. Option Holder
further understands that the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Option Holder further acknowledges and understands
that Details is under no obligation to register the Shares except as set forth
in the Details Holdings Corp. Stockholders Agreement dated as of October 28,
1998, as amended from time to time. Option Holder understands that the
certificate evidencing the Shares will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to Details.
(d) Option Holder is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to Option
Holder, the exercise will be exempt from registration under the Securities Act.
In the event that Details becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"),
<PAGE>
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Shares exempt under Rule 701 may be resold, subject
to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Exchange Act); and, in the case of an affiliate, (2)
the availability of certain public information about Details, (3) the amount of
Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that Details does not qualify under Rule 701 at the time
of grant of the Option, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Shares were sold
by Details or the date the Shares were sold by an affiliate of Details, within
the meaning of Rule 144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2),
(3) and (4) of the paragraph immediately above.
(e) Option Holder further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A under the Securities Act, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Option Holder understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Option Holder:
________________________________________________
Date:____________________________________, 199__
Option Holder's Address:
_______________________________________________
_______________________________________________
2
<PAGE>
Exhibit B
---------
STANDALONE ANNUAL BONUS PROGRAM
(dollar amounts in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
FISCAL YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1998 1999 2000
<S> <C> <C> <C> <C>
DYNAMIC CIRCUITS INC.
EBITDA $26,309 $31,734 $36,727 $ 42,196
- % Growth 20.6% 15.7% 14.9%
EBITDA Thresholds:
-----------------
% of Plan
---------
90% $27,560 $33,054 $37,976
95% $29,147 $34,890 $40,086
Target 100% $31,734 $36,727 $42,196
105% $33,320 $38,563 $44,306
110% $34,907 $40,399 $46,416
115% $36,494 $42,236 $48,525
120% $38,080 $44,072 $50,635
Bonus Payouts:
-------------
Bonus Pool $753.80 $992.50 $1,037.00 $1,112.00
% of Plan Bonus % of EBITDA Bonus % of EBITDA Bonus % of EBITDA
------------- ------- Change ----- Change ----- Change
------ ------ ------
90% $ 450 20.0% $ 466 35.3% $ 490 39.2%
95% $ 721 18.8% $ 753 23.9% $ 801 23.8%
Target 100% $ 993 18.3% $ 1,037 20.8% $1,112 20.3%
105% $ 1,147 16.4% $ 1,203 17.6% $1,287 17.0%
110% $ 1,302 15.1% $ 1,367 15.8% $1,463 15.1%
115% $ 1,456 14.3% $ 1,530 14.6% $1,638 13.9%
120% $ 1,611 13.7% $ 1,694 13.7% $1,814 13.0%
Percentage of Incremental 9.7% 8.9% 8.3%
</TABLE>
EBITDA to be added to the
Bonus Pool
<PAGE>
Schedule I
Option Holder: Gregory Halvorson
Existing Options: Exercise Price Vested Unvested Tranche
- ---------------- -------------- ------ -------- -------
$ 0.05 156,375.00 48,125.00 A
$13.00 10,427.00 72,987.00 B
Replacement Options:
- -------------------
Vested Options: Class A-5 Class L Tranche
--------- ------- -------
28,214.0190 3,582.6731 A
1,881.2954 238.8907 B
Cash Payment on
the Closing Date: $2,036,499.98
Unvested Options: Class A-5 Class L Tranche
--------- ------- -------
8,682.9714 1,102.5813 A
13,168.7073 1,672.1891 B
Deferred Payment(s): Amount Tranche
------ -------
$610,778.26 A
$363,060.93 B
$61 Options: Vested Unvested Tranche
- ----------- ------ -------- -------
1,641.1895 1,191.6839 A
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of the 23rd day of July, 1998, is by and
between Details Holdings Corp., a California corporation (the "Company"), and
-------
John Peters ("Employee").
--------
WHEREAS, pursuant to a Stock Contribution and Merger Agreement (the "Stock
-----
Contribution and Merger Agreement") dated as of the date hereof among the
- ---------------------------------
Company, Dynamic Circuits, Inc. ("DCI") and the stockholders of DCI, (i) the
---
stockholders of DCI are contributing a portion of their shares of common stock,
$.001 par value per share, of DCI (the "DCI Common Stock") to the Company in
----------------
exchange for shares of its voting common stock and options to purchase shares of
its voting common stock, (ii) the stockholders of DCI will receive cash
consideration for their remaining issued and outstanding shares of DCI Common
Stock as merger consideration in connection with the mergers of Details Merger
Corp. I and Details Merger Corp. II with and into DCI and (iii) DCI is making,
or agreeing to make, certain cash payments to the holders of vested and unvested
options to acquire DCI Common Stock (the "DCI Options");
-----------
WHEREAS, the Company desires that Employee continue as Senior Vice
President of Sales of DCI and become a Vice President of the Company, and
Employee desires to accept such employment;
WHEREAS, pursuant to the Stock Contribution and Merger Agreement, options
to purchase DCI Common Stock are being converted into options to purchase shares
of Class A-5 Common Stock, no par value per share, of the Company (the "Class A
-------
Common Stock") and Class L Common Stock, no par value per share, of the Company
- ------------
(the "Class L Common Stock", and together with the Class A Common Stock, the
--------------------
"Company Common Stock");
- ---------------------
WHEREAS, Employee currently holds (i) 350,000 shares of DCI Common Stock
(ii) vested options to purchase 28,875 shares of DCI Common Stock (the "Vested
------
Options") and (iii) unvested options to purchase 48,125 shares of DCI Common
- -------
Stock (the "Unvested Options"); and
----------------
WHEREAS, Employee and DCI are parties to an employment agreement which they
intend to terminate as of the Closing (as defined below) and concurrently with
the effectiveness of this Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. EMPLOYMENT AND DUTIES
---------------------
1.1 Employment. The Company hereby agrees to employ Employee as a Vice
----------
President and to cause DCI to continue to employ Employee as the Senior Vice
President of Sales of DCI and Employee hereby accepts such employment upon the
terms and conditions set forth herein.
1.2 Services. Employee agrees to perform, in good faith, his employment
--------
duties as determined from time to time by the Board of Directors of the Company
(the "Board of Directors") and the President of DCI; provided, however, that
------------------
such duties shall be duties customarily performed by a Vice President of the
Company and a Senior Vice President of Sales of DCI. Employee shall report only
to the Board of Directors and the President of DCI. Except to the extent
otherwise permitted under Section 2.1 of the Non-Compete Agreement (as defined
below), Employee shall devote his full time and best efforts to his duties to
the Company and DCI during the term of his employment and shall not be an
officer or director of any other business enterprise without the Company's prior
written consent.
2. TERM.
----
The employment of Employee by the Company and DCI shall be for the period
beginning upon the closing under the Redemption and Stock Contribution Agreement
(the "Closing") and expiring on the earlier of (a) October 28, 2000 and (b) the
-------
date on which termination of employment is effective pursuant to Section 7
hereof (the "Termination Date").
----------------
3. COMPENSATION
------------
3.1 Initial Base Salary. For all services he may render to the Company
-------------------
and its subsidiaries and affiliates during the term of this Agreement, Employee
shall be paid a base salary at an annual rate of $280,000 during the Company's
1998 fiscal year (as increased from time to time, the "Base Salary").
-----------
Employee's Base Salary, which shall not be decreased during the term of this
Agreement, shall be paid in accordance with the normal payroll practices of the
Company.
3.2 Base Salary Increases. At any time the Company increases the base
---------------------
salary of Lee W. Muse, Jr. in accordance with his Employment Agreement dated as
of September 1, 1995 (as amended through the date hereof, the "Muse Agreement")
--------------
prior to the Termination Date, the Company shall increase the Base Salary of
Employee by a percentage which is equal to the percentage increase in Lee Muse's
base salary; provided, however, that Employee's Base Salary may be further
increased from time to time by the Board of Directors in its sole discretion.
-2-
<PAGE>
3.3 Expenses. The Company shall reimburse Employee for reasonable and
--------
necessary business expenses incurred by Employee in the course of his employment
upon presentation by Employee of reasonably detailed statements of expenses for
which reimbursement is claimed.
3.4 Annual Bonus. Chuck Dimick and Bruce McMaster will attempt to jointly
------------
submit to the Board of Directors a bonus program for the senior executives of
the Company which is based on the consolidated performance of the Company. Until
Chuck Dimick and Bruce McMaster agree on, and the Board of Directors approves,
such a bonus program, Employee shall be entitled to an annual bonus, payable in
accordance with the current practice of DCI, of 15.07% of the aggregate amount
available under an annual bonus program which shall be instituted by the Company
for the benefit of the senior executives of DCI (the "DCI Stand Alone Annual
Bonus Plan") which, in the aggregate, provides for bonuses consistent with
Exhibit B.
For so long as the DCI Stand Alone Annual Bonus Plan shall be in effect,
Employee shall be entitled to an additional bonus for each fiscal year of the
Company equal to 17.04% of the amount, if any, by which (a) the annual bonus to
which Thomas P. Caldwell would be entitled under the DCI Stand Alone Annual
Bonus Plan if he were continuously employed by the Company and DCI during such
fiscal year exceeds (b) the sum of (i) the amount of such annual bonus paid or
-------
payable to Mr. Caldwell and (ii) the amount of such annual bonus (or similar
bonus) paid to any employee(s) who replace Mr. Caldwell at DCI.
Amounts payable under this Section 3.4 shall be referred to herein as the
"Annual Bonus."
- -------------
3.5 Additional Bonus. Employee is hereby granted 13,892.7542 Class A Cash
----------------
Bonus Units with a Payment Value (as defined in the Bonus Plan) of $1.5725 per
unit and 1,764.1301 Class L Bonus Units with a Payment Value of $363.2381 per
unit under the Company's 1998 Cash Bonus Plan (the "Additional Bonus").
----------------
4. OTHER BENEFITS
--------------
In addition to the compensation payable pursuant to Section 3 hereof,
Employee shall be entitled to, and shall receive:
4.1 Health Benefits, etc. Benefits and conditions of employment which are
---------------------
available generally to executives of DCI (including, without limitation,
hospital, surgical, medical, dental or other group health insurance benefits,
life insurance benefits and disability benefits, holidays, company cars and
related expenses and travel insurance).
-3-
<PAGE>
4.2 Office. Use of a private office at DCI's executive offices suitable
------
for a Vice President of the Company and a Senior Vice President of Sales of DCI
and reasonable secretarial support.
5. VACATION
--------
Employee shall have the right to three weeks of vacation each year from his
duties as herein prescribed. During such vacation periods, the compensation
payable to Employee pursuant to this Agreement shall be paid.
6. EQUITY PROVISIONS
-----------------
6.1 Vested Options. The Vested Options shall be converted into (a) vested
--------------
options to purchase the number of shares of Class A Common Stock set forth on
Schedule 1 with an exercise price per share equal to $1.5762 (the "Vested Class
------------
A Options"), (b) vested options to purchase the number of shares of Class L
- ---------
Common Stock set forth on Schedule 1 with an exercise price per share equal to
$364.0909 (the "Vested Class L Options", and together with the Vested Class A
----------------------
Options, the "Vested Replacement Options") and (c) the right to receive a cash
--------------------------
payment to be made one day prior to the Closing Date (as defined in the
Redemption and Stock Contribution Agreement) in the aggregate amount set forth
on Schedule 1.
6.2 Unvested Options. The Unvested Options shall be converted into (a)
----------------
unvested options to purchase the number of shares of Class A Common Stock set
forth on Schedule 1 with an exercise price per share equal to $1.5762 (the
"Unvested Class A Options"), (b) unvested options to purchase the number of
- -------------------------
shares of Class L Common Stock set forth on Schedule 1 with an exercise price
per share equal to $364.0909 (the "Unvested Class L Options", and together with
------------------------
the Unvested Class A Options, the "Unvested Replacement Options", and
----------------------------
collectively with the Vested Replacement Options, the "Replacement Options") and
-------------------
(c) the right to receive deferred cash payments in the aggregate amount set
forth on Schedule 1 (the "Deferred Payments"). The Unvested Replacement Options
-----------------
and the right to receive the Deferred Payments shall vest as set forth in
Section 6.5 and 6.6, respectively.
6.3 $61 Options. Effective upon the Closing Date, the Company hereby
-----------
grants options to acquire the number of shares of Class A Common Stock set forth
on Schedule 1 with an exercise price of $61.17 per share (the "$61 Options").
-----------
Of the total number of $61 Options granted to Employee hereunder (a) the $61
Options designated as Vested on Schedule 1 shall be immediately vested and
exercisable and (b) the $61 Options designated as Unvested on Schedule 1 (the
"Unvested $61 Options") shall vest in accordance with the schedule set forth in
- ---------------------
Section 6.5.
6.4 DCI Option Plan. The Replacement Options and the $61 Options are
---------------
being granted under, and are subject to the terms of, the Company's Dynamic
Circuits 1996 Stock
-4-
<PAGE>
Option Plan (the "Plan"). The Replacement Options and the $61 Options are also
----
subject to the terms set forth on Exhibit A hereto.
6.5 Option Vesting Schedule. For so long as Employee is employed by the
-----------------------
Company or any of its subsidiaries, and thereafter solely to the extent set
forth in Sections 8.5(b) and 8.6(b), the Unvested Class A Options, the Unvested
Class L Options and the Unvested $61 Options shall vest in accordance with the
following schedule (or as otherwise set forth in Exhibit A hereto): (i) 31%
shall vest in nine equal quarterly installments beginning on August 19, 1998 and
ending on August 19, 2000 and (ii) 69% shall vest in five equal annual
installments beginning on August 19, 1998 and ending on August 19, 2002.
6.6 Deferred Payments Vesting Schedule.
----------------------------------
(1) Vesting. The right to receive Deferred Payments shall vest in
-------
accordance with the following schedule (or as otherwise set forth in Exhibit A
hereto): (i) 31% shall vest in nine equal quarterly installments beginning on
August 19, 1998 and ending on August 19, 2000 and (ii) 69% shall vest in five
equal annual installments beginning on August 19, 1998 and ending on August 19,
2002.
(2) Timing of Payments. At the end of each month, a payment shall be
------------------
made to Employee in respect of that portion of the Deferred Payments which shall
have vested during such month. The Deferred Payments, once made, shall be
retained by Employee in all circumstances.
(3) Effect of Termination of Employment. The provisions of clauses
-----------------------------------
(a) and (b) shall apply equally before and after the Termination Date (without
regard to the reason for termination of employment) except to the extent set
forth in clause (d).
(4) Forfeiture of Future Payments. Notwithstanding the foregoing,
-----------------------------
Employee shall forfeit his rights to, and the Company shall be under no
obligation to make, any further payments to Employee in respect of Deferred
Payments if the Board of Directors determines that there shall have occurred
(before or after the Termination Date) a material violation of the terms of
Section 2 of the Non-Compete Agreement (such determination to be made only if
Employee has failed to cure such violation to the reasonable satisfaction of the
Board of Directors within a reasonable period of time after having been given
ten (10) business days written notice thereof).
6.7 Repurchase of Company Common Stock upon Termination of Employment.
-----------------------------------------------------------------
-5-
<PAGE>
(1) Repurchase Rights. Upon termination of Employee's employment for
-----------------
any reason prior to August 19, 1999, the Company may elect to repurchase all or
any portion of the Company Common Stock originally issued to Employee (whether
held by Employee or any person or entity to whom DCI Common Stock or DCI Options
originally issued, or granted, to Employee were transferred prior to the
Closing) from Employee or any subsequent holder thereof at a cash price per
share equal to the Fair Market Value of such Company Common Stock as of the
Termination Date; provided, however, that if Employee's employment is terminated
by the Company for Cause, (i) the cash price per share of Option Stock shall be
the lesser of the Fair Market Value of such Option Stock as of the Termination
Date and the exercise price per share of Option Stock of the option which was
exercised to acquire such Option Stock and (ii) the cash price per share of
Company Common Stock that is not Option Stock shall be the Fair Market Value of
such Company Common Stock as of the Termination Date); it being understood and
agreed that the "exercise price" per share of Option Stock issued at Closing
shall be deemed to be the applicable exercise price per share of Company Common
Stock set forth on Schedule 1.
For purposes of this Agreement:
(i) "Option Stock" shall mean Company Common Stock issued (A) at
------------
Closing in respect of DCI Common Stock issued upon exercise of a DCI Option
originally granted on or after August 20, 1998 or (B) upon exercise of a
Replacement Option granted hereunder in respect of a DCI Option originally
granted on or after August 20, 1998; and
(ii) "Fair Market Value" shall mean, as of any date, the closing
-----------------
sales price of the Company Common Stock on the principal national
securities exchange on which the Company Common Stock is listed at the time
or, if the Company Common Stock is not so listed, the sales price of the
Company Common Stock as reported on the NASDAQ National Market System as of
4:00 P.M. (New York time) on such date, in either case averaged over a
period of 21 trading days consisting of the day as of which Fair Market
Value is being determined and the 20 consecutive trading days prior to such
day. If at any time the Company Common Stock is not listed on any national
securities exchange or quoted in the NASDAQ National Market System, Fair
Market Value shall be determined in good faith by the Board of Directors or
a duly authorized committee thereof. In the event that Employee objects to
the Board of Directors' determination of Fair Market Value within 20 days
after written notice thereof, a mutually acceptable valuation firm shall be
engaged to determine Fair Market Value. The determination of such firm
shall be final and binding on the Company and Employee, and the fees and
expenses of such firm shall be borne 75% by the Company and 25% by
Employee.
(2) Exercise. The Company may exercise its option to purchase Company
--------
Common Stock pursuant to Section 6.7(a) by delivery to Employee of a written
notice specifying the number of shares of Company Common Stock to be repurchased
(i) within
-6-
<PAGE>
60 days after the Termination Date and (ii) if applicable, thereafter from time
to time within 60 days after the Employee, or any transferee, exercises a
Replacement Option (or any option granted in replacement thereof). Employee and
the Company will use all commercially reasonable efforts to consummate any
repurchase of securities pursuant to this Section 6.7 not later than 45 days
following delivery of such written notice to Employee.
(3) Common Stock. For purposes of this Section 6.7, "Company Common
------------
Stock" shall be deemed to include any proceeds of Company Common Stock; it being
understood and agreed that the Company's right set forth in this Section 6.7 may
only be exercised once.
6.8 Stockholders Agreement. Employee hereby agrees to be a party to the
----------------------
Stockholders Agreement among the Company and its equity holders dated as of
October 28, 1997 (as amended from time to time, the "Stockholders Agreement") as
----------------------
a "Manager," and the Company Common Stock, Replacement Options and $61 Options
originally issued or granted to Employee (whether held by Employee or any person
or entity to whom DCI Common Stock or DCI Options originally issued, or granted,
to Employee were transferred prior to the Closing) shall be "Management Stock"
thereunder. The Stockholders Agreement shall terminate according to its terms
and not as a result of any termination of this Agreement.
7. TERMINATION
-----------
7.1 Mutual Agreement. The employment of Employee may be terminated at any
----------------
time by the Company, DCI and Employee by mutual agreement.
7.2 Death or Disability. The employment of Employee (a) shall be
-------------------
terminated automatically upon his death and (b) may be terminated at any time by
the Company and DCI upon the physical inability of Employee to perform his
duties hereunder for a period of six (6) consecutive months ("Disability").
7.3 Company for Cause. The employment of Employee may be terminated at
-----------------
any time by the Company and DCI upon the occurrence of any of the following
events (each of which shall constitute "Cause"):
(1) Employee's conviction of any crime involving moral turpitude
which is a felony;
(2) repeated insobriety at the work place;
(3) theft of material Company assets;
-7-
<PAGE>
(4) from and after August 19, 1999, or, if later, the date on which
Charles Dimick's full time employment with the Company terminates, the event
described in Section 7.4(a)(ii);
(5) material violation of Employee's Non-Compete and Technology
Transfer Agreement dated as of the date hereof (as may be amended or otherwise
modified from time to time, the "Non-Compete Agreement"); or
---------------------
(6) the failure to materially perform material duties consistent with
this Agreement reasonably requested by the Board of Directors which, at any time
prior to August 19, 1999 and thereafter for so long as Charles Dimick is in the
full time employ of the Company, also has a material adverse effect on the
Company.
In each instance of conduct described in clause (d), (e) or (f), Employee
must be given, prior to termination of employment, ten (10) business days'
written notice of such conduct and a reasonable period of time after such notice
to cure the effects thereof to the reasonable satisfaction of the Board of
Directors. In the event of such cure, Employee's employment will not be
terminated as a result of the conduct and effect so cured.
7.4 Company for Good Reason.
-----------------------
(1) Subject to clause (b) below, the employment of Employee may be
terminated by the Company and DCI for Good Reason at any time on or prior to
August 19, 1999 and at any time thereafter only for so long as Charles Dimick is
in the full time employ of the Company. For purposes of this Agreement, "Good
----
Reason" shall mean (i) the failure of Employee to use his best efforts to meet
- ------
the goals reasonably established for Employee by the Board of Directors, (ii)
continued and repeated absence of Employee from his employment during usual
working hours for reasons other than vacation, disability or sickness or (iii)
the failure to materially perform material duties consistent with this Agreement
reasonably requested by the Board of Directors, such determination relating to
(i), (ii) and (iii) to be made by Mr. Dimick in his reasonable discretion for so
long as Mr. Dimick is in the full time employ of the Company or, at any other
time, the Board of Directors in its reasonable discretion.
(2) At least five (5) business days prior to termination of
Employee's employment pursuant to this Section 7.4, Employee must be given
written notice setting forth in reasonable detail the conduct with respect to
which the Company and DCI intend to terminate his employment pursuant to this
Section 7.4. If such notice is given at a time Mr. Dimick is not in the full
time employ of the Company, it shall contain the name and telephone number of a
person designated by the Board of Directors to whom Employee shall communicate
regarding such notice. During such five (5) business day period, Employee may
propose a cure reasonably acceptable to Mr. Dimick (or the designee if Mr.
Dimick is not in the full time employ of the Company) the manner in which he
intends to cure the conduct set
-8-
<PAGE>
forth in such notice and if acceptable, Employee's employment will not be
terminated pursuant to this Section 7.4 until he has had a reasonable
opportunity to implement such proposal. Having been given notice of any such
conduct once during the term of his employment, Employee shall not thereafter be
entitled to any additional notice prior to termination of his employment under
this Section 7.4 by reason of such conduct.
7.5 Company without Cause or Good Reason. The employment of Employee may
------------------------------------
be terminated at any time by the Company and DCI other than for Cause, Good
Reason or Disability.
7.6 Employee for Just Cause. The employment of Employee may be terminated
-----------------------
by Employee upon not less than 30 days' written notice to the Company given
within 30 days of the occurrence of any of the following (each of which shall
constitute "Just Cause"): (a) material violation by the Company of this
----------
Agreement (including, without limitation, the willful and continued failure of
the Company to timely provide Employee compensation set forth in Section 3), (b)
a change in Employee's title or a material diminution in the nature of
Employee's duties or responsibilities to DCI without his consent or (c)
requiring Employee to relocate from his primary residence in order to perform
his duties hereunder, subject to ordinary and necessary business travel. In the
event of termination of Employee pursuant to this Section 7.6, the Company may
elect to waive the period of notice, or any portion thereof. Any such waiver
shall be given only by a written instrument authorized by the Board of
Directors.
In each instance of conduct described in clause (a), (b) or (c), the
Company must be given, prior to termination of employment, ten (10) business
days' written notice of such breach or material diminution and a reasonable
period of time after such notice to cure the effects thereof to the reasonable
satisfaction of Employee. In the event of such cure, Employee's employment may
not be terminated for Just Cause as a result of the conduct and effect so cured.
7.7 Employee without Just Cause. The employment of Employee may be
---------------------------
terminated at any time by Employee upon not less than 30 days' prior written
notice to the Company other than for Just Cause. In the event of termination of
Employee pursuant to this Section 7.7, the Company may elect to waive the period
of notice, or any portion thereof. Any such waiver shall be given only by a
written instrument authorized by the Board of Directors.
8. EFFECT OF TERMINATION.
---------------------
8.1 Mutual Agreement. If Employee's employment is terminated pursuant to
----------------
Section 7.1, the obligations of the Company and its subsidiaries shall be as set
forth in a written agreement between the Company and Employee. Except as set
forth in such written agreement (a) neither the Company nor any of its
subsidiaries shall have any further obligation to Employee after the Termination
Date other than payment of the Additional Bonus to the
-9-
<PAGE>
extent and in the manner set forth in the Company's Cash Bonus Plan and (b)
without limiting the generality of the foregoing, (i) all vested Replacement
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited. Notwithstanding the foregoing, each of the Company and
Employee hereby acknowledge and agree that the terms of such written agreement
shall be the subject of negotiation at the time of the termination of Employee's
employment and that nothing in the preceding sentence is intended to, nor shall
it, establish any expectations for such negotiation.
8.2 Death or Disability. Upon termination of Employee's employment upon
-------------------
his death or by the Company for Disability, neither the Company nor any of its
subsidiaries shall have any further obligation to Employee other than as set
forth in Section 6.6 and in clauses (a) and (b) below:
(1) Compensation. The Company shall pay to Employee (or, if
------------
applicable, his designated beneficiary or, if no beneficiary shall have been
designated by Employee, to his estate), (i) Base Salary earned and unpaid
through the Termination Date, (ii) at the time of the release of the audited
financial statements of the Company for the fiscal year during which termination
on account of death or Disability occurs, an amount equal to (x) the Annual
Bonus that Employee would otherwise have earned for such fiscal year if
termination had not occurred multiplied by (y) a fraction, the numerator of
which is the number of days from the beginning of such fiscal year until the
Termination Date and the denominator of which is 365 and (iii) the Additional
Bonus to the extent and in the manner set forth in the Company's Cash Bonus
Plan. In addition, for 12 months following the Termination Date, the Company
(or, if applicable, its subsidiary) will pay the same share of the premium cost
that it pays for active employees in respect of the participation of Employee
and his eligible dependents in the group health and life insurance plans
described in Section 4.1 hereof, subject, in the case of such group health
plans, to proper election to continue participation of Employee and/or that of
his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire one year, in the case of termination on
account of death, or six months, in the case of termination on account of
Disability, following the Termination Date and (ii) all unvested Replacement
Options and $61 Options shall immediately expire and be forfeited.
8.3 By the Company for Cause. Upon termination of Employee's employment
------------------------
by the Company for Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date and (ii) such obligations as are required under COBRA.
-10-
<PAGE>
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall immediately expire and be forfeited and (ii) all
unvested Replacement Options and $61 Options shall immediately expire and be
forfeited.
8.4 By the Company for Good Reason. Upon termination of Employee's
------------------------------
employment by the Company for Good Reason:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the date on which the Noncompetition Period set forth in the Non-Compete
Agreement terminates (or, if earlier, the date on which the Company releases
Employee from his obligations under Section 2.1 thereof), (ii) payment of the
Additional Bonus to the extent and in the manner set forth in the Company's Cash
Bonus Plan and (iii) such obligations as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited.
-11-
<PAGE>
8.5 By the Company without Cause or Good Reason. Upon termination of
-------------------------------------------
Employee's employment by the Company other than for Cause, Good Reason or
Disability, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than as set forth in Section 6.6 and in
clauses (a) and (b) below:
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (such determination to be
made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), the Company
shall pay to Employee (x) his Base Salary and his Annual Bonus through October
28, 2000 and (y) if the Noncompetition Period set forth in the Non-Compete
Agreement shall not have expired on or before October 28, 2000, his Base Salary
during the period beginning on October 29, 2000 and ending on the date on which
the Noncompetition Period set forth in the Non-Compete Agreement terminates.
Amounts payable under this Section 8.5 shall be paid in accordance with the
normal payroll practices of the Company. Employee shall also be entitled to
receive payment of the Additional Bonus to the extent and in the manner set
forth in the Company's Cash Bonus Plan. In addition, for 12 months following the
Termination Date, the Company (or, if applicable, its subsidiary) will pay the
same share of the premium cost that it pays for active employees in respect of
the participation of Employee and his eligible dependents in the group health
and life insurance plans described in Section 4.1 hereof, subject, in the case
of such group health plans, to proper election to continue participation of
Employee and/or that of his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) unless and until the Board of Directors determines that either of the
following events shall have occurred (before or after the Termination Date): (A)
theft of material Company assets or (B) material violation of the terms of the
Non-Compete Agreement (such determination to be made only if Employee has failed
to cure such violation to the reasonable satisfaction of the Board of Directors
within a reasonable period of time after having been given ten (10) business
days written notice thereof), all unvested Replacement Options and $61 Options
shall continue to vest in accordance with the schedule set forth in Section 6.5
and shall expire 90 days following the date of vesting.
-12-
<PAGE>
8.6 By Employee for Just Cause. Upon termination of Employee's employment
--------------------------
by Employee for Just Cause, neither the Company nor any of its subsidiaries
shall have any further obligation to Employee other than as set forth in Section
6.6 and in clauses (a) and (b) below:
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (such determination to be
made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), the Company
shall pay to Employee (x) his Base Salary and his Annual Bonus through October
28, 2000 and (y) if the Noncompetition Period set forth in the Non-Compete
Agreement shall not have expired on or before October 28, 2000, his Base Salary
during the period beginning on October 29, 2000 and ending on the date on which
the Noncompetition Period set forth in the Non-Compete Agreement terminates.
Amounts payable under this Section 8.6 shall be paid in accordance with the
normal payroll practices of the Company. Employee shall also be entitled to
receive payment of the Additional Bonus to the extent and in the manner set
forth in the Company's Cash Bonus Plan. In addition, for 12 months following the
Termination Date, the Company (or, if applicable, its subsidiary) will pay the
same share of the premium cost that it pays for active employees in respect of
the participation of Employee and his eligible dependents in the group health
and life insurance plans described in Section 4.1 hereof, subject, in the case
of such group health plans, to proper election to continue participation of
Employee and/or that of his eligible dependents in such plans under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) unless and until the Board of Directors determines that either of the
following events shall have occurred (before or after the Termination Date):
(A) theft of material Company assets or (B) material violation of the terms of
the Non-Compete Agreement (such determination to be made only if Employee has
failed to cure such violation to the reasonable satisfaction of the Board of
Directors within a reasonable period of time after having been given ten (10)
business days written notice thereof), all unvested Replacement Options and $61
Options shall continue to vest in accordance with the schedule set forth in
Section 6.5 and shall expire 90 days following the date of vesting.
-13-
<PAGE>
8.7 By Employee without Just Cause. Upon termination of Employee's
------------------------------
employment by Employee other than for Just Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date, (ii) payment of the Additional Bonus to the extent and in
the manner set forth in the Company's Cash Bonus Plan and (iii) such obligations
as are required under COBRA.
(2) Replacement Options and $61 Options. (i) All vested Replacement
-----------------------------------
Options and $61 Options shall expire 90 days following the Termination Date and
(ii) all unvested Replacement Options and $61 Options shall immediately expire
and be forfeited.
8.8 Liquidated Damages. If a court of competent jurisdiction issues a
------------------
final nonappealable judgment in any action brought by Employee alleging non-
payment of severance benefits to which Employee is entitled under the provisions
of the subsection of this Section 8 which correspond to the provisions of
Section 7 pursuant to which notice of termination was given by the Company or
Employee, as applicable, Employee shall be entitled to liquidated damages in an
amount equal to three times the amount of such non-payment; it being understood
and agreed that the provisions of Section 9.10 shall apply to an action
described in this Section 8.8.
9. MISCELLANEOUS
-------------
9.1 Governing Laws. IT IS THE INTENTION OF THE PARTIES HERETO THAT THE
--------------
INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE OF
LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF
THE PARTIES HERETO.
9.2 Parachute Payments. In the event of a Change of Control prior to the
------------------
initial public offering of the Company's Common Stock, and provided Employee
requests in writing, the Company will use its best efforts to prepare and
distribute such materials as it shall consider necessary or desirable to permit
the shareholders to approve any "excess parachute payments" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended.
9.3 Binding upon Successors and Assigns. Subject to, and unless otherwise
-----------------------------------
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto. The rights and benefits of the Company under
this Agreement shall be transferable to successors of the
-14-
<PAGE>
Company pursuant to a reorganization and all covenants and agreements hereunder
shall inure to the benefit of, and be enforceable by or against, such successors
in interest. This Agreement is personal to Employee and cannot be assigned nor
may duties hereunder be delegated. Any attempted assignment or delegation by
Employee shall render this Agreement null and void at the option of the Company.
9.4 Withholding. All payments made by the Company under this Agreement
-----------
shall be net of any tax or other amounts required to be withheld by the Company
under any applicable law or legal requirement.
9.5 Amendment of Muse Agreement. The Company shall not offer to amend,
----------------------------
supplement or otherwise modify the Muse Agreement during the term of this
Agreement unless an offer to amend, supplement or otherwise modify this
Agreement on a comparable basis is also extended to Employee.
9.6 Entire Agreement. This Agreement, the exhibits hereto, the documents
----------------
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. Without limiting the
generality of the foregoing, this Agreement supersedes in its entirety (i) that
certain Employment Agreement between Employee and DCI dated as of August 19,
1996, as modified through the date hereof and (ii) that certain Grant of Stock
Purchase Option between Employee and DCI, as modified through the date hereof.
Section and subsection headings are not to be considered part of this Agreement,
are included solely for convenience, are not intended to be full or accurate
descriptions of the content thereof and shall not affect the construction of
this Agreement. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
9.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
9.8 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a
party of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or succeeding breach or default.
-15-
<PAGE>
9.9 No Waiver. No failure or delay of any party to enforce any of the
---------
provisions hereof shall be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
9.10 Attorneys' Fees. Should suit or arbitration be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit or arbitration and not as damages,
reasonable attorneys' fees to be fixed by the court (including without
limitation, costs, expenses and fees on any appeal). The prevailing party shall
be the party entitled to recover its costs of suit or arbitration, regardless of
whether such suit or arbitration proceeds to final judgment. A party not
entitled to recover its costs shall not be entitled to recover attorneys' fees.
No sum for attorneys' fees shall be counted in calculating the amount of a
judgment for purposes of determining if a party is entitled to recover costs or
attorneys' fees.
9.11 Notices. Whenever any party hereto desires or is required to give any
-------
notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States certified mail, postage prepaid,
addressed as follows:
If to Company: Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
with a copy to: Dynamic Circuits, Inc.
1831 Tarob Court
Milpitas, CA 95035
Attention: President
and
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Alfred O. Rose, Esq.
If to Employee: Mr. John Peters
101 Charles Hill Court
Scotts Valley, California 95066
with a copy to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention William F. Schwitter, Esq.
-16-
<PAGE>
Such communication shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United States
mail. Any party may change its address for such communications by giving notice
thereof to the other party in conformity with this Section.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
DETAILS HOLDINGS CORP.
By:_____________________________
Name:
Title:
________________________________
John Peters
Acknowledged and Agreed
with respect to Sections 6 and 9.6
DYNAMIC CIRCUITS, INC.
By:_______________________
Name:
Title:
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Employee has read and hereby approves the terms
and conditions of the foregoing Agreement. In consideration of the Company's
granting his or her spouse the right to purchase the shares of Details Common
Stock as set forth in the Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints Employee as attorney-in-fact for the undersigned
with respect to any amendment or exercise of rights under the Agreement.
__________________________________
Name:
Spouse of Employee
<PAGE>
Exhibit A
---------
The Replacement Options and the $61 Options which are referenced in the
attached Agreement have been issued under the Company's Dynamic Circuits 1996
Stock Option Plan (the "Plan") (a copy of which has been provided to Employee)
as provided below. Capitalized terms used and not defined herein or in the
attached Agreement have the meanings set forth in the Plan.
1. OPTION TERMS.
1. REPLACEMENT OPTIONS AND $61 OPTIONS. The Replacement Options and the
$61 Options will expire at the close of business on August 19, 2006 (the
"Expiration Date"), subject to earlier expiration in connection with the
termination of your employment to the extent set forth in the Agreement.
Neither the Replacement Options nor the $61 Options are intended to be
"incentive stock options" within the meaning of Section 442 of the Internal
Revenue Code of 1986, as amended.
2. EXERCISABILITY/VESTING.
1. VESTING. The Replacement Options and the $61 Options will be
exercisable only to the extent they have vested.
2. ACCELERATION OF VESTING. In the event of a Change of Control (A)
during the term of your employment with the Company and/or any of
its subsidiaries or (B) at a time when the Unvested Replacement
Options and the Unvested $61 Options are vesting pursuant to the
terms of Section 8.5(b) or 8.6(b), the Replacement Options, the
$61 Options and the Deferred Payments will automatically become
100% vested. In connection with any Change of Control, the
Company may provide on not less than 20 days' notice to you that
any portion of the Replacement Options and the $61 Options that
have not been exercised prior to or in connection with the Change
of Control will be forfeited. In lieu of requiring such exercise,
the Company may provide for the cancellation of the Replacement
Options and the $61 Options in exchange for a payment equal to
the excess (if any) of the consideration per share of Company
Common Stock receivable in connection with such Change of Control
over the exercise price of the Replacement Options and the $61
Options, respectively.
3. TERMINATION OF OPTION. In no event shall any part of the Replacement
Options or the $61 Options be exercisable after the Expiration Date set
forth in paragraph 1(a).
<PAGE>
2. PROCEDURE FOR EXERCISE. You may exercise all or any portion of the
Replacement Options or the $61 Options to the extent permitted hereby, at
any time and from time to time by delivering written notice to the Company
(to the attention of the Company's Secretary) accompanied by payment in
full of an amount equal to the product of (i) the Exercise Price of the
subject option multiplied by (ii) the number of shares of Option Stock to
be acquired (such date of delivery the "Exercise Date"). The Company may
delay effectiveness of any exercise of the Replacement Options or the $61
Options for such period of time as may be necessary to comply with any
legal or contractual provisions to which it may be subject relating to the
issuance of its securities; provided, however, that no such delay shall
affect your right to purchase the shares of Option Stock, and the Exercise
Date shall be deemed the date of your acquisition of the shares of Option
Stock for all corporate and tax purposes regardless of such delay. As a
condition to any exercise of the Replacement Options or the $61 Options,
you will permit the Company to deliver to you all financial and other
information regarding the Company necessary to enable you to make an
informed investment decision, and you will make all customary investment
representations which the Company requires.
3. SECURITIES LAW RESTRICTIONS. You represent that when you exercise the
Replacement Options or the $61 Options you will be purchasing the shares of
Option Stock for your own account and not on behalf of others. You may not
sell, transfer or dispose of any Company Common Stock issued pursuant to
the Replacement Options or the $61 Options (except pursuant to an effective
registration statement under the Securities Act of 1933) without first
delivering to the Company an opinion of counsel reasonably acceptable to
the Company that registration under the Securities Act or any applicable
state securities laws is not required in connection with such transfer. You
further understand that the certificates for any Company Common Stock you
purchase will bear such legends as the Company deems necessary or desirable
in connection with the Securities Act or other rules, regulations or laws.
4. OPTION NOT TRANSFERABLE. The Replacement Options and the $61 Options are
personal to you and are not transferable by you other than by will or the
laws of descent and distribution. During your lifetime only you (or your
guardian or legal representative) may exercise the Replacement Options and
the $61 Options. In the event of your death, the Replacement Options and
the $61 Options may be exercised only by the executor or administrator of
your estate to he person or persons to whom your rights under the
Replacement Options and the $61 Options shall pass by will or the laws of
intestate succession.
5. CONFORMITY WITH PLAN. The Replacement Options and the $61 Options are
intended to conform in all respects with, and are subject to all applicable
provisions of, the Plan, which is incorporated herein by reference.
Inconsistencies between the terms of the
<PAGE>
Agreement and this Exhibit, on the one hand, and the Plan, on the other
hand, shall be resolved in accordance with the terms of the Plan. By
executing the Agreement, you acknowledge your receipt of this Exhibit A and
the Plan and agree to be bound by all of the terms contained herein and
therein.
6. RIGHTS OF PARTICIPANTS. Nothing in this Exhibit A shall interfere with or
limit in any way the right of the Company and/or its subsidiaries to
terminate your employment in accordance with the Agreement or confer upon
you any right not set forth in the Agreement to continue in the employ of
the Company and/or its subsidiaries for any period of time or to continue
to receive your current (or other) rate of compensation. Nothing in this
Exhibit A shall confer upon you any right to be selected to receive
additional options under the Plan or otherwise.
7. WITHHOLDING OF TAXES. The Company may, if necessary or desirable, withhold
from any amounts due and payable by the Company to you (or secure payment
from you in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to the issuance or exercise of the
Replacement Options or the $61 Options, and the Company may defer such
issuance or exercise unless indemnified by you to its satisfaction against
the payment of any such amount. To the extent permitted by law, such
withholding may be effected through the delivery by you of shares of
Company Common Stock valued at Fair Market Value as of the Exercise Date.
8. ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the shares of
Common Stock, the Company may, in order to prevent the dilution or
enlargement of rights under the Replacement Options or the $61 Options,
make such adjustments in the number and type of shares authorized by the
Plan, the number and type of shares covered by the Replacement Options and
the $61 Options and the respective Exercise Prices specified herein as may
be determined to be appropriate and equitable.
A-3
<PAGE>
Exhibit A-1
-----------
DETAILS DYNAMIC CIRCUITS INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
The undersigned hereby notifies Details Holdings Corp. of his or her
decision to exercise the Option as to _______________________ shares of Details
Common Stock.
Dated: _______________________
____________________________
(signature of Option Holder)
______________________________
(printed)
<PAGE>
Exhibit A-2
-----------
INVESTMENT REPRESENTATION STATEMENT
PARTICIPANT:
COMPANY : DETAILS HOLDINGS CORP.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Option Holder represents to Details the following:
(a) Option Holder current residence is as set forth in the signature
page hereto.
(b) Option Holder is aware of Details' business affairs and financial
condition and has acquired sufficient information about Details to reach an
informed and knowledgeable decision to acquire the Shares. Option Holder is
acquiring the Shares for investment for Option Holder's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(c) Option Holder acknowledges and understands that the Shares
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Option Holder's investment intent as expressed herein. Option Holder
further understands that the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Option Holder further acknowledges and understands
that Details is under no obligation to register the Shares except as set forth
in the Details Holdings Corp. Stockholders Agreement dated as of October 28,
1998, as amended from time to time. Option Holder understands that the
certificate evidencing the Shares will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to Details.
(d) Option Holder is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to Option
Holder, the exercise will be exempt from registration under the Securities Act.
In the event that Details becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"),
<PAGE>
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Shares exempt under Rule 701 may be resold, subject
to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Exchange Act); and, in the case of an affiliate, (2)
the availability of certain public information about Details, (3) the amount of
Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that Details does not qualify under Rule 701 at the time
of grant of the Option, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Shares were sold
by Details or the date the Shares were sold by an affiliate of Details, within
the meaning of Rule 144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2),
(3) and (4) of the paragraph immediately above.
(e) Option Holder further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A under the Securities Act, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Option Holder understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Option Holder:
____________________________________________
Date: _____________________________ , 199__
Option Holder's Address:
___________________________________________
___________________________________________
2
<PAGE>
Exhibit B
---------
STANDALONE ANNUAL BONUS PROGRAM
(dollar amounts in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
FISCAL YEARS ENDING DECEMBER 31,
------------------------------------------------------------------------
1997 1998 1999 2000
<S> <C> <C> <C> <C>
DYNAMIC CIRCUITS INC.
EBITDA $26,309 $31,734 $36,727 $42,196
- % Growth 20.6% 15.7% 14.9%
EBITDA Thresholds:
------------------
% of Plan
-------------
90% $27,560 $33,054 $37,976
95% $29,147 $34,890 $40,086
Target 100% $31,734 $36,727 $42,196
105% $33,320 $38,563 $44,306
110% $34,907 $40,399 $46,416
115% $36,494 $42,236 $48,525
120% $38,080 $44,072 $50,635
Bonus Payouts:
-----------
Bonus Pool $753.80 $992.50 $1,037.00 $1,112.00
</TABLE>
<TABLE>
<CAPTION>
% of EBITDA % of EBITDA % of EBITDA
% of Plan Bonus Change Bonus Change Bonus Change
--------- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
90% $ 450 20.0% $ 466 35.3% $ 490 39.2 %
95% $ 721 18.8% $ 753 23.9% $ 801 23.8 %
Target 100% $ 993 18.3% $ 1,037 20.8% $1,112 20.3 %
105% $ 1,147 16.4% $ 1,203 17.6% $1,287 17.0 %
110% $ 1,302 15.1% $ 1,367 15.8% $1,463 15.1 %
115% $ 1,456 14.3% $ 1,530 14.6% $1,638 13.9 %
120% $ 1,611 13.7% $ 1,694 13.7% $1,814 13.0 %
Percentage of Incremental 9.7% 8.9% 8.3 %
</TABLE>
<PAGE>
EBITDA to be added to the
Bonus Pool
<PAGE>
Schedule I
Option Holder: John Peters
Existing Options: Exercise Price Vested Unvested Tranche
- ---------------- -------------- ------ -------- -------
$0.05 28,875.00 48,125.00 N/A
Replacement Options:
- -------------------
Vested Options: Class A-5 Class L Tranche
--------- ------- -------
5,209.7828 661.5488 N\A
Cash Payment on
the Closing Date: $366,466.95
Unvested Options: Class A-5 Class L Tranche
--------- ------- -------
8,682.9714 1,102.5813 N/A
Deferred Payment(s): Amount Tranche
------ -------
$610,778.26 N/A
$61 Options: Vested Unvested Tranche
- ----------- ------ -------- -------
284.1054 473.5090 N/A
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of the 23rd day of July, 1998, is by and
between Details Holdings Corp., a California corporation (the "Company"), and
-------
Eric Naroian ("Employee").
--------
WHEREAS, pursuant to a Stock Contribution and Merger Agreement (the "Stock
-----
Contribution and Merger Agreement") dated as of the date hereof among the
- ---------------------------------
Company, Dynamic Circuits, Inc. ("DCI") and the stockholders of DCI, (i) the
---
stockholders of DCI are contributing a portion of their shares of common stock,
$.001 par value per share, of DCI (the "DCI Common Stock") to the Company in
----------------
exchange for shares of its voting common stock and options to purchase shares of
its voting common stock, (ii) the stockholders of DCI will receive cash
consideration for their remaining issued and outstanding shares of DCI Common
Stock as merger consideration in connection with the mergers of Details Merger
Corp. I and Details Merger Corp. II with and into DCI and (iii) DCI is making,
or agreeing to make, certain cash payments to the holders of vested and unvested
options to acquire DCI Common Stock (the "DCI Options");
-----------
WHEREAS, the Company desires that Employee continue as Senior Vice
President, Value Added Services of DCI and become a Vice President of the
Company, and Employee desires to accept such employment;
WHEREAS, pursuant to the Stock Contribution and Merger Agreement, options
to purchase DCI Common Stock are being converted into options to purchase shares
of Class A-5 Common Stock, no par value per share, of the Company (the "Class A
-------
Common Stock") and Class L Common Stock, no par value per share, of the Company
- ------------
(the "Class L Common Stock", and together with the Class A Common Stock, the
--------------------
"Company Common Stock");
- ---------------------
WHEREAS, Employee currently holds (i) 149,132 shares of DCI Common Stock,
(ii) vested options to purchase 26,085 shares of DCI Common Stock (the "Vested
------
Options") and (iii) unvested options to purchase 234,938 shares of DCI Common
- -------
Stock (the "Unvested Options"); and
----------------
WHEREAS, Employee and DCI are parties to an employment agreement which they
intend to terminate as of the Closing (as defined below) and concurrently with
the effectiveness of this Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. EMPLOYMENT AND DUTIES
---------------------
1.1 Employment. The Company hereby agrees to employ Employee as a Vice
----------
President and to cause DCI to continue to employ Employee as the Senior Vice
President, Value Added Services of DCI and Employee hereby accepts such
employment upon the terms and conditions set forth herein.
1.2 Services. Employee agrees to perform, in good faith, his employment
--------
duties as determined from time to time by the Board of Directors of the Company
(the "Board of Directors") and the President of DCI; provided, however, that
------------------
such duties shall be duties customarily performed by a Vice President of the
Company and a Senior Vice President, Value Added Services DCI. Employee shall
report only to the Board of Directors and the President of DCI. Except to the
extent otherwise permitted under Section 2.1 of the Non-Compete Agreement (as
defined below), Employee shall devote his full time and best efforts to his
duties to the Company and DCI during the term of his employment and shall not be
an officer or director of any other business enterprise without the Company's
prior written consent.
2. TERM.
----
The employment of Employee by the Company and DCI shall be for the period
beginning upon the closing under the Redemption and Stock Contribution Agreement
(the "Closing") and expiring on the earlier of (a) October 28, 2000 and (b) the
-------
date on which termination of employment is effective pursuant to Section 7
hereof (the "Termination Date").
----------------
3. COMPENSATION
------------
3.1 Initial Base Salary. For all services he may render to the Company
-------------------
and its subsidiaries and affiliates during the term of this Agreement, Employee
shall be paid a base salary at an annual rate of $280,000 during the Company's
1998 fiscal year (as increased from time to time, the "Base Salary").
-----------
Employee's Base Salary, which shall not be decreased during the term of this
Agreement, shall be paid in accordance with the normal payroll practices of the
Company.
3.2 Base Salary Increases. At any time the Company increases the base
---------------------
salary of James S. Marcelli in accordance with his Employment Agreement (as
amended through the date hereof, the "Marcelli Agreement") prior to the
------------------
Termination Date, the Company shall increase the Base Salary of Employee by a
percentage which is equal to the percentage increase in Mr. Marcelli's base
salary; provided, however, that Employee's Base Salary may be further increased
from time to time by the Board of Directors in its sole discretion.
-2-
<PAGE>
3.3 Expenses. The Company shall reimburse Employee for reasonable and
--------
necessary business expenses incurred by Employee in the course of his employment
upon presentation by Employee of reasonably detailed statements of expenses for
which reimbursement is claimed.
3.4 Annual Bonus. Chuck Dimick and Bruce McMaster will attempt to jointly
------------
submit to the Board of Directors a bonus program for the senior executives of
the Company which is based on the consolidated performance of the Company. Until
Chuck Dimick and Bruce McMaster agree on, and the Board of Directors approves,
such a bonus program, Employee shall be entitled to an annual bonus, payable in
accordance with the current practice of DCI, of 15.07% of the aggregate amount
available under an annual bonus program which shall be instituted by the Company
for the benefit of the senior executives of DCI (the "DCI Stand Alone Annual
Bonus Plan") which, in the aggregate, provides for bonuses consistent with
Exhibit B.
For so long as the DCI Stand Alone Annual Bonus Plan shall be in effect,
Employee shall be entitled to an additional bonus for each fiscal year of the
Company equal to 17.04% of the amount, if any, by which (a) the annual bonus to
which Thomas P. Caldwell would be entitled under the DCI Stand Alone Annual
Bonus Plan if he were continuously employed by the Company and DCI during such
fiscal year exceeds (b) the sum of (i) the amount of such annual bonus paid or
payable to Mr. Caldwell and (ii) the amount of such annual bonus (or similar
bonus) paid to any employee(s) who replace Mr. Caldwell at DCI.
Amounts payable under this Section 3.4 shall be referred to herein as the
"Annual Bonus."
- -------------
3.5 Additional Bonus. Employee is hereby granted 47,095.1743 Class A Cash
----------------
Bonus Units with a Payment Value (as defined in the Bonus Plan) of $1.1516 per
unit and 5,980.2404 Class L Bonus Units with a Payment Value of $266.0212 per
unit under the Company's 1998 Cash Bonus Plan (the "Additional Bonus").
----------------
4. OTHER BENEFITS
--------------
In addition to the compensation payable pursuant to Section 3 hereof,
Employee shall be entitled to, and shall receive:
4.1 Health Benefits, etc. Benefits and conditions of employment which are
---------------------
available generally to executives of the Company (including, without limitation,
hospital, surgical, medical, dental or other group health insurance benefits and
disability benefits, holidays, company cars and travel insurance, but excluding
any life insurance benefits except as set forth in the next succeeding
sentence). The Company shall cause DCI, at DCI's expense, provide Employee with
a life insurance policy with a benefit equal to 2.5 time Employee's Base Salary
and Annual Bonus.
-3-
<PAGE>
4.2 Office. Use of a private office at DCI's executive offices suitable
------
for a Vice President of the Company and a Senior Vice President, Value Added
Services of DCI and reasonable secretarial support.
5. VACATION
--------
Employee shall have the right to three weeks of vacation each year from his
duties as herein prescribed. During such vacation periods, the compensation
payable to Employee pursuant to this Agreement shall be paid.
6. EQUITY PROVISIONS
-----------------
6.1 Vested Options. The Vested Options shall be converted into (a) vested
--------------
options to purchase the number of shares of Class A Common Stock set forth on
Schedule 1 with an exercise price per share equal to $1.5762 (the "Vested Class
------------
A Options"), (b) vested options to purchase the number of shares of Class L
- ---------
Common Stock set forth on Schedule 1 with an exercise price per share equal to
$364.0909 (the "Vested Class L Options", and together with the Vested Class A
----------------------
Options, the "Vested Replacement Options") and (c) the right to receive a cash
--------------------------
payment to be made one day prior to the Closing Date (as defined in the
Redemption and Stock Contribution Agreement) in the aggregate amount set forth
on Schedule 1.
6.2 Unvested Options. The Unvested Options shall be converted into (a)
----------------
unvested options to purchase the number of shares of Class A Common Stock set
forth on Schedule 1 with an exercise price per share equal to $1.5762 (the
"Unvested Class A Options"), (b) unvested options to purchase the number of
- -------------------------
shares of Class L Common Stock set forth on Schedule 1 with an exercise price
per share equal to $364.0909 (the "Unvested Class L Options", and together with
------------------------
the Unvested Class A Options, the "Unvested Replacement Options", and
----------------------------
collectively with the Vested Replacement Options, the "Replacement Options") and
-------------------
(c) the right to receive deferred cash payments in the aggregate amount set
forth on Schedule 1 (the "Deferred Payments"). The Unvested Replacement Options
-----------------
and the right to receive the Deferred Payments shall vest as set forth in
Section 6.5 and 6.6, respectively.
6.3 $61 Options. Effective upon the Closing Date, the Company hereby
-----------
grants options to acquire the number of shares of Class A Common Stock set forth
on Schedule 1 with an exercise price of $61.17 per share (the "$61 Options").
-----------
Of the total number of $61 Options granted to Employee hereunder (a) the $61
Options designated as Vested on Schedule 1 shall be immediately vested and
exercisable and (b) the $61 Options designated as Unvested on Schedule 1 (the
"Unvested Options") shall vest in accordance with the schedule set forth in
- -----------------
Section 6.5.
6.4 DCI Option Plan. The Replacement Options and the $61 Options are
---------------
being granted under, and are subject to the terms of, the Company's Dynamic
Circuits 1996 Stock
-4-
<PAGE>
Option Plan (the "Plan"). The Replacement Options and the $61 Options are also
----
subject to the terms set forth on Exhibit A hereto.
6.5 Option Vesting Schedule. For so long as Employee is employed by the
-----------------------
Company or any of its subsidiaries, and thereafter solely to the extent set
forth in Sections 8.5(b) and 8.6(b), the Unvested Class A Options, the Unvested
Class L Options and the Unvested $61 Options shall vest in equal monthly
installments beginning on the last day of the month during which the Closing
occurs and ending on September 30, 2000 (or as otherwise set forth in Exhibit A
hereto).
6.6 Deferred Payments Vesting Schedule.
----------------------------------
(1) Vesting. The right to receive Deferred Payments shall vest in
-------
equal monthly installments beginning on the last day of the month during which
the Closing occurs and ending on September 30, 2000 (or as otherwise set forth
in Exhibit A hereto).
(2) Timing of Payments. At the end of each month, a payment shall be
------------------
made to Employee in respect of that portion of the Deferred Payments which shall
have vested during such month. The Deferred Payments, once made, shall be
retained by Employee in all circumstances
(3) Effect of Termination of Employment. The provisions of clauses
-----------------------------------
(a) and (b) shall apply equally before and after the Termination Date (without
regard to the reason for termination of employment) except to the extent set
forth in clause (d).
(4) Forfeiture of Future Payments. Notwithstanding the foregoing,
-----------------------------
Employee shall forfeit his rights to, and the Company shall be under no
obligation to make, any further payments to Employee in respect of Deferred
Payments if the Board of Directors determines that there shall have occurred
(before or after the Termination Date) a material violation of the terms of
Section 2 of the Non-Compete Agreement (such determination to be made only if
Employee has failed to cure such violation to the reasonable satisfaction of the
Board of Directors within a reasonable period of time after having been given
ten (10) business days written notice thereof).
6.7 Repurchase of Company Common Stock upon Termination of Employment.
-----------------------------------------------------------------
-5-
<PAGE>
(1) Repurchase Rights. Upon termination of Employee's employment for
-----------------
any reason prior to August 19, 1999, the Company may elect to repurchase all or
any portion of the Company Common Stock originally issued to Employee (whether
held by Employee or any person or entity to whom DCI Common Stock or DCI Options
originally issued, or granted, to Employee were transferred prior to the
Closing) from Employee or any subsequent holder thereof at a cash price per
share equal to the Fair Market Value of such Company Common Stock as of the
Termination Date; provided, however, that if Employee's employment is terminated
by the Company for Cause, (i) the cash price per share of Option Stock shall be
the lesser of the Fair Market Value of such Option Stock as of the Termination
Date and the exercise price per share of Option Stock of the option which was
exercised to acquire such Option Stock and (ii) the cash price per share of
Company Common Stock that is not Option Stock shall be the Fair Market Value of
such Company Common Stock as of the Termination Date); it being understood and
agreed that the "exercise price" per share of Option Stock issued at Closing
shall be deemed to be the applicable exercise price per share of Company Common
Stock set forth on Schedule 1.
For purposes of this Agreement:
(i) "Option Stock" shall mean Company Common Stock issued (A) at
------------
Closing in respect of DCI Common Stock issued upon exercise of a DCI Option
originally granted on or after August 20, 1998 or (B) upon exercise of a
Replacement Option granted hereunder in respect of a DCI Option originally
granted on or after August 20, 1998; and
(ii) "Fair Market Value" shall mean, as of any date, the closing sales
-----------------
price of the Company Common Stock on the principal national securities
exchange on which the Company Common Stock is listed at the time or, if the
Company Common Stock is not so listed, the sales price of the Company
Common Stock as reported on the NASDAQ National Market System as of 4:00
P.M. (New York time) on such date, in either case averaged over a period of
21 trading days consisting of the day as of which Fair Market Value is
being determined and the 20 consecutive trading days prior to such day. If
at any time the Company Common Stock is not listed on any national
securities exchange or quoted in the NASDAQ National Market System, Fair
Market Value shall be determined in good faith by the Board of Directors or
a duly authorized committee thereof. In the event that Employee objects to
the Board of Directors' determination of Fair Market Value within 20 days
after written notice thereof, a mutually acceptable valuation firm shall be
engaged to determine Fair Market Value. The determination of such firm
shall be final and binding on the Company and Employee, and the fees and
expenses of such firm shall be borne 75% by the Company and 25% by
Employee.
(2) Exercise. The Company may exercise its option to purchase Company
--------
Common Stock pursuant to Section 6.7(a) by delivery to Employee of a written
notice specifying the number of shares of Company Common Stock to be repurchased
(i) within
-6-
<PAGE>
60 days after the Termination Date and (ii) if applicable, thereafter from time
to time within 60 days after the Employee, or any transferee, exercises a
Replacement Option (or any option granted in replacement thereof). Employee and
the Company will use all commercially reasonable efforts to consummate any
repurchase of securities pursuant to this Section 6.7 not later than 45 days
following delivery of such written notice to Employee.
(3) Common Stock. For purposes of this Section 6.7, "Company Common
------------
Stock" shall be deemed to include any proceeds of Company Common Stock; it being
understood and agreed that the Company's right set forth in this Section 6.7 may
only be exercised once.
6.8 Stockholders Agreement. Employee hereby agrees to be a party to the
----------------------
Stockholders Agreement among the Company and its equity holders dated as of
October 28, 1997 (as amended from time to time, the "Stockholders Agreement") as
----------------------
a "Manager," and the Company Common Stock, Replacement Options, $61 Options and
Anti-Dilution Options, if any, originally issued or granted to Employee (whether
held by Employee or any person or entity to whom DCI Common Stock or DCI Options
originally issued, or granted, to Employee were transferred prior to the
Closing) shall be "Management Stock" thereunder. The Stockholders Agreement
shall terminate according to its terms and not as a result of any termination of
this Agreement.
6.9 Anti-Dilution Provisions.
------------------------
(1) In the event the Company raises additional capital through one or
more equity issuances, or in the event of the conversion of convertible
securities, at any time after the Closing Date other than through (i) the
exercise of securities issued and outstanding on the Closing Date or (ii)
through an initial public offering of the Company's Common Stock (a "Dilutive
Event"), Employee's 2.0609% equity interest will be protected through each
issuance as follows: Each time a Dilutive Event is consummated, Employee shall
be entitled to participate in the purchase of newly issued equity securities on
the same basis as the other investors and at the same price as new investors
participating in such Dilutive Event in order to maintain Employee's ownership
of 2.0609% of the fully diluted equity of the Company. If Employee elects not to
participate in the purchase of newly issued equity securities on the same basis
as other investors, the Company shall issue stock options to Employee with an
exercise price equal to the fair market value of the Common Stock on the date of
grant (each such date, a "Grant Date") in order to maintain his stock ownership
percentage at not less than 75% of the percentage Employee held prior to such
Dilutive Event (the "Anti-Dilution Options"). The anti-dilution right set forth
in this Section 6.9(a) shall expire upon a Change of Control, an initial public
offering of the Company's common stock (such offering, an "IPO"), or Employee's
termination of employment with the Company. If Anti-Dilution Options are granted
under this Section 6.9, the number of Anti-Dilution Options which shall be
immediately vested and exercisable will be equal to the total number of Anti-
Dilution Options times a fraction, the numerator of which is the number of whole
calendar months which shall
-7-
<PAGE>
have elapsed between November 1, 1997 and the Grant Date and the denominator of
which is 36. Any Anti-Dilution Options which shall not be vested and exercisable
on the Grant Date shall vest in equal monthly installments beginning on the last
day of the month during which the Grant Date occurs and ending on September 30,
2000. The Anti-Dilution Options, if any, shall also subject to the terms set
forth on Exhibit A hereto.
(2) Employee hereby waives any rights he may have under Section 7 of
the Stockholders Agreement (Preemptive Right) for so long as the provisions of
this Section 6.9 are effective.
7. TERMINATION
-----------
7.1 Mutual Agreement. The employment of Employee may be terminated at any
----------------
time by the Company, DCI and Employee by mutual agreement.
7.2 Death or Disability. The employment of Employee (a) shall be
-------------------
terminated automatically upon his death and (b) may be terminated at any time by
the Company and DCI upon the physical inability of Employee to perform his
duties hereunder for a period of six (6) consecutive months ("Disability").
7.3 Company for Cause. The employment of Employee may be terminated at
-----------------
any time by the Company and DCI upon the occurrence of any of the following
events (each of which shall constitute "Cause"):
(1) Employee's conviction of any crime involving moral turpitude
which is a felony;
(2) repeated insobriety at the work place;
(3) theft of material Company assets;
(4) from and after August 19, 1999, or, if later, the date on which
Charles Dimick's full time employment with the Company terminates, the event
described in Section 7.4(a)(ii);
(5) material violation of Employee's Non-Compete and Technology
Transfer Agreement dated as of the date hereof (as may be amended or otherwise
modified from time to time, the "Non-Compete Agreement"); or
---------------------
(6) the failure to materially perform material duties consistent with
this Agreement reasonably requested by the Board of Directors which, at any time
prior to August 19, 1999 and thereafter for so long as Charles Dimick is in the
full time employ of the Company, also has a material adverse effect on the
Company.
-8-
<PAGE>
In each instance of conduct described in clause (d), (e) or (f), Employee
must be given, prior to termination of employment, ten (10) business days'
written notice of such conduct and a reasonable period of time after such notice
to cure the effects thereof to the reasonable satisfaction of the Board of
Directors. In the event of such cure, Employee's employment will not be
terminated as a result of the conduct and effect so cured.
7.4 Company for Good Reason.
-----------------------
(1) Subject to clause (b) below, the employment of Employee may be
terminated by the Company and DCI for Good Reason at any time on or prior to
August 19, 1999 and at any time thereafter only for so long as Charles Dimick is
in the full time employ of the Company. For purposes of this Agreement, "Good
----
Reason" shall mean (i) the failure of Employee to use his best efforts to meet
- ------
the goals reasonably established for Employee by the Board of Directors, (ii)
continued and repeated absence of Employee from his employment during usual
working hours for reasons other than vacation, disability or sickness or (iii)
the failure to materially perform material duties consistent with this Agreement
reasonably requested by the Board of Directors, such determination relating to
(i), (ii) and (iii) to be made by Mr. Dimick in his reasonable discretion for so
long as Mr. Dimick is in the full time employ of the Company or, at any other
time, the Board of Directors in its reasonable discretion.
(2) At least five (5) business days prior to termination of
Employee's employment pursuant to this Section 7.4, Employee must be given
written notice setting forth in reasonable detail the conduct with respect to
which the Company and DCI intend to terminate his employment pursuant to this
Section 7.4. If such notice is given at a time Mr. Dimick is not in the full
time employ of the Company, it shall contain the name and telephone number of a
person designated by the Board of Directors to whom Employee shall communicate
regarding such notice. During such five (5) day business period, Employee may
propose a cure reasonably acceptable to Mr. Dimick if Mr. Dimick (or the
designee if no longer in the full time employ of the Company) the manner in
which he intends to cure the conduct set forth in such notice and if acceptable,
Employee's employment will not be terminated pursuant to this Section 7.4 until
he has had a reasonable opportunity to implement such proposal. Having been
given notice of any such conduct once during the term of his employment,
Employee shall not thereafter be entitled to any additional notice prior to
termination of his employment under this Section 7.4 by reason of such conduct.
7.5 Company without Cause or Good Reason. The employment of Employee may
------------------------------------
be terminated at any time by the Company and DCI other than for Cause, Good
Reason or Disability.
7.6 Employee for Just Cause. The employment of Employee may be terminated
-----------------------
by Employee upon not less than 30 days' written notice to the Company given
within 30 days of the occurrence of any of the following (each of which shall
constitute "Just Cause"):
----------
-9-
<PAGE>
(a) material violation by the Company of this Agreement (including, without
limitation, the willful and continued failure of the Company to timely provide
Employee compensation set forth in Section 3), (b) a change in Employee's title
or a material diminution in the nature of Employee's duties or responsibilities
to DCI without his consent or (c) requiring Employee to relocate from his
primary residence in order to perform his duties hereunder, subject to ordinary
and necessary business travel. In the event of termination of Employee pursuant
to this Section 7.6, the Company may elect to waive the period of notice, or any
portion thereof. Any such waiver shall be given only by a written instrument
authorized by the Board of Directors.
In each instance of conduct described in clause (a), (b) or (c), the
Company must be given, prior to termination of employment, ten (10) business
days' written notice of such breach or material diminution and a reasonable
period of time after such notice to cure the effects thereof to the reasonable
satisfaction of Employee. In the event of such cure, Employee's employment may
not be terminated for Just Cause as a result of the conduct and effect so cured.
7.7 Employee without Just Cause. The employment of Employee may be
---------------------------
terminated at any time by Employee upon not less than 30 days' prior written
notice to the Company other than for Just Cause. In the event of termination of
Employee pursuant to this Section 7.7, the Company may elect to waive the period
of notice, or any portion thereof. Any such waiver shall be given only by a
written instrument authorized by the Board of Directors.
8. EFFECT OF TERMINATION.
---------------------
8.1 Mutual Agreement. If Employee's employment is terminated pursuant to
----------------
Section 7.1, the obligations of the Company and its subsidiaries shall be as set
forth in a written agreement between the Company and Employee. Except as set
forth in such written agreement (a) neither the Company nor any of its
subsidiaries shall have any further obligation to Employee after the Termination
Date other than payment of the Additional Bonus to the extent and in the manner
set forth in the Company's Cash Bonus Plan and (b) without limiting the
generality of the foregoing, (i) all vested Replacement Options, $61 Options and
Anti-Dilution Options, if any, shall expire 90 days following the Termination
Date and (ii) all unvested Replacement Options, $61 Options and Anti-Dilution
Options, if any, shall immediately expire and be forfeited. Notwithstanding the
foregoing, each of the Company and Employee hereby acknowledge and agree that
the terms of such written agreement shall be the subject of negotiation at the
time of the termination of Employee's employment and that nothing in the
preceding sentence is intended to, nor shall it, establish any expectations for
such negotiation.
-10-
<PAGE>
8.2 Death or Disability. Upon termination of Employee's employment upon
-------------------
his death or by the Company for Disability, neither the Company nor any of its
subsidiaries shall have any further obligation to Employee other than as set
forth in Section 6.6 and in clauses (a) and (b) below:
(1) Compensation. The Company shall pay to Employee (or, if
------------
applicable, his designated beneficiary or, if no beneficiary shall have been
designated by Employee, to his estate), (i) Base Salary earned and unpaid
through the Termination Date, (ii) at the time of the release of the audited
financial statements of the Company for the fiscal year during which termination
on account of death or Disability occurs, an amount equal to (x) the Annual
Bonus that Employee would otherwise have earned for such fiscal year if
termination had not occurred multiplied by (y) a fraction, the numerator of
which is the number of days from the beginning of such fiscal year until the
Termination Date and the denominator of which is 365 and (iii) the Additional
Bonus to the extent and in the manner set forth in the Company's Cash Bonus
Plan. In addition, for 12 months following the Termination Date, the Company
(or, if applicable, its subsidiary) will pay the same share of the premium cost
that it pays for active employees in respect of the participation of Employee
and his eligible dependents in the group health and life insurance plans
described in Section 4.1 hereof, subject, in the case of such group health
plans, to proper election to continue participation of Employee and/or that of
his eligible dependents in such plans under COBRA.
(2) Replacement Options, $61 Options and Anti-Dilution Options. (i)
----------------------------------------------------------
All vested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall expire one year, in the case of termination on account of death, or six
months, in the case of termination on account of Disability, following the
Termination Date and (ii) all unvested Replacement Options, $61 Options and
Anti-Dilution Options, if any, shall immediately expire and be forfeited.
8.3 By the Company for Cause. Upon termination of Employee's employment
------------------------
by the Company for Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date and (ii) such obligations as are required under COBRA.
(2) Replacement Options, $61 Options and Anti-Dilution Options. (i)
----------------------------------------------------------
All vested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall immediately expire and be forfeited and (ii) all unvested Replacement
Options, $61 Options and Anti-Dilution Options, if any, shall immediately expire
and be forfeited.
8.4 By the Company for Good Reason. Upon termination of Employee's
------------------------------
employment by the Company for Good Reason:
-11-
<PAGE>
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the date on which the Noncompetition Period set forth in the Non-Compete
Agreement terminates (or, if earlier, the date on which the Company releases
Employee from his obligations under Section 2.1 thereof), (ii) payment of the
Additional Bonus to the extent and in the manner set forth in the Company's Cash
Bonus Plan and (iii) such obligations as are required under COBRA.
(2) Replacement Options, $61 Options and Anti-Dilution Options. (i)
----------------------------------------------------------
All vested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall expire 90 days following the Termination Date and (ii) all unvested
Replacement Options, $61 Options and Anti-Dilution Options, if any, shall
immediately expire and be forfeited.
8.5 By the Company without Cause or Good Reason. Upon termination of
-------------------------------------------
Employee's employment by the Company other than for Cause, Good Reason or
Disability, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than as set forth in Section 6.6 and in
clauses (a) and (b) below:
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (other than Section 2.1 of
the Non-Compete Agreement at any time prior to October 28, 2000) (such
determination to be made only if Employee has failed to cure such violation to
the reasonable satisfaction of the Board of Directors within a reasonable period
of time after having been given ten (10) business days written notice thereof),
the Company shall pay to Employee (x) his Base Salary and his Annual Bonus
through October 28, 2000 and (y) if the Noncompetition Period set forth in the
Non-Compete Agreement shall not have expired on or before October 28, 2000, his
Base Salary during the period beginning on October 29, 2000 and ending on the
date on which the Noncompetition Period set forth in the Non-Compete Agreement
terminates. Amounts payable under this Section 8.5 shall be paid in accordance
with the normal payroll practices of the Company. Employee shall also be
entitled to receive payment of the Additional Bonus to the extent and in the
manner set forth in the Company's Cash Bonus Plan. In addition, for 12 months
following the Termination Date, the Company (or, if applicable, its subsidiary)
will pay the same share of the premium cost that it pays for active employees in
respect of the participation of Employee and his eligible dependents in the
group health and life insurance plans described in Section 4.1 hereof, subject,
in the case of such group health plans, to proper election to continue
participation of Employee and/or that of his eligible dependents in such plans
under COBRA.
(2) Replacement Options, $61 Options and Anti-Dilution Options. (i)
----------------------------------------------------------
All vested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall expire 90 days following the Termination Date and (ii) unless and until
the Board of Directors
-12-
<PAGE>
determines that either of the following events shall have occurred (before or
after the Termination Date): (A) theft of material Company assets or (B)
material violation of the terms of the Non-Compete Agreement (such determination
to be made only if Employee has failed to cure such violation to the reasonable
satisfaction of the Board of Directors within a reasonable period of time after
having been given ten (10) business days written notice thereof), all unvested
Replacement Options, $61 Options and Anti-Dilution Options, if any, shall
continue to vest in accordance with the schedule set forth in Section 6.5 and
shall expire 90 days following the date of vesting.
8.6 By Employee for Just Cause. Upon termination of Employee's employment
--------------------------
by Employee for Just Cause, neither the Company nor any of its subsidiaries
shall have any further obligation to Employee other than as set forth in Section
6.6 and in clauses (a) and (b) below:
(1) Compensation. Unless and until the Board of Directors determines
------------
that either of the following events shall have occurred (before or after the
Termination Date): (i) theft of material Company assets or (ii) material
violation of the terms of the Non-Compete Agreement (other than Section 2.1 of
the Non-Compete Agreement at any time prior to October 28, 2000) (such
determination to be made only if Employee has failed to cure such violation to
the reasonable satisfaction of the Board of Directors within a reasonable period
of time after having been given ten (10) business days written notice thereof),
the Company shall pay to Employee (x) his Base Salary and his Annual Bonus
through October 28, 2000 and (y) if the Noncompetition Period set forth in the
Non-Compete Agreement shall not have expired on or before October 28, 2000, his
Base Salary during the period beginning on October 29, 2000 and ending on the
date on which the Noncompetition Period set forth in the Non-Compete Agreement
terminates. Amounts payable under this Section 8.6 shall be paid in accordance
with the normal payroll practices of the Company. Employee shall also be
entitled to receive payment of the Additional Bonus to the extent and in the
manner set forth in the Company's Cash Bonus Plan. In addition, for 12 months
following the Termination Date, the Company (or, if applicable, its subsidiary)
will pay the same share of the premium cost that it pays for active employees in
respect of the participation of Employee and his eligible dependents in the
group health and life insurance plans described in Section 4.1 hereof, subject,
in the case of such group health plans, to proper election to continue
participation of Employee and/or that of his eligible dependents in such plans
under COBRA.
(2) Replacement Options, $61 Options and Anti-Dilution Options. (i)
----------------------------------------------------------
All vested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall expire 90 days following the Termination Date and (ii) unless and until
the Board of Directors determines that either of the following events shall have
occurred (before or after the Termination Date): (A) theft of material Company
assets or (B) material violation of the terms of the Non-Compete Agreement (such
determination to be made only if Employee has failed to cure such violation to
the reasonable satisfaction of the Board of Directors within a reasonable period
of time after having been given ten (10) business days written notice thereof),
all
-13-
<PAGE>
unvested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall continue to vest in accordance with the schedule set forth in Section 6.5
and shall expire 90 days following the date of vesting.
8.7 By Employee without Just Cause. Upon termination of Employee's
------------------------------
employment by Employee other than for Just Cause:
(1) Compensation. Except as set forth in Section 6.6 and in clause
------------
(b) below, neither the Company nor any of its subsidiaries shall have any
further obligation to Employee other than (i) payment of his Base Salary through
the Termination Date, (ii) payment of the Additional Bonus to the extent and in
the manner set forth in the Company's Cash Bonus Plan and (iii) such obligations
as are required under COBRA.
(2) Replacement Options, $61 Options and Anti-Dilution Options. (i)
----------------------------------------------------------
All vested Replacement Options, $61 Options and Anti-Dilution Options, if any,
shall expire 90 days following the Termination Date and (ii) all unvested
Replacement Options, $61 Options and Anti-Dilution Options, if any, shall
immediately expire and be forfeited.
8.8 Liquidated Damages. If a court of competent jurisdiction issues a
------------------
final nonappealable judgment in any action brought by Employee alleging non-
payment of severance benefits to which Employee is entitled under the provisions
of the subsection of this Section 8 which correspond to the provisions of
Section 7 pursuant to which notice of termination was given by the Company or
Employee, as applicable, Employee shall be entitled to liquidated damages in an
amount equal to three times the amount of such non-payment; it being understood
and agreed that the provisions of Section 9.10 shall apply to an action
described in this Section 8.8.
9. MISCELLANEOUS
-------------
9.1 Governing Laws. IT IS THE INTENTION OF THE PARTIES HERETO THAT THE
--------------
INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE OF
LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF
THE PARTIES HERETO.
9.2 Parachute Payments. In the event of a Change of Control prior to the
------------------
IPO, and provided Employee requests in writing, the Company will use its best
efforts to prepare and distribute such materials as it shall consider necessary
or desirable to permit the shareholders to approve any "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended.
-14-
<PAGE>
9.3 Binding upon Successors and Assigns. Subject to, and unless otherwise
-----------------------------------
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto. The rights and benefits of the Company under
this Agreement shall be transferable to successors of the Company pursuant to a
reorganization and all covenants and agreements hereunder shall inure to the
benefit of, and be enforceable by or against, such successors in interest. This
Agreement is personal to Employee and cannot be assigned nor may duties
hereunder be delegated. Any attempted assignment or delegation by Employee
shall render this Agreement null and void at the option of the Company.
9.4 Withholding. All payments made by the Company under this Agreement
-----------
shall be net of any tax or other amounts required to be withheld by the Company
under any applicable law or legal requirement.
9.5 Amendment of Marcelli Agreement. The Company shall not offer to
--------------------------------
amend, supplement or otherwise modify the Marcelli Agreement during the term of
this Agreement unless an offer to amend, supplement or otherwise modify this
Agreement on a comparable basis is also extended to Employee.
9.6 Entire Agreement. This Agreement, the exhibits hereto, the documents
----------------
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. Without limiting the
generality of the foregoing, this Agreement supersedes in its entirety (i) that
certain Employment Agreement between Employee and DCI dated as of October 1,
1997, as modified through the date hereof and (ii) that certain Grant of Stock
Purchase Option between Employee and DCI, as modified through the date hereof.
Section and subsection headings are not to be considered part of this Agreement,
are included solely for convenience, are not intended to be full or accurate
descriptions of the content thereof and shall not affect the construction of
this Agreement. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
9.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
9.8 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by
-15-
<PAGE>
the party to be bound thereby. The waiver by a party of any breach hereof for
default in payment of any amount due hereunder or default in the performance
hereof shall not be deemed to constitute a waiver of any other default or
succeeding breach or default.
9.9 No Waiver. No failure or delay of any party to enforce any of the
---------
provisions hereof shall be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
9.10 Attorneys' Fees. Should suit or arbitration be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit or arbitration and not as damages,
reasonable attorneys' fees to be fixed by the court (including without
limitation, costs, expenses and fees on any appeal). The prevailing party shall
be the party entitled to recover its costs of suit or arbitration, regardless of
whether such suit or arbitration proceeds to final judgment. A party not
entitled to recover its costs shall not be entitled to recover attorneys' fees.
No sum for attorneys' fees shall be counted in calculating the amount of a
judgment for purposes of determining if a party is entitled to recover costs or
attorneys' fees.
9.11 Notices. Whenever any party hereto desires or is required to give any
-------
notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States certified mail, postage prepaid,
addressed as follows:
If to Company: Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
with a copy to: Dynamic Circuits, Inc.
1831 Tarob Court
Milpitas, CA 95035
Attention: President
and
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Alfred O. Rose, Esq.
If to Employee: Mr. Eric Naroian
4909 Stanford
Dallas, TX 75225
-16-
<PAGE>
Such communication shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United States
mail. Any party may change its address for such communications by giving notice
thereof to the other party in conformity with this Section.
-17-
<PAGE>
Naroian Employment Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
Details Holdings Corp.
By:_____________________________
Name:
Title:
________________________________
Eric Naroian
Acknowledged and Agreed
with respect to Sections 6 and 9.6
Dynamic Circuits, Inc.
By:_______________________
Name:
Title:
<PAGE>
Naroian Employment Agreement
CONSENT OF SPOUSE
The undersigned spouse of Employee has read and hereby approves the terms
and conditions of the foregoing Agreement. In consideration of the Company's
granting his or her spouse the right to purchase the shares of Details Common
Stock as set forth in the Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints Employee as attorney-in-fact for the undersigned
with respect to any amendment or exercise of rights under the Agreement.
__________________________________
Name:
Spouse of Employee
<PAGE>
Exhibit A
---------
The Replacement Options, $61 Options and Anti-Dilution Options, if any,
which are referenced in the attached Agreement have been issued under the
Company's Dynamic Circuits 1996 Stock Option Plan (the "Plan") (a copy of which
has been provided to Employee) as provided below. Capitalized terms used and
not defined herein or in the attached Agreement have the meanings set forth in
the Plan.
1. OPTION TERMS.
1. REPLACEMENT OPTIONS, $61 OPTIONS AND ANTI-DILUTION OPTIONS. The
Replacement Options, $61 Options and Anti-Dilution Options, if any, will
expire at the close of business on August 19, 2006 (the "Expiration Date"),
subject to earlier expiration in connection with the termination of your
employment to the extent set forth in the Agreement. Neither the
Replacement Options, the $61 Options nor the Anti-Dilution Options, if any,
are intended to be "incentive stock options" within the meaning of Section
442 of the Internal Revenue Code of 1986, as amended.
2. EXERCISABILITY/VESTING.
1. VESTING. The Replacement Options, $61 Options and Anti-Dilution
Options, if any, will be exercisable only to the extent they have
vested.
2. ACCELERATION OF VESTING. In the event of a Change of Control or
the IPO (as defined in the Agreement) (A) during the term of your
employment with the Company and/or any of its subsidiaries or (B)
at a time when the Unvested Replacement Options, the Unvested $61
Options and Anti-Dilution Options, if any, are vesting pursuant
to the terms of Section 8.5(b) or 8.6(b), the Replacement
Options, the $61 Options, the Anti-Dilution Options, if any, and
the Deferred Payments will automatically become 100% vested. In
connection with any Change of Control or IPO, the Company may
provide on not less than 20 days' notice to you that any portion
of the Replacement Options, $61 Options and Anti-Dilution
Options, if any, that have not been exercised prior to or in
connection with the Change of Control will be forfeited. In lieu
of requiring such exercise, the Company may provide for the
cancellation of the Replacement Options, $61 Options and Anti-
Dilution Options, if any, in exchange for a payment equal to the
excess (if any) of the consideration per share of Company Common
Stock receivable in connection with such Change of Control over
the exercise price of the
<PAGE>
Replacement Options, $61 Options and Anti-Dilution Options, if
any, respectively.
3. TERMINATION OF OPTION. In no event shall any part of the Replacement
Options, $61 Options or the Anti- Dilution Options be exercisable after the
Expiration Date set forth in paragraph 1(a).
2. PROCEDURE FOR EXERCISE. You may exercise all or any portion of the
Replacement Options, $61 Options or Anti-Dilution Options, if any, to the
extent permitted hereby, at any time and from time to time by delivering
written notice to the Company (to the attention of the Company's Secretary)
accompanied by payment in full of an amount equal to the product of (i) the
Exercise Price of the subject option multiplied by (ii) the number of
shares of Option Stock to be acquired (such date of delivery the "Exercise
Date"). The Company may delay effectiveness of any exercise of the
Replacement Options, $61 Options or Anti-Dilution Options, if any, for such
period of time as may be necessary to comply with any legal or contractual
provisions to which it may be subject relating to the issuance of its
securities; provided, however, that no such delay shall affect your right
to purchase the shares of Option Stock, and the Exercise Date shall be
deemed the date of your acquisition of the shares of Option Stock for all
corporate and tax purposes regardless of such delay. As a condition to any
exercise of the Replacement Options, $61 Options or Anti-Dilution Options,
if any, you will permit the Company to deliver to you all financial and
other information regarding the Company necessary to enable you to make an
informed investment decision, and you will make all customary investment
representations which the Company requires.
3. SECURITIES LAW RESTRICTIONS. You represent that when you exercise the
Replacement Options, $61 Options or Anti-Dilution Options, if any, you will
be purchasing the shares of Option Stock for your own account and not on
behalf of others. You may not sell, transfer or dispose of any Company
Common Stock issued pursuant to the Replacement Options, $61 Options or
Anti-Dilution Options, if any, (except pursuant to an effective
registration statement under the Securities Act of 1933) without first
delivering to the Company an opinion of counsel reasonably acceptable to
the Company that registration under the Securities Act or any applicable
state securities laws is not required in connection with such transfer.
You further understand that the certificates for any Company Common Stock
you purchase will bear such legends as the Company deems necessary or
desirable in connection with the Securities Act or other rules, regulations
or laws.
4. OPTION NOT TRANSFERABLE. The Replacement Options, $61 Options and Anti-
Dilution Options, if any, are personal to you and are not transferable by
you other than by will or the laws of descent and distribution. During
your lifetime only you (or your guardian or legal representative) may
exercise the Replacement Options, $61 Options
<PAGE>
and Anti-Dilution Options, if any. In the event of your death, the
Replacement Options, $61 Options and Anti-Dilution Options, if any, may be
exercised only by the executor or administrator of your estate to he person
or persons to whom your rights under the Replacement Options, $61 Options
and Anti-Dilution Options, if any, shall pass by will or the laws of
intestate succession.
5. CONFORMITY WITH PLAN. The Replacement Options, $61 Options and Anti-
Dilution Options, if any, are intended to conform in all respects with, and
are subject to all applicable provisions of, the Plan, which is
incorporated herein by reference. Inconsistencies between the terms of the
Agreement and this Exhibit, on the one hand, and the Plan, on the other
hand, shall be resolved in accordance with the terms of the Plan. By
executing the Agreement, you acknowledge your receipt of this Exhibit A and
the Plan and agree to be bound by all of the terms contained herein and
therein.
6. RIGHTS OF PARTICIPANTS. Nothing in this Exhibit A shall interfere with or
limit in any way the right of the Company and/or its subsidiaries to
terminate your employment in accordance with the Agreement or confer upon
you any right not set forth in the Agreement to continue in the employ of
the Company and/or its subsidiaries for any period of time or to continue
to receive your current (or other) rate of compensation. Nothing in this
Exhibit A shall confer upon you any right to be selected to receive
additional options under the Plan or otherwise.
7. WITHHOLDING OF TAXES. The Company may, if necessary or desirable, withhold
from any amounts due and payable by the Company to you (or secure payment
from you in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to the issuance or exercise of the
Replacement Options, $61 Options and Anti-Dilution Options, if any, and the
Company may defer such issuance or exercise unless indemnified by you to
its satisfaction against the payment of any such amount. To the extent
permitted by law, such withholding may be effected through the delivery by
you of shares of Company Common Stock valued at Fair Market Value as of the
Exercise Date.
8. ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the shares of
Common Stock, the Company may, in order to prevent the dilution or
enlargement of rights under the Replacement Options, $61 Options or Anti-
Dilution Options, if any, make such adjustments in the number and type of
shares authorized by the Plan, the number and type of shares covered by the
Replacement Options, $61 Options and Anti-Dilution Options, if any, and the
respective Exercise Prices specified herein as may be determined to be
appropriate and equitable.
A-3
<PAGE>
Exhibit A-1
-----------
DETAILS DYNAMIC CIRCUITS INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Details Holdings Corp.
1231 Simon Circle
Anaheim, CA 92806
Attention: President
The undersigned hereby notifies Details Holdings Corp. of his or her
decision to exercise the Option as to _______________________ shares of Details
Common Stock.
Dated: _______________________
____________________________
(signature of Option Holder)
_________________________________
(printed)
<PAGE>
Exhibit A-2
-----------
INVESTMENT REPRESENTATION STATEMENT
PARTICIPANT:
COMPANY : DETAILS HOLDINGS CORP.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Option Holder represents to Details the following:
(a) Option Holder current residence is as set forth in the signature
page hereto.
(b) Option Holder is aware of Details' business affairs and financial
condition and has acquired sufficient information about Details to reach an
informed and knowledgeable decision to acquire the Shares. Option Holder is
acquiring the Shares for investment for Option Holder's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(c) Option Holder acknowledges and understands that the Shares
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Option Holder's investment intent as expressed herein. Option Holder
further understands that the Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Option Holder further acknowledges and understands
that Details is under no obligation to register the Shares except as set forth
in the Details Holdings Corp. Stockholders Agreement dated as of October 28,
1998, as amended from time to time. Option Holder understands that the
certificate evidencing the Shares will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to Details.
(d) Option Holder is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to Option
Holder, the exercise will be exempt from registration under the Securities Act.
In the event that Details becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"),
<PAGE>
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Shares exempt under Rule 701 may be resold, subject
to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Exchange Act); and, in the case of an affiliate, (2)
the availability of certain public information about Details, (3) the amount of
Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that Details does not qualify under Rule 701 at the time
of grant of the Option, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Shares were sold
by Details or the date the Shares were sold by an affiliate of Details, within
the meaning of Rule 144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2),
(3) and (4) of the paragraph immediately above.
(e) Option Holder further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A under the Securities Act, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Option Holder understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Option Holder:
________________________________________________
Date:____________________________________, 199__
Option Holder's Address:
_______________________________________________
_______________________________________________
2
<PAGE>
Exhibit B
---------
STANDALONE ANNUAL BONUS PROGRAM
(dollar amounts in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
FISCAL YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
DYNAMIC CIRCUITS INC.
EBITDA $26,309 $31,734 $36,727 $42,196
- % Growth 20.6% 15.7% 14.9%
EBITDA Thresholds:
-----------------
% of Plan
---------
90% $27,560 $33,054 $37,976
95% $29,147 $34,890 $40,086
Target 100% $31,734 $36,727 $42,196
105% $33,320 $38,563 $44,306
110% $34,907 $40,399 $46,416
115% $36,494 $42,236 $48,525
120% $38,080 $44,072 $50,635
Bonus Payouts:
-------------
Bonus Pool $753.80 $992.50 $1,037.00 $1,112.00
</TABLE>
<TABLE>
<CAPTION>
% of Plan Bonus % of EBITDA Bonus % of EBITDA Bonus % of EBITDA
--------- ----- Change ----- Change ----- Change
------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
90% $ 450 20.0% $ 466 35.3% $ 490 39.2%
95% $ 721 18.8% $ 753 23.9% $ 801 23.8%
Target 100% $ 993 18.3% $ 1,037 20.8% $1,112 20.3%
105% $ 1,147 16.4% $ 1,203 17.6% $1,287 17.0%
110% $ 1,302 15.1% $ 1,367 15.8% $1,463 15.1%
115% $ 1,456 14.3% $ 1,530 14.6% $1,638 13.9%
120% $ 1,611 13.7% $ 1,694 13.7% $1,814 13.0%
Percentage of Incremental 9.7% 8.9% 8.3%
</TABLE>
EBITDA to be added to the
Bonus Pool
<PAGE>
Schedule I
Option Holder: Eric Naroian
Existing Options: Exercise Price Vested Unvested Tranche
- ---------------- -------------- ------ -------- -------
$5.75 26,085.00 234,938.00 N/A
Replacement Options:
- -------------------
Vested Options: Class A-5 Class L Tranche
--------- ------- -------
4,706.3961 597.6277 N\A
Cash Payment one
day prior to Closing: $242,453.51
Unvested Options: Class A-5 Class L Tranche
--------- ------- -------
42,388.7782 5,382.6127 N/A
Deferred Payment(s): Amount Tranche
------ -------
$2,183,689.57 N/A
$61 Options: Vested Unvested Tranche
- ----------- ------ -------- -------
256.6542 2,311.5897 N/A
<PAGE>
EXHIBIT 10.30
LEASE AGREEMENT
DATED: July 22, 1991
LANDLORD: GEOMAX, a California general partnership
TENANT: Dynamic Circuits, Inc., a California Corporation
1. FUNDAMENTAL LEASE PROVISIONS.
A. PREMISES: Approximately 26,760 square feet of leasable area in the
building containing approximately 39,720 leasable square feet located on a
parcel of land in the County of Santa Clara, State of California, as more
particularly described in the legal description attached as Exhibit A
hereto, with a common address of 1831 Tarob Court, Milpitas, CA 95035. The
location of Premises is indicated on the site plan attached as Exhibit B
hereto. (Paragraph 2)
B. LEASE TERM: 120 full calendar months, plus any partial month at the
beginning of the Lease Term. (Paragraph 5)
C. COMMENCEMENT DATE: October 1, 1991
D. INITIAL BASIC RENT: (Paragraph 4.A)
Lease Months Basic Rent
(inclusive) (per leasable sq.ft.) Basic Rent (total) per mo.
------------ --------------------- --------------------------
1-120 .781 $20,868.00
------------ --------------------- --------------------------
------------ --------------------- --------------------------
------------ --------------------- --------------------------
------------ --------------------- --------------------------
E. TENANT'S SHARE: Sixty-seven and 4/10 percent (67.4%). (Paragraph 4.E)
F. PREPAID RENT: $20,868.00 for the 1st month(s) of the Lease Term.
(Paragraph 4.H)
G. BASIC RENT ADJUSTMENT: The basic rent shall be subject to a CPI adjustment
on the first day of each of the following full calendar months of the
lease term: 25, 49, 73, 97.
H. SECURITY DEPOSIT: $21,000.00. (Paragraph 4.G)
PERMITTED USE: Printed circuit board manufacturing and related uses.
(Paragraph 3)
J. NUMBER OF PARKING SPACES: 85 unreserved. (Paragraph 8)
K. ADDRESSES FOR NOTICES AND PAYMENT OF RENT (paragraphs 4.F and 36):
To Landlord: To Tenant:
GEOMAX Dynamic Circuits, Inc.
2025 Gateway Place #124 20959 Hidden View Lane
San Jose, CA 95110 Saratoga, CA 95070
Facsimile No.: 408-452-0268 Facsimile No.: 408-867-0431
L. TENANT'S BROKER: None (Paragraph 41)
M. BASE YEAR: January 1, 1991 to December 31, 1991, which is the calendar
1
<PAGE>
year in which the Lease term commences. (Paragraph 4)
N. GUARANTORS: See attached "Exhibit F"
O. OTHER PROVISIONS: The following Riders are added hereto and included as
part of this Lease:
Rider No. Paragraph No. Title
--------- ------------- -----
1 46 Right of 1st Opportunity
2 N/A Addendum to Lease
Each reference in this Lease to any of the provisions in this Paragraph 1 shall
be construed to incorporate all of the terms of each such provision. In the
event of any conflict between this Paragraph 1 and the balance of the lease, the
balance of the lease shall control.
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord for the term, at the Rent and upon the terms and conditions hereinafter
set forth, that certain space ("Premises") within that certain building
("Building") described in Paragraph 1.A. As used herein, the "Complex" shall
mean and include all of the land described in Exhibit A and shown on Exhibit B
attached hereto, and all of the buildings, improvements, fixtures and equipment
now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth, and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
Landlord agrees to construct any improvements to the Premises ("Tenant
Improvements") as may be described in Exhibit C attached hereto and incorporated
herein by reference, upon such terms and conditions as are set forth in such
Exhibit C. The Tenant Improvements shall be deemed substantially complete when
Landlord notifies Tenant in writing that the Tenant Improvements (if any) are
substantially completed in accordance with Exhibit C, subject only to "punch
list" items that do not materially diminish the usefulness of the Premises.
3. USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances and solely for the purpose
specified in Paragraph 1.1 and for no other purpose. Tenant shall not do or
permit [ILLEGIBLE] be done in or about the Premises or the Complex nor bring or
keep or permit to be brought or kept in or about the Premises or the Complex
anything which is prohibited by or will in any way increase the existing rate of
(or otherwise affect) fire or any insurance covering the Complex or any part
thereof, or any of its contents, or will cause a cancellation of any insurance
covering the Complex or any part thereof, or any of its contents. Tenant shall
not do or permit to be done anything in, on or about the Premises the
[ILLEGIBLE] which will in any way obstruct or [ILLEGIBLE] the rights of other
tenants or occupants of the Complex or injure [ILLEGIBLE], or use or allow the
Premises to [ILLEGIBLE] any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in [ILLEGIBLE]
or about the Premises or the Complex. No sale by auction shall be permitted on
the Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the Building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the Building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the Building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw
2
<PAGE>
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of the Common Area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorneys' fees, or liability arising out of
failure of Tenant to comply with any applicable law. Tenant shall comply with
any covenants, conditions, or restrictions ("CC&R's") affecting the Premises.
The provisions of this Paragraph are for the benefit of Landlord only and shall
not be construed to be for the benefit of any tenant or occupant of the Complex.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord the sum set forth in
Paragraph 1.0 hereof as "Basic Rent", in lawful money of the United States of
America, without deduction, offset, prior notice, or demand, on the first day of
every calendar month of the term hereof, and Landlord agrees to accept such sum
as Basic Rent for the Premises.
B. Basic Rent Adjustment. On the first day of each calendar month
described in Paragraph 1.0 hereof (hereinafter referred to as an "Adjustment
Date"), the Basic Rent provided for in Paragraph 4.A above shall be adjusted in
accordance with the following formula based on the Consumer Price Index ("CPI")
for all Urban Consumers "All Items", San Francisco-Oakland San Jose (1982-84 =
100, standard reference base) published by the Bureau of Labor Statistics, U.S
Department of Labor (the "Index") published nearest but prior to the first day
of the Lease term or the last previous Adjustment Date, as applicable (the
"Beginning Index") and the Index which is published nearest but prior to the
current Adjustment Date, (the "Adjustment Index"). On each Adjustment Date, the
Basic Rent shall be increased by an amount equal to the product obtained by
multiplying the then current Basic Rent by a fraction, the numerator of which is
the Adjustment Index and the denominator of which is the Beginning index. On
such adjustment, the parties shall execute an amendment to the Lease stating the
new (adjusted) Basic Rent. If the Index is changed so that the Base Year of the
Index differs from that used as of the month immediately preceding the month in
which 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 other 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. In no event shall the Basic Bent
following any Adjustment Date be less than the Basic Rent in existence
immediately prior to such Adjustment Date.
C. Partial Months. In the event that the term of this Lease commences on
a date other than the first day of a calendar month, on the Commencement Date
Tenant shall pay to Landlord as rent for the period from such Commencement Date
to the first day of the first full calendar month that proportion of the monthly
rent hereunder which the number of days between such Commencement Date and the
first day of the next succeeding calendar month bears to thirty (30), and such
partial first month shall not be counted when computing the number of months in
the term of this Lease. In the event that the term of this lease for any reason
is terminated on a date other than the last day of a calendar month, on the
first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
D. Late Charge. Notwithstanding any other provision of this Lease, if
tenant is delinquent in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment which is not
received by Landlord within ten (10) days after due date for such payment. Said
3
<PAGE>
late charge shall equal ten (10%) percent of each rental payment so in default.
E. Additional Rent. Beginning with the Commencement Date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(1) Tenant's proportionate share ("Tenant's Share") as specified in
Paragraph 1.E., of the amount, if any, by which the Real Property taxes set
forth in Paragraph 14, in any calendar year ("Comparison Year") subsequent to
the Base Year specified in Paragraph 1.H, exceed the Real Property Taxes of the
Base Year, and
(2) Tenant's Share of the amount, if any, by which the property
insurance premiums set forth in Paragraph 15, in any Comparison Year exceed such
insurance premiums for the Base Year, and
(3) Tenant's Share of expenses for the operation, management,
maintenance and repair of the Building (including Common Areas of the Building)
and Common Areas of the Complex in which the Premises are located, as set forth
in Paragraph 9, and
(4) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and expenses
including attorneys' fees and legal expenses, that may accrue thereto in the
event of Tenant's failure to pay such amounts, and all damages, reasonable costs
and expenses which Landlord may incur by reason of default of Tenant or failure
on Tenant's part to comply with the terms of this Lease. In the event of
nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and
remedies with respect thereto as Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within ten (10) days for taxes and insurance and within
thirty (30) days of all other Additional Rent items after presentation of an
invoice from Landlord or Landlord's agent setting forth such Additional Rent,
and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in
advance, Tenant's Share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled at the end of each calendar year as
compared to Landlord's actual expenditure for said Additional Rent items, with
Tenant paying to Landlord, upon demand, any amount of actual expenses expended
by Landlord in excess of said estimated amount, or Landlord refunding to Tenant
(providing Tenant is not in default in the performance of any of the terms,
covenants and conditions of this Lease) any amount of estimated payments made by
Tenant in excess of Landlord's actual expenditures for said Additional Rent
items.
The respective obligations of Landlord and Tenant under this
Paragraph shall survive the expiration or other termination of the term of this
Lease, and if the term hereof shall expire or shall otherwise terminate on a day
other than the last day of a calendar year, the actual Additional Rent incurred
for the calendar year in which the term hereof expires or otherwise terminates
shall be determined and settled on the basis of the statement of actual
Additional Rent for such calendar year and shall be prorated in the proportion
which the number of days in such calendar year preceding such expiration or
termination bears to 365.
F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
address of Landlord as specified in Paragraph 1.K or such other place as
Landlord may from time to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum specified in Paragraph 1.H hereof as
a "Security Deposit". Said sum shall be held by Landlord as a Security Deposit
for the faithful performance by Tenant of all of the terms, covenants, and
4
<PAGE>
conditions of this Lease to be kept and performed by Tenant during the Lease
Term, and shall not in any event be used or applied by Tenant as "last month's
rent." If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent
and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of the Security Deposit for
the payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of said Security
Deposit is so used or applied, Tenant shall, within ten (10) days after written
demand therefor, deposit cash with Landlord in the amount sufficient to restore
the Security Deposit to its original amount. Tenant's failure to do so shall be
a material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Security Deposit. If Tenant fully and faithfully
performs every provision of this Lease to be performed by it, the Security
Deposit or any balance thereof shall be returned to Tenant (or at Landlord's
option, to the last assignee of Tenant's interest hereunder) at the expiration
of the Lease term and after Tenant has vacated the Premises. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer said
Security Deposit to [ILLEGIBLE] in interest whereupon Landlord [ILLEGIBLE] be
released from liability for [ILLEGIBLE] return of such Security Deposit or
[ILLEGIBLE] therefor.
II. Prepaid Rent. Concurrently with Tenant's execution of this Lease,
Tenant shall pay to Landlord the sum specified in Paragraph 1.F as prepaid rent
for the months designated therein.
5. TERM. The term of this Lease shall be for a period of time specified in
Paragraphs 1.B (unless sooner terminated as hereinafter provided) and, subject
to Paragraph 6, shall commence on the commencement date ("Commencement Date")
specified in Paragraphs 1.C. Within 10 days following the Commencement Date of
the Lease Term, Tenant will execute and deliver to Landlord a certificate
substantially in the form of Exhibit D indicating any exceptions thereto which
may exist at that time. Tenant's failure to execute and deliver such certificate
within such time limit shall constitute an unqualified acceptance of the
Premises and acknowledgement that the statements contained in Exhibit D are true
and correct without exception.
6. POSSESSION. if Landlord, for any reason whatsoever, cannot deliver possession
of said Premises to Tenant on the date set forth in Paragraph 1.C or any other
date, this Lease shall not be void or voidable; no obligation of Tenant shall be
affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant
for any loss or damage resulting therefrom; but in that event the commencement
and termination dates of the Lease, and all other dates affected thereby shall
be revised to conform to the date of Landlord's delivery to tenant of possession
of the Premises, and the Lease Term shall be extended for a period equal to the
delay in delivery of possession, plus the number of days necessary to end the
Lease Term on the last day of a month. The above is, however, subject to the
provision that the period of delay of delivery of the Premise shall not exceed
180 days from the date specified in Paragraph 1.C (except those delays caused by
Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable
materials, said delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord within ten (10) days after the end of the 180-day
period, terminate this Lease and the parties shall have no further liability
thereafter accruing under this Lease.
7. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and conditions of
this Lease and such rules and regulations as Landlord may from time to time
5
<PAGE>
prescribe, Tenant and Tenant's employees, invitees said customers shall, in
common with other occupants of the Complex in which the Premises are located,
and their respective employees, invitees and customers, and others entitled to
the use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the Complex in which the Premises are
located, which areas and facilities are referred to herein as "Common Area".
This right shall terminate upon the termination of this Lease. Landlord reserves
the right from time to time to make changes in the shape, size, location, amount
and extent of Common Area. Landlord further reserves the right to promulgate
such reasonable rules and regulations relating to the use of the Common Area and
any part or parts thereof, as Landlord may deem appropriate for the best
interests of the occupants of the Complex. The rules and regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall
abide by them and use its best efforts to cause its agents, employees,
contractors and invitees to cooperate in their observance. Such rules and
regulations may be amended by Landlord from time to time, with or without
advance notice, and all amendments shall be effective upon delivery of a copy to
Tenant. Landlord shall not be responsible to Tenant for the non-performance by
any other tenant or occupant of the Complex of any of said rules and
regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
8. PARKING. Tenant shall have the non-exclusive right, in common with other
tenants or occupants of the Complex, to use the number of parking spaces in the
common parking areas of the Complex as is specified in Paragraphs 1.J. Neither
Tenant nor Tenant's employees, agents, representatives and/or invitees shall use
parking spaces in excess of said number of spaces allocated to Tenant hereunder.
Tenant acknowledges that certain other tenants of the Complex may have exclusive
parking rights to certain parking spaces and the parking areas of the Complex,
and that Tenant shall give no right to use such exclusive spaces upon receiving
notice of the location of such exclusive spaces from Landlord. Landlord shall
have the right (but not the obligation), at Landlord's sole discretion, from
time to time to promulgate reasonable rules and regulations as described in
Paragraph 7 regarding the operations of the parking areas including without
limitation the specific designation of the location of Tenant's parking spaces
within the common parking areas of the Complex. Landlord shall also have the
right to implement a system of parking charges, vouchers, fines or other parking
control fees to be paid by Tenant and/or the users of the Common Areas, if so
required by any government agency having jurisdiction over the Complex.
Tenant shall not, at any time, park, or permit to be parked, any trucks or
vehicles adjacent to the loading areas so as to interfere in any way with the
use of such areas, nor shall Tenant at any time park, or permit the parking of
Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's
suppliers or others, in any portion of the common area not designated by
Landlord for such use by Tenant. Tenant shall not park nor permit to be parked,
any inoperative vehicles or equipment on any portion of the common parking area
or other common areas of the Complex or use the same for storage. Tenant agrees
to assume responsibility for compliance by its employees with the parking
provisions contained herein.
If Tenant or its employees park in other than such designated parking
areas, the Landlord may charge Tenant, as an additional charge, and Tenant
agrees to pay, ten ($10.00) dollars per day for each day or partial day each
such vehicle is parked in any area other than that designated. Tenant hereby
authorizes Landlord at Tenant's sole expense to tow away from the Complex any
vehicle belonging to Tenant or Tenant's employees parked in violation of these
provisions, or to attach violation stickers or notices to such vehicles.
Landlord shall have no obligation to Tenant to police the parking areas or
enforce any private or public parking restrictions, which enforcement shall be
at Landlord's sole and absolute discretion.
6
<PAGE>
9. EXPENSES OF OPERATION AND MAINTENANCE OF THE COMPLEX. As Additional Rent and
in accordance with Paragraphs 4.E of this Lease, Tenant shall pay to Landlord
Tenant's Share of all expenses of operations, management, maintenance and repair
of the Premises, Building, Complex and Common Areas including, but not limited
to, all sums expended in connection with the Common Areas and Building exteriors
for all general maintenance and repairs; license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer discharges); janitorial services; trash removal; fire
protection systems; general liability insurance protection against claims
related to the condition, use or occupancy of the Common Areas (in such amounts
and providing such coverage as determined in Landlord's sole discretion);
exterior window cleaning; maintenance of landscaped areas, irrigation systems,
lakes, parking lots, sidewalks, driveways, and stairways including resurfacing
restriping, cleaning avid sweeping; maintenance, repair and replacement of all
fixtures and electrical, mechanical, and plumbing systems; repair and
replacement of roofs and structural elements of the buildings (excluding new
capital improvements); salaries and employee benefits of on-site personnel and
payroll taxes applicable thereto; amounts paid to a third party (which may be an
entity related to Landlord) for the management of the Complex, accounting,
bookkeeping and expense collection services; taxes on personal property,
equipment and machinery utilized in the operation of the Common Area; supplies,
materials, equipment and tools; reasonable reserves for roof repairs, parking
lot resurfacing and other similar items of major repair and maintenance; and the
cost of complying with rules, regulations and orders of governmental
authorities, including without limitation maintenance, alterations and repairs
required in connection therewith.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
10. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the Building and Improvements included in the Premises in their present
condition and without representation or warranty by landlord as to the condition
of such Building, the use or occupancy which may be made thereof, or the precise
square footage of the Building or the Premises. Any exceptions to the foregoing
must be by written agreement executed by Landlord and Tenant. Tenant agrees on
the last day of the Lease Term, or on the sooner termination of this Lease, to
surrender the Premises promptly and peaceably to Landlord in good condition and
repair (damage by Acts of God, fire, and normal wear and tear excepted), with
all interior walls painted, or cleaned so that they appear freshly painted, and
repaired and replaced, if damaged; all floors cleaned and waxed; all carpets
cleaned and shampooed; the air conditioning and heating equipment serviced by a
reputable and licensed service firm and in good operating condition (provided
the maintenance of such equipment has been Tenant's responsibility during the
term of this Lease) together with all alterations, additions, and improvements
which may have been made in, to, or on the Premises (except movable trade
fixtures installed at the expense of Tenant); provided, however, that Tenant
shall ascertain from Landlord within thirty (30) days before the end of the term
of this Lease whether Landlord desires to have the Premises or any part or parts
thereof restored to their condition and configuration as when the Premises were
delivered to Tenant and if Landlord shall so desire, then Tenant shall restore
said Premises or such part or parts thereof before the end of this Lease at
Tenant's sole cost and expense. Tenant, on or before the end of the term or
sooner termination of this Lease, shall remove all of Tenant's personal property
and trade fixtures from the Premises, and all property not so removed on or
before the end of the term or sooner termination of this Lease shall be deemed
abandoned by Tenant and title to same shall thereupon pass to Landlord without
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compensation to Tenant. Landlord may [ILLEGIBLE] termination of this Lease,
remove all [ILLEGIBLE] furniture and equipment so abandoned by Tenant, at
Tenant's sole [ILLEGIBLE] and repair any damage caused by such [ILLEGIBLE] at
Tenant's sole cost. If the Premises are not surrendered at the end of the term
or sooner termination of this Lease, Tenant shall indemnify Landlord against
loss or liability resulting from the delay by tenant in so surrendering the
Premises including, without limitation, any claims made by an succeeding tenant
founded on such delay. Nothing contained herein shall be construed as an
extension of the term hereof or as a consent of Landlord to any holding over by
Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant
or a mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
11. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof without the written
consent of Landlord first had and obtained by Tenant. All work with respect to
any alteration or addition shall be done in a good and workmanlike manner,
shall be under the supervision of a competent architect or competent licensed
structural engineer, and shall be made in accordance with all applicable laws,
ordinances, codes and regulations related thereto and the plans and
specifications with respect thereto shall be approved in writing by Landlord
before commencement of work.
Tenant agrees that it will not proceed to make such alteration or
additions, without having obtained consent from Landlord to do so, and until
five (5) days after the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within test (10) days after the imposition
thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must
be made in writing and executed by both Landlord and Tenant. Upon completion of
the work, Tenant shall file a Notice of Completion as permitted by law in the
Office of the County Recorder where the Premises is located.
Any addition to, or alteration of the Premises, except moveable furniture
and trade fixtures shall at once become a part of the Premises and belong to
Landlord. Tenant shall retain title to all moveable furniture and trade fixtures
placed in the Premises. All heating, lighting, electrical, air conditioning,
floor to ceiling partitioning, drapery, carpeting and floor installations made
by Tenant, together with all property that has become an integral part of the
Premises, shall not be deemed trade fixtures.
12. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, all windows, window frame, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts) heating and
air conditioning systems (such as compressors, fans, air handlers, ducts, mixing
boxes, thermostats, time clocks, boilers, heaters, supply and return grills),
all interior improvements within the Premises including but not limited to wall
coverings, window coverings, carpet, floor coverings, partitioning, ceilings,
doors (both, interior and exterior including closing mechanisms, latches, locks,
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skylights (if any), automatic fire extinguishing systems, and all other interior
improvements of any nature whatsoever. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of the
carpet caused by such rolling chairs if such wear and tear exceeds that caused
by normal foot traffic in surrounding areas. Areas of excessive wear in the
Premises shall be replaced at Tenant's sole expense upon Lease termination.
Tenant shall contract with a service company for the quarterly maintenance of
the heating and air conditioning equipment, with a copy of the service contract
to be furnished to Landlord within ten (10) days after opening for business, and
a copy of any subsequent contracts to be furnished from time to time; provided,
however, that, Landlord reserves the right to contract with a service company
for the quarterly maintenance of the heating and air conditioning equipment in
the Premises in which event Tenant shall reimburse the cost thereof to Landlord
upon demand therefor. Tenant hereby waives all rights under, and benefits of,
subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil
Code and under any similar law, statute or ordinance now or hereafter in effect.
13. UTILITIES. Tenant shall pay promptly, as the same become due, all charges
for water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste pickup and any other utilities,
materials or services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed. If any such services and utilities are not separately
metered to the Premises, Tenant shall pay Landlord for the cost of installing
separate meters if requested by Landlord. Tenant shall pay on equitable portion
of all charges which are jointly altered, with the determination of Tenant's
equitable portion to be made by Landlord. Landlord shall not be liable for and
Tenant shall not be entitled to any abatement or reduction of rent by reason of
any interruption or failure of utility services to the Premises.
14. Taxes
A. As Additional Rent and in accordance with Paragraph 4.E of this Lease,
Tenant shall pay to Landlord Tenant's Share of any increases in Real Property
Taxes in any Comparison Year over those of the Base Year. The term "Real
Property Taxes," as used herein, shall mean (i) all taxes, assessments, levies
and other charges of ally kind or nature whatsoever general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments (or public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Complex) now or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessments which are levied or assessed against, or with respect to the value,
occupancy or use of, all or any portion of the Complex (as now constructed or as
may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein any improvements located within the Complex
(regardless of ownership); the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located in the
Complex; or parking areas, public utilities, or energy within the Complex; (ii)
all charges, levies or fees imposed by reason of environmental regulation or
other governmental control of the Complex; and (iii) all costs and fees
(including attorneys' fees) incurred by Landlord in contesting any Real Property
Tax and in negotiating with public authorities as to any Real Property Tax. If
at any time during the term of this Lease the taxation assessment of the Complex
prevailing as of the commencement date of this Lease shall be altered so that in
lieu of or in addition to any Real Property Tax described above there shall be
levied, assessed or imposed (whether by reason of a change in the method of
taxation or assessment, creation of a new tax or charge, or any other cause) an
alternate or additional tax or charge (i) on the value, use or occupancy of the
Complex or Landlord's interest therein or (ii) on or measured by the gross
receipts, income or rentals from the Complex, on Landlord's business of leasing
the Complex, or computed in any manner with respect to the operation of the
Complex, then any such tax or charge, however designated, shall be included
within the meaning of the term Property Taxes" for purposes of this Lease. If
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any Real Property Tax is based upon property or rents unrelated to the Complex,
then only that part of such real Property Tax that is fairly allocable to the
Complex shall be included within the meaning of the term "Real Property Taxes."
Notwithstanding the foregoing, the term "Real Property Taxes" shall not include
estate inheritance, gift or franchise taxes of Landlord or the federal or state
net income tax imposed on Landlord's income from all sources.
B. Taxes on Tenant's Property.
(1) Tenant shall be liable for and shall pay ten (10) days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises, if any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such increased
assessment which Landlord shall leave the right to do regardless of the validity
thereof (but only under proper protest if requested by Tenant), Tenant shall
upon demand, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provided that in any such event Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation (but without cost to
Landlord), to bring suit in any court of competent Jurisdiction to recover the
amount of any such taxes so paid under protest, and any amount so recovered
shall belong to Tenant.
(2) If the Tenant improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real property
taxes and assessments levied against Landlord or the Complex by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of Paragraph 14.B (1)
above. If the records of the Country Assessor are available and sufficiently
detailed to serve as a basis for determining whether said Tenant [ILLEGIBLE]
space in the Complex, such records shall be binding on both the Landlord and the
Tenant. If the records of the County Assessor are not available or sufficiently
detailed to serve as a basis for making said determination, the actual cost of
construction shall be used.
15. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to obtain and keep
in force during the term of this Lease policy of comprehensive public liability
insurance with limits in the amount of not less than $1,000,000 combined single
unit coverage per occurrence for injuries to or death of persons occurring in,
on or about the Premises or the Complex, and property damage insurance with
limits of not less than $500,000. The policy or policies affecting such
insurance, certificates of which insurance shall be furnished to Landlord prior
to occupancy, shall name Landlord and the beneficiary or mortgagee of any deed
of trust or mortgage affecting the Premises as additional insureds, and shall
insure any liability of Landlord, contingent or otherwise, with respect to any
act or omission of Tenant, its agents, employees or invitees or otherwise by any
conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California having a rating of A or better in
"Best's Insurance Guide"; and shall provide that the insurance effected thereby
shall not be cancelled, except upon thirty (30) days' prior written notice to
Landlord. Said liability insurance shall be primary and not contributing to any
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insurance available to Landlord, and Landlord's insurance shall be in excess
thereto. If, during the term of this Lease, in the considered opinion of
Landlord's lender, insurance advisor, or counsel, the amount of insurance
described in this Paragraph 15 is not adequate, Tenant agrees to increase said
coverage to such reasonable amount as Landlord's tender, insurance advisor, or
counsel shall deem adequate.
16. TENANT'S PROPERTY INSURANCE AND WORKER'S COMPENSATION. Tenant shall maintain
a policy or policies of fire and properly damage insurance in "all risk" form
with a sprinkler leakage endorsement insuring the personal property, inventory,
trade fixtures, and leasehold improvements within the Premises for the full
replacement value thereof. The proceeds from any of such policies shall be used
for the repair or replacement of such items so insured. Tenant shall also
maintain a policy or policies of worker's compensation insurance and any other
employee benefit insurance sufficient to comply with all laws.
17. LANDLORD'S INSURANCE; WAIVER OF SUBROGATION. Landlord shall purchase and
keep in force, a policy or policies of casualty insurance covering loss or
damage to the Premises, Building and related Common Area improvements in the
amount of the full replacement value thereof, providing protection against those
perils covered by "all risk" insurance, and including such other casually
endorsements as a Landlord may elect. Landlord shall also maintain at Landlord's
election, or if required by Landlord's lender from time to time, earthquake
and/or flood damage insurance, worker's compensation insurance, sprinkler
leakage insurance and rental income insurance in the amount of one hundred
(100%) percent of twelve (12) months Basic Rent, plus sums paid as Additional
Rent. As Additional Rent and in accordance with Paragraph 4.E hereof, Tenant
shall pay to Landlord Tenant's Share of any increases in the premiums for
Landlord's insurance in any Comparison Year over those of the Base Year. If such
insurance cost is increased due to Tenant's use of the Premises or the Complex,
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord as described in this Paragraph 17.
Landlord and Tenant do each hereby waive their respective rights of
recovery against each other to the extent of insurance coverage of the releasing
party, from any liability for loss or damage caused by fire or any of the perils
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other thereof.
18. INDEMNIFICATION; EXEMPTION OF LANDLORD FROM LIABILITY. The parties agree
that (a) neither Landlord nor its agents shall be liable to Tenant, and Tenant
hereby waives all claims against Landlord, for any injury to Tenant's business
or loss of income therefrom or for injury to or death of persons or for damage
to or destruction of property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water or rain which may leak or flow from or into any
part of the Building or Complex or from the pipes, appliances, sprinklers or
plumbing works therein or from the roof, street or subsurface or from any other
place resulting from dampness or any other cause whatsoever; (b) Landlord or its
agents shall not be liable for latent defects in the Premises, the Building, or
the Complex (c) Landlord or its agents shall not be liable for damages arising
from any act or neglect of any other tenant of the Complex; and (d) Tenant shall
indemnify, hold Landlord harmless from and defend Landlord against any and all
costs, damages, liabilities and expenses, including attorneys' fees and costs,
incurred in connection therewith, arising out of any alleged injury to or death
of any person or damage to or destruction of property which: (i) occurs in, on
or about the Premises, or any part thereof, from any cause whatsoever; (ii)
occurs outside of the Premises as a result of the negligent act or omission of
Tenant or its agents, employees, contractors or invitees; or (iii) results from
the breach by Tenant of this Lease.
19. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply with
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all laws, statutes, ordinances and governmental rules, regulations, or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall he deemed a breach of
these provisions if Tenant, immediately upon notification, commences to remedy
or rectify said failure. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any such law, statute, ordinance
or governmental rule, regulation requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This Paragraph shall not
be interpreted as requiring Tenant to make structural changes or structural
improvements, except to the extent such changes or improvements are required as
a result Tenant's use of the Premises. Tenant shall, at its sole cost and
expense, comply with any and all requirements pertaining to said Premises, of
any insurance organization or company, necessary for the maintenance of
reasonable fire and public liability insurance covering the Premises.
20. LIENS. Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord shall
have, in addition to all other remedies provided herein and by law, the right
but not the obligation, to cause the same to be released by such means as it
shall deem proper, including payment of the claim giving rise to such lien. All
sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest thereon as specified in Paragraph 44 below.
21. ASSIGNMENT AND SUBLETTING.
A. Landlord's Consent Required. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this lease, or any interest herein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord, which consent will not be unreasonably withheld. Any
attempt to do so without such consent being first had and obtained shall be
wholly void and shall constitute a default by Tenant under this Lease.
B. Reasonable Consent. If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the assignment of the
Lease or the subletting of the Premises or any portion thereof: Tenant shall
submit in writing to Landlord (a) the name and legal composition of the proposed
assignee or subtenant; (b) the nature of the proposed assignee's or subtenant's
business to be carried on in the Premises; (c) the terms and provisions of the
proposed assignment or sublease; (d) such reasonable financial information as
Landlord may request concerning the proposed assignee or subtenant including,
without limitation, financial history, credit rating and business experience.
Tenant acknowledges that Landlord has entered into this Lease in reliance on the
particular skills, knowledge and experience of Tenant and/or the principal
officer of Tenant with respect to the conduct of business in the Premises.
Tenant recognizes that Landlord's willingness to put its investment in the
Premises at risk under the terms of this Lease is based upon landlord's
judgmental considerations regarding Tenant's abilities as set forth above.
Without limiting Landlord's right to refuse to give such consent on any other
reasonable grounds Landlord reserves the right to refuse to give such consent if
in Landlord's reasonable business judgment (i) the quality of operation is or
may be in any way adversely affected during the Lease term; (ii) the financial
worth of the proposed new tenant is less than that of Tenant executing this
Lease; (iii) the proposed assignee's or subtenant's use of the Premises involves
the storage, use or disposal of any Hazardous Materials; (iv) the proposed
assignee or subtenant has been required by any governmental authority to clean
up Hazardous Materials; (v) the proposed assignee or subtenant is subject to
investigation or enforcement by any governmental authority in connection with
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the use, disposal or storage of a Hazardous Material; or (vi) investigation
discloses other information reasonably unsatisfactory to Landlord.
C. No Release of Tenant. [ILLEGIBLE] by Landlord to any assignment or
[ILLEGIBLE] by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether occurring [ILLEGIBLE] after such consent,
assignment of the Lease or subletting of the Premises. Tenant hereby irrevocably
assigns to Landlord all rent and other sums from any assignment, transfer or
subletting of the Premises, and agrees that Landlord, as assignee and as
attorney-in-fact for Tenant, or a receiver for Tenant appointed upon Landlord's
application, may collect such Rent and other sums and apply the same as provided
in Paragraph 24 upon Tenant's default under this Lease; provided however, that
until the occurrence of any act of default by Tenant under this Lease, its
assignee, transferee or subtenant, Tenant shall have the right to collect such
sums, provided that fifty percent (50%) of all excess sums in excess of the rent
payable by Tenant to Landlord hereunder which any assignee, transferee or
subtenant covenants to pay shall belong solely and exclusively to Landlord.
Landlord may at its election require as a condition to approval of a proposed
assignment, transfer or sublease that the rent due pursuant to the sublease be
paid directly to Landlord. In the event Tenant is allowed to assign, transfer or
sublet the whole or any part of the Premises, with the prior written consent of
Landlord, no assignee, transferee or subtenant shall assign or transfer this
Lease, either in whole or in part, or sublet the whole or any part of the
Premises, without also having obtained the prior written consent of Landlord. A
consent of Landlord to one assignment, transfer, hypothecation, subletting,
occupation or use by any other person shall not release Tenant from any of
tenant's obligations hereunder or be deemed to be a consent to any subsequent
similar or dissimilar assignment, transfer, hypothecation, subletting,
occupation or use by any other person. Any such assignment, transfer,
hypothecation, subletting, occupation or use without such consent shall be void
and shall constitute a breach of this Lease by Tenant and shall, at the option
of Landlord exercised by written notice to Tenant, terminate this Lease. The
leasehold estate under this Lease shall not nor shall any interest therein, be
assignable for any purpose by operation of law without the written consent of
Landlord.
D. Form of Consent; Costs. Tenant agrees to reimburse Landlord for
Landlord's expenses (including attorney's fees and costs) incurred in
conjunction with the processing and documentation of any such requested
transfer, assignment, subletting, licensing or concession agreement, change of
ownership, mortgage, or hypothecation of this Lease or Tenant's interest in and
to the Premises (collectively, "Transfer"). Each Transfer to which there has
been consent shall be by an instrument in writing in form satisfactory to
Landlord, and shall be executed by the transferor and the transferee in each
instance; and each transferee shall agree in writing, for the benefit of
Landlord, to assume, to be bound by, and to perform the terms, covenants and
conditions of this Lease of be done, kept and performed by Tenant, including the
payment of all amounts due or to become due under this Lease directly to
Landlord. An executed copy of such written instrument shall be delivered to
Landlord. Failure to first obtain in writing Landlord's consent or failure to
comply with the provisions of this Paragraph 21 shall operate to prevent any
such Transfer from becoming effective.
E. Acknowledgment of Reasonableness. Tenant agrees that the provisions of
this Paragraph 21 are not unreasonable standards or conditions for any purpose,
including for purposes of the California Civil Code Section 1951.4(b).
22. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a lien of any mortgage or deed of
trust, upon the interest of Landlord in the land and buildings in which the
demised Premises are located, to secure a lien from a lender (hereinafter
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referred to as "Lender") to Landlord, Tenant shall, at the request of landlord
or Lender, execute in writing an agreement subordinating its rights under this
Lease to the lien of such mortgage or deed of trust, or if so requested,
agreeing that the lien of Lender's mortgage or deed of trust shall be or remain
subject and subordinate to the rights of Tenant under this Lease.
Notwithstanding any such subordination, Tenant's possession under this lease
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all rent and observe and perform all of the provisions set forth in this
Lease.
23. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable times
after 24 hours prior notice (except in emergencies) have, the right to enter the
Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, lenders, or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord shall
also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any damages or reduction of rent hereunder.
24. BANKRUPTCY; TENANT'S DEFAULT.
A. Bankruptcy. The commencement of a bankruptcy action or liquidation
action or reorganization action or insolvency action or an assignment of or by
Tenant for the benefit of creditors, or any similar action undertaken by Tenant,
or the Insolvency of Tenant, shall, at Landlord's option, constitute a breach of
this Lease by Tenant. If the trustee or receiver appointed to serve during a
bankruptcy, liquidation reorganization, insolvency or similar action elects to
reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord
in writing of its election within sixty (60) days after an order for relief in a
liquidation action or within thirty (30) days after the commencement of any
other action. Within thirty (30) days after court approval of the assumption of
this Lease, the trustee or receiver shall cure (or provide adequate assurance to
the reasonable satisfaction of Landlord that the trustee or receiver shall cure)
any and all previous defaults render the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Nothing contained in this Paragraph shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease small be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any right or privileges hereunder be an asset of
Tenant under any bankruptcy, insolvency or reorganization proceedings.
B. Tenant's Default. The failure to perform or honor any covenant,
condition or representation made under this Lease shall constitute a default
hereunder by Tenant upon expiration of the appropriate grace period hereinafter
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provided. Tenant shall have a period of three (3) days from the date of written
notice from landlord, in the manner prescribed in Section 1162 of the
California Code of Civil Procedure, within which to cure any default in the
payment of Basic or Additional Rent or adjustment thereto. Tenant shall have a
period of thirty (30) days from the date of written notice from Landlord within
which to cure any other default under this Lease; provided, however, that if the
nature of Tenant's failure is such that more than thirty (30) days is reasonably
required to cure the same, Tenant shall not be in default so long as Tenant
commences performance within such thirty (30) day period and thereafter
prosecutes the same to completion. Upon an uncured default of this Lease by
Tenant, Landlord shall have the following rights and remedies in addition to any
other rights or remedies available to Landlord at law or in equity;
(1) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of 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 rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraph
(2) and (3) of Section 1951.2 of the amount of rental loss that could be
reasonably avoided shall be made in the following manner; Landlord and Tenant
shall each select a licensed real estate broker in the business of renting
property of the same type and use as the Premises and in the same geographic
vicinity. Such two real estate brokers shall select a third licensed real estate
broker and the three licensed real estate brokers so selected shall determine
the amount of the rental loss than could be reasonably avoided from the balance
of the terms of this Lease after the time of award. The decision of the
majority of said licensed real estate brokers shall be final and binding upon
the parties hereto.
(2) The rights and remedies provided by California Civil Code
Section 1954, which allows Landlord to continue the Lease in effect after
Tenant's breach and abandonment and to enforce all of its rights and remedies
under this Lease, including the right to recover rent as it becomes due, for so
long as Landlord does not terminate Tenant's right to possession; acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver upon Landlord's initiative to protect its interest under this
Lease shall not constitute a termination of Tenant's right to possession.
(3) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(4) To the extent provided by law, the right and power to enter the
premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the [ILLEGIBLE] of and for the account of
Tenant, and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may, from time to time, sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. Upon such subletting, (i) Tenant shall be immediately liable to
pay Landlord, in addition to indebtedness other than rent due hereunder, the
cost of such subletting, including, but not limited to, reasonable attorneys'
fees and costs, and any real estate commissions actually paid, and the cost of
such alterations and repairs incurred by Landlord and the amount, if any, by
which the rent hereunder for the period of such subletting (to the extent such
period does not exceed the term hereof) exceeds the amount to be paid as rent
for the Premises for such period of (ii) at the option of Landlord, rents
received from such subletting shall be applied first to payment of indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such subletting and of such alterations and repairs; third to
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payment of rent due and unpaid hereunder; and the residue, if any, shall be held
by Landlord and applied in payment of future rent as the same becomes due
hereunder. If Tenant has been credited with any rent to be received by such
subletting under option (i) and such rent shall not be promptly paid to Landlord
by the subtenant(s), or if such rentals received from such subletting under
option (ii) during any month be less than that to be paid during that month by
Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. No taking possession of the
Premises by Landlord shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Tenant.
Notwithstanding any such subletting without termination, Landlord may at any
time hereafter elect to terminate this Lease for such previous breach.
(5) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph 4 above.
25. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder), and if
Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by
the process of law, or otherwise, any personal property belonging to Tenant and
left on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord.
26. DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except damage and destruction caused from vandalism or accident
for which Tenant is responsible for under Paragraph 12, Landlord may, at its
option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost or to any extent if the damage is not
covered by insurance).
Landlord shall give Tenant notice in writing thirty (30) days from the
destruction of the Premises of its election to either rebuild and restore them,
or to terminate this Lease. In the event Landlord agrees to rebuild or restore
the Premises, Landlord shall do so promptly at its expense. Tenant shall be
entitled to a reduction in rent while such repair is being made in the
proportion that the area of the Premises rendered untenantable by such damage
bears to the total area of the Premises. If Landlord initially estimates that
the rebuilding or restoration will exceed 180 days or if Landlord does not
complete the rebuilding or restoration within one hundred eighty (180) days
following the date of destruction (such period of time to be extended for delays
caused by the fault or neglect of Tenant or because of Acts of God, acts of
public agencies, labor disputes, strikes, tires, freight embargoes, rainy or
stormy weather, inability to obtain materials, supplies or fuels, acts of
contractors or subcontractors, or delay of the contractors or subcontractors due
to such causes or other contingencies beyond the control of Landlord), then
Tenant shall have the right to terminate this Lease by giving thirty (30) days
prior written notice to Landlord. Notwithstanding anything herein to the
contrary, Landlord's obligation to rebuild or restore shall be limited to the
Building and interior improvements constructed by Landlord as they existed as of
the commencement date of the Lease and shall not include restoration of Tenant's
trade fixtures, equipment, merchandise, or any improvements, alterations, or
additions made by Tenant to the Premises, which Tenant shall forthwith replace
or fully repair at Tenant's sole cost and expense provided this Lease is not
cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
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Lease shall remain in full force and effect. Tenant hereby expressly waives any
statutory rights of termination which may arise by reason of any partial or
total destruction of Premises.
In the event that the Building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
costs thereof, Landlord may elect to terminate this Lease whether the Premises
be injured or not. In the event the destruction of the Premises is caused by
Tenant, Tenant shall pay the deductible portion of Landlord's insurance
proceeds.
27. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises
so taken or conveyed on the date when title vests in the condemnor and Landlord
shall be entitled to any and all payment, income, rent, award or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value or any unexpired term of this Lease. Notwithstanding the foregoing
Paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the Premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any other space in the Complex, or if any such
spaces are taken or conveyed in lieu of such taking and Landlord shall decide to
discontinue the use and operation of the Complex, or decide to demolish, alter
or rebuild the Complex, then, in any of such events Landlord shall have the
right to terminate this Lease by giving Tenant written notice thereof within
sixty (60) days of the date of receipt of said written advice, or commencement
of said action or proceeding, taking or conveyance, which termination shall take
place as of the first to occur of the last day of the calendar month next
following the month in which such notice is given or the date on which title to
the Premises shall vest in the condemnor.
In the event of a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating the Lease within sixty (60) days from the date of such taking or
conveyance upon written notice to Landlord of its intention to do so, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
28. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of the
Complex or any interest therein by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event insofar as such transfer is
concerned, Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
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attorn to the successor in Interest of such transferor.
29. [ILLEGIBLE] TO LENDER OR THIRD PARTY. in the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold) is encumbered by
deed of trust, and such interest is acquired by thee tender or any third party
through judicial foreclosure or by exercise of a power of sale at private
trustee's foreclosure sale, Tenant hereby agrees to attorn to the purchaser at
any such foreclosure sale and to recognize such purchaser as the Landlord under
this Lease. In the event the lien of the deed of trust securing the loan from a
Lender to Landlord is prior and paramount to the Lease, this Lease shall
nonetheless continue is in full force and effect for the remainder of the
unexpired term hereof, at the same rental herein reserved and upon all the other
terms, conditions and covenants herein contained.
30. HOLDING OVER. Any holding over [illegible] after expiration or other
termination [illegible] the term of this Lease with the written consent of
Landlord delivered to Tenant shall not constitute a renewal of the Lease or give
Tenant any rights to the Premises except as expressly provided in this Lease.
Any holding over after the expiration or other termination of the term of this
Lease, with the consent of Landlord, shall be construed to be a tenancy from
month to month, on the same terms and conditions herein specified insofar as
applicable except that the monthly Basic Rent shall be increased to an amount
equal to one hundred fifteen (115%) percent of the monthly Basic Rent required
during the last month of the Lease term.
31. CERTIFICATE OF ESTOPPEL. Tenant shall within ten (10) days after written
notice from Landlord at any time, execute, acknowledge and deliver to Landlord a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults, if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises. Tenant's failure to deliver such statement
within such time shall be conclusive upon Tenant that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
that there are no uncured defaults in Landlord's performance, and that not more
than one month's rent has been paid in advance.
32. CONSTRUCTION CHANGES. It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
33. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of the
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obligated
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
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such performance by Landlord together with interest thereon at the rate of
interest specified in Paragraph 44 below, shall be paid (and Tenant covenants to
make such payments) to Landlord, and Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
nonpayment by Tenant as in the case of failure by Tenant in the payment of rent
hereunder.
34. ATTORNEY'S FEES. In the event that either Landlord or Tenant should bring
suit for the possession of the Premises, for the recovery of any sum due under
this Lease, or because of the breach of any provision of this Lease, or for any
other relief against the other party hereunder, then all costs and expenses,
including reasonable attorneys' fees, incurred by the prevailing party therein
shall be paid by the other party, which obligation on the part of the other
party shall be deemed to have accrued on the date of the commencement of such
action and shall be enforceable whether or not the action is prosecuted to
judgment. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
35. WAIVER. The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition of any subsequent failure of the party failing to perform
or observe the same or any other such term, covenant or condition therein
contained, and no custom or practice which may develop between the parties
hereto during the term hereof shall be deemed a waiver of, or in any way affect,
the right of either party to insist upon performance and observance by the other
party in strict accordance with the terms hereof.
36. NOTICES. All notices, demands, requests, advises or designations
(collectively "Notices") which may be or are required to be given by either
party to the other hereunder shall be in writing. All Notices shall be
sufficiently given, made or delivered if (i) to Tenant, personally served on
Tenant by leaving the same at the Premises, or (ii) to Landlord, if personally
served on a general partner of Landlord executing this Lease. Notice shall also
be sufficiently given, made or delivered if sent by (a) postage prepaid United
States mail or overnight courier, addressed as specified in Paragraph 1,K, or
(b) facsimile transmission to the numbers specified in Paragraph 1.K, with
confirming copy sent by United States mail. Each notice referred to in this
Paragraph shall be deemed received on the date of the personal service or
facsimile transmission, the next business day after sending via overnight
courier, or on the third (3rd) day after mailing thereof by United States Mail,
as the case may be.
37. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
38. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to other holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
39. CORPORATE AUTHORITY. If Tenant is a corporation (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said corporation (or partnership) in accordance with the
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by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
40. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party in
any suit or action (except as may be necessary to secure jurisdiction of the
partnership);
(iii) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(iv) no partner of Landlord shall be required to answer or
otherwise plead to any service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be
vacated and set aside at any time without hearing;
(vii) no unit of execution will ever be levied against the assets
of any partner of Landlord;
(viii) these covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
41. BROKERS. Tenant warrants that it had dealings with only the real estate
broker(s) or agent(s) specified in Paragraph 1.L in connection with the
negotiation of this Lease and that it knows of no other real estate broker or
agent who is entitled to a commission in connection with this Lease. Tenant
agrees to indemnify Landlord for any and all costs, expenses and damages
(including attorney's fees and costs) arising out of any allegations or claim by
any third party for a commission or fee in connection with the negotiation of
this Lease.
42. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
installed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such manner as to restore all aspects
of the appearance of the Premises to the condition prior to the placement of
said sign.
All approved signs or lettering on outside doors shall be printed,
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painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall partition which may, in Landlord's
judgment, appear unsightly from outside the Premises.
43. HAZARDOUS MATERIALS.
A. Definitions. As used herein, the term "Hazardous Material" shall mean
any substance or material which has been determined by any state, federal, or
local government authority to be capable of posing a risk of injury to health,
safety or property including all of those materials and substances designated as
hazardous or toxic by the Environmental Protection Agency, the California Water
Quality Control Board, the Department of Labor, the California Department of
Industrial Relations, the Department of Transportation, the Department of
Agriculture, the Department of Human Services, the Food and Drug Agency or any
other governmental agency which regulates hazardous or toxic substances in the
environment. Without limiting the generality of the foregoing, the term
"Hazardous Materials" shall include all of those materials and substances
defined as "Toxic Materials" in Sections 66680 through 66685 of Title 22 of the
California Administrative Code, Division 4, Chapter 30, as the same shall be
amended from time to time.
B. Use Restriction. Subject to the terms and conditions set forth herein,
Landlord acknowledges that so long as the original party named herein as Tenant
remains the Tenant under this Lease, Tenant shall be permitted to use and store
in the Premises only the substances listed on Exhibit E attached hereto
(however, the inclusion of Exhibit E shall in no way be deemed to create any
obligation on Landlord's part to review the list of Hazardous Materials for
conformity to laws). Except as specifically allowed in this Lease, Tenant shall
not cause or permit any Hazardous Material to be used, stored, or disposed of in
or about the Premises, or any other land or improvements in the vicinity of the
Premises. The appearance of any Hazardous Material that is not permitted by this
Lease in or about the Premises shall be deemed an event of default. Without
limiting the generality of the foregoing, Tenant, at its sole cost, shall comply
with all laws relating to the storage, use and disposal of Hazardous Materials.
If the presence of Hazardous Materials on the Premises caused or permitted by
Tenant results in contamination of the Premises or any soil in or about the
Premises, Tenant, at its expense, shall promptly take all actions necessary to
return the same to the condition existing prior to the appearance of such
Hazardous Material.
Tenant shall defend, hold harmless and indemnify Landlord and its agents
and employees with respect to all claims, damages and liabilities arising out of
or in connection with any storage, use or disposal of Hazardous Materials in or
about the Premises. Tenant shall not suffer any lien to be recorded against the
Premises as a consequence of a Hazardous Material, including any so-called
state, federal or local "super fund" lien related to the "clean up" of a
Hazardous Material in or about the Premises.
C. Compliance. Tenant shall immediately notify Landlord of any inquiry,
test, investigation, or enforcement proceeding by or against Tenant or the
Premises concerning a Hazardous Material. Tenant acknowledges that Landlord, as
the owner of the Premises, at its election, shall have the sole right, at
Tenant's expense, to negotiate, defend, approve and appeal any action taken or
order issued with regard to a Hazardous Material by an applicable governmental
authority. Landlord shall have the right to appoint a consultant, at Tenant's
expense, to conduct an investigation to determine whether Hazardous Materials
are being used, stored and disposed of in an appropriate matter. Tenant, at its
expense, shall comply with all recommendations of the consultant.
D. Certification Upon Termination of Lease. Upon the expiration or earlier
termination of the Lease, Tenant, at its sole cost, shall remove all Hazardous
Materials from the Premises and shall provide a certificate to Landlord at
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Landlord's request certifying that there is no contamination of soil in or about
the Premises and that there is no other contamination of Hazardous Materials in
the Premises. If Tenant fails to so surrender the Premises, Tenant shall
indemnify and hold Landlord harmless from all damages resulting from Tenant's
failure to surrender the Premises as required by this Paragraph, including
without limitation any claims or damages in connection with the condition of the
Premises such as damages occasioned by the inability to relet the Premises or a
reduction in the fair market and/or rental value of the Premises by reason of
the existence of any Hazardous Materials in or around the Premises.
E. Clean-Up Activities. If any action is required to be taken by a
governmental authority to clean-up Hazardous Materials from the Premises and
such action is not completed prior to the expiration or earlier termination of
the Lease, Tenant shall be deemed to have impermissibly held over until such
time as such required action is completed, and in addition to the requirements
of Paragraph 30, Landlord shall be entitled to all damages directly or
indirectly incurred in connection with such holding over, including without
limitation, damages occasioned by the inability to re-let the Premises or a
reduction of the fair market and/or rental value of the Premises.
44. INTEREST. Any sum accruing to Landlord under the provisions of this Lease
which shall not be paid by Tenant within thirty (30) days after such sum becomes
due, shall bear interest from the expiration of such 30 day period, until paid,
at the rate of twelve percent (12%) per annum.
45. MISCELLANEOUS AND GENERAL PROVISIONS.
A. Use of Building Name. Tenant shall not, without the written consent of
Landlord, use the name of the Building for any purpose other than as the address
of the business conducted by Tenant in the Premises.
B. Governing Law; Partial Invalidity. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
C. Definitions; Binding Effect. The term "Premises" includes the space
leased hereby and any improvements now or hereafter installed therein or
attached thereto. The term "Landlord" or any pronoun used in place thereof
includes the plural as well as the singular and the successors and assigns of
Landlord. The term "Tenant" or any pronoun used in place thereof includes the
plural as well as the singular and individuals, firms, associations,
partnerships and corporations, and their and each of their respective heirs,
executors, administrators, successors and permitted assigns, according to the
context hereof, and the provisions of the Lease shall inure to the benefit of
and bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant, the
obligations of Tenant hereunder are joint and several. The paragraph headings of
the Lease are for convenience of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.
D. Time of the Essence. Time is of the essence of this Lease and of each
and all of its provisions.
E. Quitclaim of Leasehold Interest. At the expiration or earlier
termination of this Lease, Tenant shall execute, acknowledge and deliver to
Landlord, within ten (10) days after written demand from Landlord to Tenant, any
quitclaim deed or other document required by any reputable title company
licensed to operate in the State of California, to remove the cloud or
encumbrance created by this Lease from the real property of which Tenant's
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Premises are a part.
F. Entire Agreement. This instrument along with any exhibits, riders and
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this agreement and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this agreement.
G. Recording of Lease. Neither Landlord nor Tenant shall record this Lease
or a short form memorandum hereof without the consent of the other.
H. Amendments Required by Lender. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.
I. Air Rights Retained by Landlord. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect this
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
J. Early Occupancy. If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all of the provisions of
this Lease, and Tenant shall pay Base Rent, Additional Rent and all other
charges specified in this Lease for the early occupancy period. Early occupancy
of the Premises by Tenant shall not advance the termination date of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
This agreement is subject to obtaining releases from previous lease with SMTC
and Shamrock Technology on the premises.
LANDLORD: TENANT:
By George L. Quinn Jr. By Charles D. Dimick
------------------------------- -------------------------------
Print Name Print Name
/s/ George L. Quinn Jr. /s/ Charles D. Dimick
------------------------------- -------------------------------
Signature Signature
Partner President
------------------------------- -------------------------------
Title of Signatory Title of Signatory
By MAHMOUD GAHRAHMAT By RONALD B. JAECH
------------------------------- -------------------------------
Print Name Print Name
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/s/ Mahmoud Gahrahmat /s/ Ronald B. Jaech
------------------------------- -------------------------------
Signature Signature
Partner SEC
------------------------------- -------------------------------
Title of Signatory Title of Signatory
EXHIBIT A
LEGAL DESCRIPTION OF COMPLEX
The real property referred to in this Lease as the "Complex" shall mean and
include all that certain real property situated in the County of Santa Clara,
State of California, more particularly described as follows:
The land referred to herein is situated in the State of California, County of
Santa Clara, City of Milpitas (and is described as follows)
PARCEL 6, as shown on that certain Map entitled, "Parcel Map", which May was
filed for record in the office of the Recorder of the County of Santa Clara,
State of California on November 28, 1978 in Book 431 of Maps, at page(s) 2 and
3.
EXHIBIT B
SITE PLAN OF COMPLEX AND BUILDING
[GRAPHIC]
EXHIBIT C
TENANT IMPROVEMENTS WORKLETTER
All interior improvements are in and completed and are taken "as is" by Tenant.
RIDER 1
This Rider shall serve and add the following provision to the Lease
Agreement entered into between GEOMAX, a California general partnership
("Landlord"), and Dynamic Circuits, Inc., a California corporation ("Tenant")
dated July 22, 1991 (the "Lease"). This Rider shall be effective as of the date
of the Lease. All capitalized terms not specifically defined herein shall have
the definitions given in the Lease.
Right of First Opportunity
Landlord hereby grants to Tenant the right of first opportunity ("Right of
First Opportunity") to lease additional space in the Complex as hereinafter
provided. If at any time during the Lease term prior to September 1998 Landlord
desires to lease 1841 Tarob Court, Milpitas, adjacent 12,960 sq. ft. space.
("First Opportunity Premises"), Landlord shall notify Tenant in writing of the
basic business terms upon which Landlord if prepared to lease such First
Opportunity Premises. Tenant shall have a right, for a period of ten (10) days
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from and after the giving of such notice, within which to notify Landlord that
it will lease such First Opportunity Premises on the same business terms as
those contained in Landlord's notice, in which event Landlord and Tenant shall
proceed to finalize and execute such lease. The First Opportunity Premises shall
be leased upon the same terms, covenants and conditions as contained in this
Lease except for the business terms contained in Landlord's notice. If Tenant
fails to notify Landlord in writing that it will accept such First Opportunity
Premises within the prescribed ten (10) day period, or if Tenant is in default
of this Lease, or if Landlord and Tenant, after using good faith efforts, fail
to agree on the terms of the new lease within ten (10) days after Tenant's
notice of its election to lease such First Opportunity Premises, then Landlord
may lease such First Opportunity Premises to another tenant, free of rights of
Tenant and without any obligation to offer or re-offer to lease such space to
Tenant. This Right of First opportunity is unique to Tenant and shall not be
transferrable to any sublessee, assignee or transferee of Tenant.
LANDLORD TENANT:
By George L. Quinn, Jr. By Charles D. Dimick
--------------------------- --------------------------
Print Name Print Name
/s/ George L. Quinn, Jr. /s/ Charles D. Dimick
--------------------------- --------------------------
Signature Signature
Partner President
--------------------------- --------------------------
Title of Signatory Title of Signatory
By Mahmoud M. Gahrahmat By Ronald B. [ILLEGIBLE]
--------------------------- --------------------------
Print Name Print Name
/s/ Mahmoud M. Gahrahmat /s/ Ronald B. [ILLEGIBLE]
--------------------------- --------------------------
Signature Signature
Partner SEC.
--------------------------- --------------------------
Title of Signatory Title of Signatory
EXHIBIT D
ACKNOWLEDGEMENT OF COMMENCEMENT
LandLord: GEOMAX
Tenant: Dynamic Circuits, Inc.
Complex: Tarob 6
Premises: 1831 Tarob Court, Milpitas, CA 95035
for the Lease dated July 22, 1991, the undersigned hereby certifies:
I. That the undersigned Tenant occupies the above-described Premises
consisting of approximately 26,760 square feet.
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II. That the initial Lease term commenced on October 1, 1991 and will
terminate on September 30, 2001.
III. That Tenant's obligation to pay monthly Basic Rent in amount of $
20,868.00 commenced or will commence on October 1, 1991.
IV. That a security deposit of $21,000.00 has been paid by Tenant to
Landlord.
V. That all construction to be performed by Landlord is complete and
has been accepted by Tenant.
Dated as of this 30th day of October , 1991.
LANDLORD TENANT:
By George L. Quinn, Jr. By Charles D. Dimick
--------------------------- --------------------------
Print Name Print Name
/s/ George L. Quinn, Jr. /s/ Charles D. Dimick
--------------------------- --------------------------
Signature Signature
Partner President
--------------------------- --------------------------
Title of Signatory Title of Signatory
By Mahmoud M. Gahrahmat By Ronald B. [ILLEGIBLE]
--------------------------- --------------------------
Print Name Print Name
Mahmoud M. Gahrahmat /s/ Ronald B. [ILLEGIBLE]
--------------------------- --------------------------
Signature Signature
Partner SEC/TREAS
--------------------------- --------------------------
Title of Signatory Title of Signatory
DO NOT EXECUTE UNTIL THE EXACT COMMENCEMENT DATE HAS
BEEN ESTABLISHED PURSUANT TO PARAGRAPH 5 OF THE LEASE
Rider 2
ADDENDUM TO LEASE
This is an Addendum to the Lease entered into between GEOMAX ("Landlord") and
Dynamic Circuits, Inc., ("Tenant"). This addendum adds terms to, clarifies and
otherwise modifies the Lease, and by this reference becomes a part thereof. If
there is any discrepancy between the Lease and this Addendum, the terms of this
Addendum shall be controlling.
1. Landlord shall and hereby does indemnify, defend and hold harmless
Tenant from all claims, losses, costs, fees and liabilities, due to
damage or injuries to person or property arising from or related to
the presence of any hazardous or toxic substances not caused or
permitted in or about the premises by Tenant, or tenant's employees,
invitees, guests, agents or contractors.
2. Paragraph 18 shall be amended to provide that the Exemption from
Liability found in Section 18 shall not apply to claims or losses
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arising out of the wilful acts or omissions of Lessor. Lessor
hereby indemnifies Lessee for claims or losses or injuries to person
or property arising out of Lessor's wilful acts or omissions.
3. Tenant's indemnity agreement in Paragraph 43 (B) shall apply only to
the storage, use or disposal of Hazardous Materials caused or
permitted by Tenant, tenant's employees, invitees, guests, agents or
contractors.
4. Tenant's Certification Upon Termination of Lease pursuant to
Paragraph 43 (D) shall certify that neither Tenant nor tenant's
employees, invitees, guests, agents or contractors have created or
allowed any contamination of soil or other contamination of
Hazardous Materials in or about the Premises.
5. The indemnity agreements in this addendum and the lease shall
survive termination of the lease.
RIDER 3
ADDENDUM 2 TO LEASE ENTERED INTO BETWEEN GEOMAX (LANDLORD)
AND DYNAMIC CIRCUITS, INC. (TENANT). THIS ADDENDUM
ADDS TO AND MODIFIES THE LEASE AND BY THIS REFERENCE BECOMES A
PART THEREOF. THE LEASE IS DATED JULY 22, 1991, AND COVERS
1831 TAROB COURT, MILPITAS, CA.
The following changes shall apply:
1. Premises will expand by 12,960 square feet to include 100% of the building
the Tenant presently occupies. (See attached diagram.)
2. The commencement date for this new leased space will be Jan. 1, 1995.
3. Rent for the new space will be charged on the same Modified Gross basis as
for the old space. Rates will be as follows:
January 1, 1995 - October 31, 1997 $7,322.40
November 1, 1997 - October 31, 1999 7,322.40 + CPI adj.
November 1, 1999 - October 31, 2001 " + "
4. Adjustment date for CPI (per Lease Paragraph 4B) will be January 1, 1995.
5. Base year for taxes and insurance will be same as existing lease 1/1/91 -
12/31/91
6. Tenant shall have an Option to Extend the Lease for the entire building
for any additional 10 years from November 1, 2001 to October 31, 2011.
Said option will be priced at the final rent paid + CPI Adjustment or
market price (determined by appraisal) whichever is higher. The Tenant
must give written notice at least six (6) months prior to November 1,
2001. This new extension will have one cost-of-living adjustment on
November 1, 2006.
All other terms and conditions will remain the same as under the existing Lease.
APPROVED
GEOMAX DYNAMIC CIRCUITS, INC.
/s/ George L. Quinn, Jr 12-17-93 /s/ Chuck Dimick 12-3-93
- ---------------------------- --------- ------------------------ --------
George L. Quinn, Jr. Date Chuck Dimick Date
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Partner President
/s/ Mahmoud M. Gahrahmat Dec 17, 93
- ------------------------ -----------
Mahmoud M. Gahrahmat Date
Partner
[GRAPHIC]
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EXHIBIT 10.31
EXHIBIT A
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
March 20, 1997, is made by and between Mercury Partners 30, Inc. ("Lessor") and
Dynamic Circuits, Inc. a Delaware Corporation ("Lessee"), (collectively the
"Parties," or individually a "Party").
(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1988 Tarob Court, located in the City of
Milpitas, County of Santa Clara, State of California, with zip code 95035, as
outlined on Exhibit A attached hereto ("Premises"). The "Building" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 32,025 square feet of R&D
space which is part of a larger R&D building totaling 46,050 square feet. In
addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center." (Also see Paragraph 2.)
1.2(b) Parking: Lessee's prorata share of unreserved vehicle parking
spaces ("Unreserved Parking Spaces"); and N/A reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: five (5) years and 0 months ("Original Term") commencing August
1, 1997 ("Commencement Date") and ending July 31, 2002 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession: See Addendum #49 ("Early Possession Date"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $29,143.00 per month ("Base Rent"), payable on the first
(1st) day of each month commencing September 1, 1997 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum #50, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $29,143.00 as Base Rent for the
period August 1, 1997 through August 31, 1997.
1.6(b) Lessee's Share of Common Area Operating Expenses: Sixty Nine and
50/100 percent (69.5%) ("Lessee's Share") as determined by
[X] prorata square footage of the Premises as compared to the total square
footage of the Building or [ ] other criteria as described in Addendum
____.
1.7 Security Deposit: $68,186.00 ("Security Deposit"). (Also see Paragraph
5.)
1.8 Permitted Use: General office, sales, test and assembly of electronic
components, motherboards, integrated circuits, manufacture of printed circuit
boards and in addition, any other legal related uses approved in advance by
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Lessor. ("Permitted Use") (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Colliers Parrish International, Inc. represents Lessor exclusively
("Lessor's Broker");
[X] Bishop Hawk, Inc. represents Lessee exclusively ("Lessee's Broker"); or
[_] ____________________ represents both Lessor and Lessee ("Dual Agency").
(Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$________) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 68, and Exhibits A through D, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
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 and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) 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, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems 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 that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the date of completion
of construction of the building. Lessor further warrants to Lessee that Lessor
has no knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or ordinances
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exist with regard to the Premises as of the Commencement Date. Said warranties
shall not apply to any Alterations or Utility Installations (defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranties, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) 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, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") 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, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms 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 said matters other than as set forth in this Lease.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) if Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
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by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's
reasonable discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways
provided that the number of parking spaces shall not be reduced.
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
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Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee. See
Addendum #61
4. Rent.
4.1 Base Rent Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to 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 full month shall be
prorated based upon the actual number of days of the 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.
4.2 Common Area Operating Expenses (also known as "Additional Rent").
Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent,
Lessee's Share (as specified in Paragraph 1.6(b)) of all Common Area Operating
Expenses, as hereinafter defined, during each calendar year of the term of this
Lease, in accordance with the following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, painting of the building, elevators and
roof.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) property management and security services and the costs
of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
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(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. if Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's 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 therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
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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 monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use end occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building 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 after such request 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.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean 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), now in effect or which may hereafter come into
effect. 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 Requirements
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 Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") 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
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
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installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance 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 by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to 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 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 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or 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 (whether or not such portion of
the Premises requiring repair, 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 specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, roof membrane, trash disposal,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. 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. Notwithstanding
anything to the contrary herein, Lessee shall have no obligation to repair any
latent defect. Repair of any such latent defect shall be undertaken by Lessor at
Lessor's sole cost and expense.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof. See Addendum, #66
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
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detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any statute
now or hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "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 pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made 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) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cost per
any single project thereof during the term of this Lease as extended does not
exceed $5,000.00 .
(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 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 be in compliance with all Applicable
Requirements. 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 $2,500.00 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.
(c) Lien Protection. 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 mechanic's 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,
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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 lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys 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
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations 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 the Premises and be surrendered
with the Premises by Lessee.
(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 that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor. See Addendum, #62
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, 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 herein, the Premises, as surrendered, shall
include the Alterations and 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
Lessee-Owned Alterations and 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 Requirements and/or good 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 of Premiums. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain prior to occupancy and
keep in force during the term of this Lease a Commercial General Liability
policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have
been provided to Lessee in writing (as additional insureds) against claims for
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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 $2,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion" endorsement
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 Lesser. 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. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), 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, Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage, 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 Building 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 loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance 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.
(b) Rental Value. Lessor shall also 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 any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may 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 co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
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acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
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.
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, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $5,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee 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 A, X or such other rating as may be required by a Lender, 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. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor 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 or damage to their 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. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
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 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, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
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
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judgment. 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. See Addendum, #63 Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Except as specifically provided
herein 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 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, 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 lessee of Lessor nor from
the failure by Lessor to enforce the provisions of any other lease in the
Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease,
Lessor shall under no circumstances be liable for injury to Lessee's business or
for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(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 fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, 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.
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9.2 Premises Partial Damage - Insured Loss. If 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. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, 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, Lessor 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 Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, 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 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 Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), 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 date 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 such
commitment from Lessee. 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 after 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
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 9.7.
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 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
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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 (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses 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 damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not complete, in a
substantial and meaningful way, the repair or restoration of the Premises within
one hundred twenty (120) days after Lessor's receipt of a building permit,
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 the receipt
of such notice, this Lease shall continue in full force and effect. "Commence"
as used in this Paragraph 9.6 shall mean either the unconditional authorization
of the preparation of the required plans, or the beginning of the actual work on
the Premises, whichever occurs first. Lessor shall use commercially reasonable
efforts to obtain said building permit.
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
Requirements and subject to Lessor's approval of methods and contractors and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 6.2(c) and 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
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the date of such
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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 excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) 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 said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and 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 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. 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 Industrial Center 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 Industrial Center or any portion thereof, 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 effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the Improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
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reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building 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.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, 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 property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Promises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting. See Addendum, #68
12.1 Lessor's Consent Required.
(a) Except as expressly provided herein, Lessee shall not
voluntarily or by operation of law assign, transfer, mortgage or otherwise
transfer or encumber (collectively, "assign") 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. See
Addendum, #67
(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 full
execution and delivery 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
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without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable 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 for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. 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 rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (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, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or 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, nor (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 for 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 assignee or
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 under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
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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 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.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision 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 such 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 under a sublease approved by Lessor 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
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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 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" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee 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, and 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, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) or (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (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 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
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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 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, 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 assurances of 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 which failure is not cured within the
applicable cure period (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 reasonable 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 own 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 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 any leasing commission paid by Lessor in connection with this Lease
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 immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located 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 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
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proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve 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 Subparagraph
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 Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period 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 (2) 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 recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease 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 this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.4 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 deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) 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 any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
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period and thereafter diligently pursued to completion. See Addendum, #64
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 portion of
the Common Areas designated for Lessee's parking, 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 Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. 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 or diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessors obligation under this Paragraph 15.
Each Broker shall be an intended third party beneficiary of the provisions of
Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. 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 a form similar to the then most current "Tenancy Statement" form published by
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the American industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor and/or
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. See Addendum, #65
All such financial statements shall be received by Lessee and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. 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 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. 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 Mall, with postage prepaid, or by facsimile transmission
during normal business hours, 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
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specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. 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 or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail, if notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day,
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof, Lessor's
consent to, or approval of, any such 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 Default or Breach by
Lessee of any provision hereof. 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 still be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the
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Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 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.
30.4 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 Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' 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) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' 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
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in 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. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency,
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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, 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 eighty (180) 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.
33. 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.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, 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 so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the industrial Center by Lessor. 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 of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided 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' and 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, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), 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. 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
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acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. 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 such 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 required in Paragraph 16.
37.2 Additional Obligations of Guarantor. 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 resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the 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.
39. Options.
39.1 Definition. As used in this Lease, 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 first offer to lease the
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be 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 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.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (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 separate Defaults under Paragraph 13.1
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during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(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 separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("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 the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
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.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party 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.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
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47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
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.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE
OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, 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 IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at:__________________________ Executed at:_________________________
on:___________________________________ on:__________________________________
By LESSOR: By LESSEE:
Mercury Partners 30, Inc. Dynamic Circuits, Inc., a Delaware
Corporation
______________________________________ _____________________________________
By:___________________________________ By:__________________________________
Name Printed:_________________________ Name Printed:________________________
Title:________________________________ Title:_______________________________
By: /s/ Leslie J. Marshall By: /s/ Thomas P. Caldwell
---------------------------------- ---------------------------------
Name Printed: Leslie J. Marshall Name Printed: Thomas P. Caldwell
Title: Asset Manager Title: Vice President, Chief
Financial Officer
30
<PAGE>
Address: P.O. Box 1102 Address: 1831 Tarob Court
Tinley Park, IL 60477 Milpitas, CA 95035
Telephone: (708) 532-4321 Telephone: (408) 935-0957
Facsimile: (708) 614-1987 Facsimile: (408) 935-9104
BROKER: Colliers Parrish International, BROKER: Bishop Hawk, Inc.
Inc.
Executed at:__________________________ Executed at:_________________________
on:___________________________________ on:__________________________________
By:___________________________________ By:__________________________________
Name Printed: Michael L. Rosendin, Name Printed: Robert H. Steinbock
SIOR, CCIM
Title: Senior Vice President and Title: Associate Vice President
Director
Address: 1960 The Alameda, Suite 100 Address: 2200 Laurelwood Avenue
San Jose, CA 95126 Santa Clara, CA 95054
Telephone: (408) 236-3114 Telephone: (408) 986-1500
Facsimile: (408) 556-1950 Facsimile: (408) 986-0138
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345
So. Figueroa St., M-1, Los Angeles, CA 90071, (213) 687-8777.
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-LESSEE LEASE MODIFIED
NET DATED MARCH 20, 1997 BY AND BETWEEN MERCURY PARTNERS 30, INC., AS LESSOR,
AND DYNAMIC CIRCUITS, INC., A DELAWARE CORPORATION, AS LESSEE, FOR THE REAL
PROPERTY LOCATED AT 1988 TAROB COURT, MILPITAS, CALIFORNIA.
49. Early Possession: Lessee shall be granted Early Possession of the Premises
upon each and every one of the following: (a) receipt by Lessor of fully
executed Leases; (b) receipt by Lessor of satisfactory evidence of the
existence and adequacy of insurance coverage required under the Lease;
and, (c) receipt by Lessor from Lessee of the initial advance rental
payment and security deposit. Lessee shall be allowed Early Possession of
the Premises upon the existing lessee vacating the Premises and Lessor
delivering the Premises in the condition required under paragraph 51 until
the Lease Commencement Date for the purpose of installing interior
improvements and Lessee's trade fixtures and equipment, provided that
Lessee does not interfere with Lessor's work as described below in
paragraph 51. Lessee may, but shall have no obligation to, accept Early
Possession of the Premises prior to July 1, 1997 and unless Lessee
otherwise accepts delivery of possession of the Premises prior to July 1,
1997, Early Possession of the Premises shall not occur earlier than July
1, 1997.
50. Base Rent Schedule: The following monthly triple net Base Rent Schedule
shall apply during the term of this Lease:
Months 01 - 12: $29,143.00 NNN
Months 13 - 24: $30,308,00 NNN
Months 25 - 36: $31,521.00 NNN
Months 37 - 48: $32,782.00 NNN
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<PAGE>
Months 49 - 60: $34,093.00 NNN
51. Condition of Premises: Lessee shall lease the Premises in their "AS-IS"
condition, with the exception of Lessor delivering the Premises to Lessee
in broom clean condition with all building operating systems in good
operating order at Lease Commencement.
52. Operating Expenses: Lessor and Lessee acknowledge that the Premises are a
part of a larger multi-tenant building. Operating expenses shall be paid
by Lessee to Lessor based on the pro-rata share of the total expenses for
the building except where such expenses are metered or billed separately.
For the purpose of computing Lessee's pro-rata share of the expenses,
Lessor and Lessee acknowledge that Lessee's Premises represents 69.5% of
the total building.
53. Lessee Improvements by Lessee: Lessor acknowledges that Lessee, at
Lessee's sole cost and expense, plans on installing improvements to the
Premises. Said improvements shall be installed in accordance with
paragraphs 7.3 and 7.4 of the Lease agreement, with building materials
acceptable to Lessor, built to code, and constructed in a good workmanlike
manner. In addition, any work performed at the building or on the Premises
by Lessee or Lessee's contractor in connection with any improvements to
the Premises during the Term of the Lease shall be subject to the
following additional requirements:
(a) such work shall not proceed until Lessor has approved (which approval
shall not be unreasonably withheld or delayed) in writing: (i) Lessee's
contractor, (ii) the amount and coverage of public liability and property
damage insurance, with Lessor named as an additional insured, carried by
Lessee's contractor, (iii) initial plans and specifications for such work,
and (iv) a schedule for the work. Lessee shall present Lessee's initial
plans and specifications for Lessor's approval, Lessee shall not make any
material modifications to the work described in the plans and
specifications previously approved by Lessor without obtaining Lessor's
approval. Lessor agrees that Lessor shall use its best efforts to respond
as quickly as possible to any requests for approval required hereunder so
as not to delay the construction of Lessee's improvements.
(b) all work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Lessor before such work is
commenced. In any case, all such work shall be performed in accordance
with all applicable laws. Notwithstanding any failure by Lessor to object
to any such work, Lessor shall have no responsibility for Lessee's failure
to comply with applicable laws.
54. Signage: Lessee shall be allowed to install a sign on the Premises at
Lessee's sole cost and expense, subject to Lessor's prior written approval
of Lessee's proposed signage. The sign shall conform to and be in
compliance with any and all CC&R's and City of Milpitas signage
regulations.
55. Option to Renew: Provided that Lessee has not assigned Lessee's interest
in the Lease or subleased the Premises (or any portion thereof, excepting
paragraph 67 herein) and subject to the conditions of paragraph 39 under
the Lease, Lessee shall have the option to extend ("Option to Extend") the
Term of the Lease for one (1) period of five (5) years ("Extended Term")
on the terms and conditions provided herein, except with regard to the
amount of the Base Rent and adjustments, as described below. Lessee shall
exercise the Option to Extend, if at all, by giving written notice (the
"Option Notice") to Lessor at least six (6) months but no more than nine
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<PAGE>
(9) months prior to the expiration of the initial Term of the Lease. If
Lessee fails to exercise the Option to Extend by giving the Option Notice
to Lessor on or before the date which is nine (9) months to six (6) months
prior to the expiration of the initial Term, the Option to Extend will be
deemed to have been waived by Lessee. If Lessee is in default under the
terms and provisions of the Lease on the date of giving the Option Notice
and such default is not cured within the applicable cure period, the
Option Notice, at Lessor's sole election, shall be totally ineffective;
and if Lessee is in default of any terms or provisions of the Lease on the
date the Extended Term is to commence, which default is not cured within
the applicable cure period, then at Lessor's sole election, the Extended
Term shall not commence and this Lease shall expire at the termination of
the initial Term of the Lease. The Base Rent payable by Lessee to Lessor
at the Commencement of the Extended Term, and adjustments to the Base Rent
during the Extended Term shall be the then prevailing market rental rate
and adjustments, for space of equivalent quality, size, utility and
location with the length of the Extended Term and the credit standing of
Lessee to be taken into account, as agreed to by Lessor and Lessee, as
hereinafter provided but in any event not less than the Base Rent payable
at the expiration of the initial sixty (60) month Term. During the thirty
(30) day period immediately following Lessor's receipt of the Option
Notice, Lessor and Lessee shall negotiate in good faith the amount of the
Base Rent and adjustments for the Extended Term; if Lessor and Lessee
shall not agree on the prevailing market rental rate and adjustments
during the thirty (30) day period, then the prevailing market rental rate
and adjustments shall be determined as provided in Exhibit "D" hereto.
56. First Right to Negotiate: The premises known as 1980 Tarob Court is
presently subject to a lease that expires on March 31, 2001, which lease
provides that the lessee may extend the term for an additional five year
period by providing written notice to Lessor on or before November 30,
2000.
Subject to Lessor's approval of Lessee's financial condition as of the
date of Lessor's Notice and provided further that Lessee is not in default
or ever has been in default in accordance with paragraph 39 under the
Lease and as described below, Lessee shall have the first right to
negotiate ("First Right to Negotiate") for the lease of the 14,025 square
feet known as 1980 Tarob ("Expansion Space" - see attached Exhibit "B")
upon expiration or earlier termination of the existing lease for the
Expansion Space. Lessor shall provide written notice to Lessee specifying
the terms and conditions of a lease for the Expansion Space ("Lessor's
Notice") as soon as reasonably possible. Lessee may either (i) accept the
terms and conditions contained within Lessor's Notice by providing written
notice to Lessor ("Lessee's Notice") within five (5) days after Lessee's
receipt of Lessor's Notice, or (ii) attempt to agree with Lessor on such
other terms and conditions that may be acceptable to Lessor and Lessee
within ten (10) days after Lessee's receipt of Lessor's Notice. In the
event (i) Lessee and Lessor have not agreed to such terms and conditions
prior to the expiration of such periods, or (ii) Lessee and Lessor have
not fully executed a lease for the Expansion Space within thirty (30) days
after Lessee's receipt of Lessor's Notice, then Lessee's First Right to
Negotiate shall be null and void.
57. Notices: Notices required under the Lease shall be sent to the following
addresses unless modified in writing by either Lessor or Lessee:
Lessor: Mercury Partners 30, Inc.
c/o Mars Equities, Inc.
P.O. Box 1102
Tinley Park, IL 60477
Attention: Brian Flanagan
33
<PAGE>
Lessee: Dynamic Circuits, Inc.
1831 Tarob Court
Milpitas, CA 95035
Attention: Thomas P. Caldwell
58. Rent Payments: All Rent payments shall be made payable to "Mercury
Partners 30, Inc. c/o The VOIT Companies" and sent to the following
address:
Mercury Partners 30, Inc. c/o The VOIT Companies
340 El Camino Real South
Salinas, CA 93901
59. Brokers: Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker, or finder other than
Colliers Parrish International, Inc. representing the Lessor, and Bishop
Hawk, Inc. representing the Lessee, in connection with the negotiation of
this Lease, and that no broker or other person, firm, or entity other than
said named brokers is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree
to indemnify, protect, defend, and hold the other harmless from and
against liability for compensation or charges which may be claimed by any
such unnamed broker, finder, or other similar party by reason of any
dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto. Lessor
agrees to compensate said brokers per separate agreement between Lessor
and listing agent, Colliers Parrish International, Inc.
60. Hazardous Materials. The Lessee, at its sole cost and expense, shall
comply with all laws, ordinances, regulations, and standards regulating or
controlling hazardous wastes or hazardous substances, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq., the Hazardous
Material Transportation Act, 49 U.S.C. 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. 6901, et seq.; the Carpenter-
Presley-Tanner Hazardous Substance Account Act, Health and Safety Code
section 25300, et seq.; the Underground Storage of Hazardous Substance
Act, Health and Safety section 25280 et seq.; the Safe Drinking Water and
Toxic Enforcement Act of 1986 (Health and Safety Code section 25249.5, et
seq.); and the Hazardous Waste Control Law, Health and Safety Code section
25100, et seq. (the "Environmental Laws"). "Lessee Environmental Activity"
means the use or storage of Hazardous Materials at the Premises by Lessee
or any of Lessee's agents, employees, invitees or sublessees. "Lessee's
Hazardous Materials" means any Hazardous Material directly resulting from
a Lessee Environmental Activity. The Lessee hereby indemnifies and at all
times shall indemnify and hold harmless the Lessor, the Lessor's trustees,
directors, officers, employees, investment manager(s), attorneys, agents
and any successors to the Lessor's interest in the chain of title to the
Property, their trustees, directors, officers, employees, and agents from
and against any and all claims, suits, demands, response costs,
contribution costs, liabilities, losses, or damages, directly or
indirectly arising out of the existence, use, generation, migration,
storage, transportation, release, or disposal of Hazardous Materials
(defined below), used by or in possession of Lessee, its employees,
agents, invitees, or sublessees, in, on, or under the Property or in the
groundwater under the Property and the migration or transportation of
hazardous materials to or from the Property or the groundwater underlying
the Property, to the extent arising out of any Lessee Environmental
Activity. This indemnity extends to the costs incurred by the Lessor or
its successors to repair, clean up, dispose of, or remove such Hazardous
Materials in order to comply with the Environmental Laws at the sole
discretion of Lessor, provided the Lessor
34
<PAGE>
gives the lessee not less than thirty (30) days advance written notice of
its intention to incur such costs. The Lessee's obligations pursuant to
the foregoing indemnification and hold harmless agreement shall survive
the termination of this lease. The sublessees, contractors, agents, or
invitees of the Lessee shall not use, generate, manufacture, store,
transport, release, threaten release, or dispose of Hazardous Materials
in, on, or about the Property unless the Lessee shall have received the
Lessor's prior written consent therefore, which the Lessor may withhold or
revoke at any time in its reasonable discretion, and shall not cause or
permit the release or disposal of Hazardous Materials from the Property
except in compliance with applicable Environmental Laws. The Lessee shall
not permit any person, including its sublessees, contractors, agents, or
invitees to use, generate, manufacture, store, transport, release,
threaten release, or dispose of Hazardous Materials, in, on, or about the
Property or transport Hazardous Materials from the Property except in
compliance with Environmental Laws and shall not cause or permit the
release or disposal of Hazardous Materials, The Lessee shall promptly
deliver written notice to the Lessor if it obtains knowledge sufficient to
infer that Hazardous Materials are located on the Property that are not in
compliance with applicable Environmental Laws or if any third party,
including, without limitation, any governmental agency, claims a
significant disposal of Hazardous Materials occurred on the Property or is
being or has been released from the Property, or any such party gives
notice of its intention to declare the Property to be Border Zone Property
(as defined in section 25117.4 of the California Health and Safety Code).
Lessor hereby indemnifies and at all times shall indemnify and hold
harmless Lessee, Lessee's officers, directors, employees, investment
manager(s), attorneys, agents and any successor to Lessee, from and
against any and all claims, suits, demands, response costs, contribution
costs, liabilities, investigation costs, losses or damages, to the extent
arising out of any Hazardous Materials other than any Lessee's Hazardous
Materials.
Upon reasonable written request of the Lessor, the Lessee, through its
professional engineers and at its cost, shall thoroughly investigate
suspected Hazardous Materials contamination of the Property. The Lessee,
using duly licensed and insured contractors, shall promptly commence and
diligently complete the removal, repair, clean-up, and detoxification of
any Hazardous Materials from the Property as may be required by applicable
Environmental Laws and subject to the approval of Lessor as to methods.
Notwithstanding anything to the contrary in this Lease, nothing herein
shall prevent the Lessee from using materials other than Hazardous
Materials on the Premises as would be used in the ordinary course of the
Lessee's business as contemplated by this Lease. The Lessee does not in
the course of the Lessee's current business use Hazardous Materials other
than those disclosed on the attached Exhibit "C". If during the term of
this Lease, the Lessee contemplates utilizing such other materials not
listed on Exhibit "C", (or sub-leases/assigns this Lease to a sublessee or
assignee who utilizes Hazardous Materials), the Lessee shall obtain prior
written approval from the Lessor which approval shall not be unreasonably
withheld. The Lessor, at its option, and at the Lessee's expense, may
cause an engineer selected by the Lessor, to review (a) the Lessee's
operations including materials used, generated, stored, disposed, and
manufactured in the Lessee's business and (b) the Lessee's compliance with
applicable Laws. The Lessee shall provide the engineer with such
information reasonably requested by the engineer to complete the review.
35
<PAGE>
The first such review may occur prior to or shortly following commencement
of the term of this Lease. Thereafter, such review shall not occur more
frequently than once each year unless cause exists for some other review
schedule. The fees and costs of the engineer shall be paid promptly by the
Lessee to the Lessor upon receipt of written notice of such fees and
costs.
"Hazardous Materials" (also known as "Hazardous Substances") means any
hazardous waste or hazardous substance as defined in any federal, state,
county, municipal, or local statute, ordinance, rule or regulation
applicable to the Property, including, without limitation, the
Environmental Laws, "Hazardous Materials" shall also include asbestos or
asbestos-containing materials, radon gas, petroleum or petroleum
fractions, urea formaldehyde foam insulation, transformers containing
levels of polychlorinated biphenyls, and chemicals known to cause cancer
or reproductive toxicity, whether or not defined as a hazardous waste or
hazardous substance in any such statute, ordinance, rule, or regulation.
Lessee shall be entitled to conduct a Phase 1 investigation of the
Building and Common Areas at any time prior to or after the Commencement
Date, Upon the completion of any Phase 1 investigations, Lessee agrees to
provide a copy to Lessor.
61. Insert: Possession of the Premises shall be deemed to occur on the later
of July 1, 1997 or the date that Lessor delivers possession of the
Premises to Lessee in the condition required under this Lease. If the date
is later than July 1, 1997, then, for all purposes of this Lease, the date
of Early Possession shall be deemed the date Lessor actually delivers the
Premises to Lessee in the condition required, and the first payment of
Base Rent paid by Lessee upon execution hereof shall be applied to the
first payment of Base rent due on the date 30 days after the Early
Possession Date. If the Early Possession Date is a date other than the
first day of the month, then the second payment of Base Rent shall be due
on the first day of the month following the Early Possession date and
shall be reduced by $940.00 per day for each day commencing on the first
day of the month during which Early Possession was delivered to the actual
date of Early Possession. For instance, if Early Possession occurs on July
15, 1997 rather than July 1, 1997, then the Base Rent Paid Upon Execution
shall be applied to Base Rent due from July 15, 1997 through August 15,
1997. The next payment of Base Rent will be due on August 1, 1997 but will
be reduced by $14,100.00, which was prepaid for August 1, 1997 through
August 15, 1997.
62. Insert: Notwithstanding anything to the contrary contained herein, at the
request of Lessee, Lessor will specify at the time that Lessor grants its
approval (or if Lessor's approval is not required, upon the written
request of Lessee) whether or not Lessor will require Lessee to remove any
Alteration or Utility Installation. Lessee shall not be required to remove
any such Alteration or Utility Installation that Lessor specified would
not be required to be removed and any such Alteration or Utility
Installation that is not required to be removed shall be deemed not to be
a "Lessee Owned Alteration and/or Utility Installation" for all purposes
of this Lease.
63. Insert: Lessor shall indemnify, protect, defend and hold harmless Lessee,
its agents and employees from and against any and all claims and/or
damages arising out of, involving, or in connection with the actions of
Lessor or any of its agents or employees at the Building, or out of any
default or breach by Lessor of its obligations under the Lease. The
36
<PAGE>
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 Lessee) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessee by
reason of any of the foregoing matters, Lessor, upon notice from Lessee,
shall defend the same at Lessor's expense by counsel reasonably
satisfactory to Lessee and Lessee shall cooperate with Lessor in such
defense. Lessee need not have first paid any such claim in order to be so
indemnified.
64. Insert: Notwithstanding the foregoing, if the failure to perform Lessor's
obligation poses a danger or risk to Lessee's operations at the Premises
or a detriment to Lessee's ability to continue its operations without
material interruption, then Lessor shall commence performance of its
obligations as soon as reasonably practicable and if Lessor fails to
commence performance of such obligations within such time as is reasonably
necessary to minimize such danger, risk or impairment, Lessee shall be
entitled to perform such obligations at Lessor's expense.
65. Insert: "provided that Lessee shall not be obligated to provide any
financial information other than Lessee's annual financial statements or
other reasonably available information prepared by Lessee in the normal
course of Lessee's business."
66. Insert: All HVAC capital replacements shall be amortized over the useful
life of the improvement (with interest at the lesser of eleven percent
(11%) per annum or the maximum rate of interest allowed by law) and only
that portion of such cost and interest which is amortized during the term
of this Lease shall be payable by Lessee as a Common Area Operating
Expense.
67. Insert: Notwithstanding Article 12, as an accommodation to Lessee for
allowing Lessee's vendors to service Lessee, Lessee shall be allowed to
sublease up to a maximum of 15,000 square feet without Lessor's prior
written consent provided Lessee complies with all of the following: (i)
Lessee's vendor(s) sublease(s) shall be month-to-month; (ii) each sublease
shall be limited to a maximum one (1) year occupancy; (iii) each subtenant
shall comply with the liability insurance provisions of this Lease and
Lessee shall provide Lessor with written evidence that said subtenant(s)
have named Lessor as an additional insured party; (iv) Lessee provides
Lessor with a list of each vendor subtenant and the approximate square
footage they are subleasing; and (v) each sublease shall be restricted to
Lessee's vendors. In the event Lessee wishes to retain vendor subtenant(s)
within the Premises for longer than a one (1) year period, Lessee must
notify Lessor in writing, which continuation of sublease(s) shall be
subject to Lessor's sole approval. The requirement of Section 12.2(a)(i)
shall not apply to any subleases permitted under this Section 67.
68. Insert: Notwithstanding the provisions of this Article 12, Lessor's
consent shall not be required for, and the term "assign" shall not
include, any sale or other transfer, including by consolidation, merger or
reorganization, of stock of Lessee, or any transfer to an entity that
controls, is controlled by, or is under common control with Lessee or that
purchases all or substantially all of Lessee's assets, providing that no
such transfer or merger or acquisition or other transfer of any
controlling interest in Lessee shall relieve Lessee of any of its
obligations under this Lease, Lessee shall provide Lessor written notice
of such assignment and shall provide Lessor with a copy of the assignee's
written
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assumption of the Lease.
READ AND APPROVED:
LESSOR: MERCURY PARTNERS 30, INC., LESSEE: DYNAMIC CIRCUITS, INC., A
AN ILLINOIS CORPORATION DELAWARE CORPORATION
By: /s/ Leslie J. Marshall By: /s/ Thomas P. Caldwell
------------------------------- -----------------------------------
Title: Asset Manager Title: Vice President, Chief Financial
Officer & Secretary
Date: 5/2/97 Date: 5/1/97
EXHIBIT A
SITE PLAN
[GRAPHIC]
================================================================================
FLOOR PLAN
[GRAPHIC]
1988 TAROB COURT, MILPITAS
EXHIBIT B
SITE PLAN
[GRAPHIC]
================================================================================
FLOOR PLAN
[GRAPHIC]
1988 TAROB COURT, MILPITAS
EXHIBIT C
HAZARDOUS MATERIALS INVENTORY STATEMENT
Business Name: Dynamic Circuits, Inc.
<TABLE>
<CAPTION>
====================================================================================================================
DOT COMMON/TRADE CHEMICAL NAME CHEMICAL PHYSICAL QUANTITY ON HAND UNITS DAYS ON
CLASS NAMES COMPONENTS & ABSTRACT STATE Largest SITE
CONCENTRATION SERVICE # Max Avg. Container
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FL L.P.A. Isopropanal 67-63-3 FL 4 2 1 GAL. 30
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CL Avalite 1 Flux Ethylene Glycol 111-75-2 ML 110 56 56 GAL. 30
- --------------------------------------------------------------------------------------------------------------------
NA Solder Puremelt Solder 40% Lead 7439-92-1 PS 1000 600 600 LBG. 30
- --------------------------------------------------------------------------------------------------------------------
CORR Micro Etch Sodium Persulfate 7775-27-1 ML 200 100 56 GAL. 30
- --------------------------------------------------------------------------------------------------------------------
COR/ NGRA Preclean Ferric Chloride 30% 7705-08-0 ML 200 100 56 GAL. 30
OXY
- --------------------------------------------------------------------------------------------------------------------
CORR 1675 Stripper Monoethanolamine 20% 141-43-5 ML 100 50 56 GAL. 30
====================================================================================================================
</TABLE>
Material Safety Data sheets (MSDS) shall be readily available on the
premises for hazarous materials listed above.
EXHIBIT "D"
DETERMINATION OF PREVAILING MARKET RENTAL RATE AND ADJUSTMENTS
If Lessor and Lessee are unable to agree upon the Prevailing Market Rental Rate
and adjustments, the Prevailing Market Rental Rate and adjustments shall be
determined as follows:
(a) Lessor and Lessee shall each select one appraiser to determine the
Prevailing Market Rental Rate and adjustments. Each such appraiser shall arrive
at a determination of the Prevailing Market Rental Rate and adjustments and
submit his or her conclusions to Lessor and Lessee within thirty (30) days after
the expiration of the thirty (30) day period described in paragraph 55.
(b) If only one appraisal is submitted within the requisite time period, it
shall be deemed to be the Prevailing Market Rental Rate with adjustments. If
both appraisals are submitted within such time period, and if the two appraisals
so submitted differ by less than ten (10) percent of the higher of the two, the
average of the two shall be the Prevailing Market Rental Rate and adjustments.
If the two appraisals differ by more than ten (10) percent of the higher of the
two, then the two appraisers shall immediately select a third appraiser who will
within thirty (30) days of his or her selection make a determination of the
Prevailing Market Rental Rate and adjustments and submit such determination to
Lessor and Lessee. This third appraisal will then be averaged with the closer of
the two previous appraisals and the result shall be the Prevailing Market Rental
Rate and adjustments.
(c) All appraisers specified pursuant hereto shall be members of the
American Institute of Real Estate Appraisers with not less than five (5) years
experience appraising office, research and development and industrial properties
in the Santa Clara Valley. Each party shall pay the cost of the appraiser
selected by such party and one-half of the cost of the third appraiser plus one-
half of any other costs incurred in the determination.
READ AND APPROVED:
LESSOR: MERCURY PARTNERS 30, INC., LESSEE: DYNAMIC CIRCUITS, INC., A
AN ILLINOIS CORPORATION DELAWARE CORPORATION
By: /s/ Leslie J. Marshall By: /s/ Thomas P. Caldwell
------------------------------- -----------------------------------
Title: Asset Manager Title: Vice President, Chief Financial
Officer & Secretary
Date: 5/2/97 Date: 5/1/97
39
<PAGE>
EXHIBIT 10.32
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - GROSS
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, ,
November 12, 1997, is made by and between Miller and Associates ("Lessor") and
Dynamic Circuits Inc., a Delaware Corporation ("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 1242 Birchwood Drive, Sunnyvale, located in the
County of Santa Clara State of California, and generally described as (describe
briefly the nature of the property) approximately 5,000 square feet of an
approximately 10,000 square foot industrial/warehouse building ("Premises").
(See Paragraph 2 for further provisions.)
1.3 Term: Three (3) years and Zero (0) months ("Original Term") commencing
December 1, 1997 ("Commencement Date") and ending November 30, 2000 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: See Addendum #49 ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $3,250.00 per month ("Base Rent"), payable on the first
(1st) day of each month commencing December 1, 1997 ____________________________
________________________________________________________________________________
(See Paragraph 4 for further provisions.)
[_] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $3,250.00 as Base Rent for the period
December 1997 __________________________________________________________________
___________________________________________________________________________.
1.7 Security Deposit: $3,250.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: General office, warehouse and storage of electronic
components and all other legal allied uses (See Paragraph 6 for further
provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $____ is the "Base
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Bishop Hawk, Inc. represents
[_] Lessor exclusively ("Lessor's Broker"); |X| both Lessor and Lessee, and
_____________________________________________________________________ represents
[_] Lessee exclusively ("Lessee's Broker"); |_| both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by __________________________________________________________________
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("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 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 if Lessee chooses
to correct such non-compliance.
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
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Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers I possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within Thirty (3O) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within two (2) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said two (2) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, [ILLEGIBLE] possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such her 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 reasonable attorneys' fees) which Lessor may suffer or
incur by direct proximate 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 wit Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the term of this Lease, Lessee shall, upon written request
from Lessor, deposit additional moneys with Lessor sufficient to maintain the
same ratio between the Security Deposit and the Base Rent as those amounts are
specified in the Basic Provisions. Lessor shall not be required to keep all or
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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 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 the 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" 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
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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 indemnity, 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 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
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installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty
as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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, (whether or not such portion of the Premises requiring repair, 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
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), ceilings, 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, but excluding foundations, the exterior roof and the
structural aspects of 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 lank 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.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, 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.
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7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. 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 $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by, Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent
specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the 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 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
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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 lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal, Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to 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 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 of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase
("Insurance Cost Increase") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis, "Insurance Cost Increase" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, and/or a premium rate increase. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
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the "Base Premium." In lieu thereof, if the Premises have been previously
occupied, the "Base Premium" shall be the annual premium applicable to the most
recent occupancy. If the Premises have never been occupied, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the commencement of the Original Term, assuming the most nominal
use possible of the Premises. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under Paragraph 8.2(b) (Liability Insurance
Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement or Expiration of the Lease term.
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 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. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
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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, but not including plate glass insurance.
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.
(b) Rental Value. Lessor 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.
(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. Since 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.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force,
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B +, V, or such other rating as may be required by a Lender having a 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. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
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Lessor.
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 and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
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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. P.
(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. 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 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 some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
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Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. in such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination,
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
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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, of (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 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 effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 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. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. 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
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this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(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 Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount 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 Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase 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 Tax increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. 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.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a)
hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any
increase in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes," As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes, Lessee shall pay prior to delinquency all
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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 us 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 fifty-one
(51%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of
such Net Worth of Lessee as it was represented to Lessor at the time of the
execution by Lessor of this Lease or at the time of the most recent assignment
to which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, at whichever time said
Net Worth of Lessee was or is greater, shall be considered an assignment of this
Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth
of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
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 held
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
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best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) 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 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.
12.3 Additional Terms and Conditions Applicable to Subletting. The
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following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said 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 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
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same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (iii) the recission 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 or 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 if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. ss.101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's 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 guarantors 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
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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 twenty(20) 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 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
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limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event Of Breach. Any agreement by Lessor for
free or 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, and 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
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
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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. My award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award shall
be made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee shall
be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ as agreed for brokerage services rendered
by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
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the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantor 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. Such confidentiality shall be evidenced by an agreement between any
such lender and the Lessee.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
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of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and nay 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.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If 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.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an 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.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. 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.
27. 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.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before 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.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered 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.
30.4 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
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agreement as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or 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 fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
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.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided 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
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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 acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically 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 other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 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.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 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.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
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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 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.
39.3 Multiple Options. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (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.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
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effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party 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.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non--monetary modifications to this Lease as may be reasonably
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.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES, NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE 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.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
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Executed at
- ---------------------------------------------------
on
- ---------------------------------------------------
by LESSOR:
Miller and Associates
- ---------------------------------------------------
- ---------------------------------------------------
By
- ---------------------------------------------------
Name Printed: Claudia Miller
- ---------------------------------------------------
Title:
- ---------------------------------------------------
By
- ---------------------------------------------------
Name Printed: Nancy Smith
- ---------------------------------------------------
Title:
- ---------------------------------------------------
Address: 561 Pilgrim Drive, Suite B
- ---------------------------------------------------
Foster City, CA 94404
- ---------------------------------------------------
Tel.No.(650) 572-0234 Fax No.(650) 572-0234
- ---------------------------------------------------
Executed at Milpita, CA
- ---------------------------------------------------
on November 25, 1997
- ---------------------------------------------------
by LESSEE:
Dynamic Circuits Inc.
- ---------------------------------------------------
a Delaware Corporation
- ---------------------------------------------------
By /s/ Thomas P. Caldwell
- ---------------------------------------------------
Name Printed: Thomas P. Caldwell
- ---------------------------------------------------
Title: Vice President/Chief Financial Officer
- --------------------------------------------------
By n/a
- --------------------------------------------------
Name Printed: n/a
- --------------------------------------------------
title: n/a
- --------------------------------------------------
Address: 831 Tarob Court
- --------------------------------------------------
Milpitas, CA 95035
- --------------------------------------------------
Tel.No.(408) 935-0957 Fax No. (408) 935-9104
- --------------------------------------------------
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ADDENDUM TO LEASE
THIS IS AN ADDENDUM TO THE LEASE DATED NOVEMBER 12,1997 BY AND BETWEEN MILLER
AND ASSOCIATES ("LESSOR") AND DYNAMIC CIRCUITS INC., A DELAWARE CORPORATION
("LESSEE") FOR THE PREMISES LOCATED AT 1242 BIRCHWOOD DRIVE, SUNNYVALE,
CALIFORNIA. PAGE ONE OF ONE.
ADDITIONAL PROVISIONS:
50. Improvements: Lessor shall deliver the Premises to Lessee free and clear
of all equipment and debris with all lighting, plumbing, heating, doors windows
and roof to be in good condition and repair on the Lease Commencement date.
51. Insuring Party - The lessor shall be the Insuring Party as such term is
used herein .
ACKNOWLEDGED AND AGREED:
LESSOR: Miller and Associates LESSEE: Dynamic Circuits Inc.,
A Delaware Corporation
BY:
-----------------------
Claudia Miller BY: /s/ Thomas P. Caldwell
----------------------
Thomas P. Caldwell
BY:
----------------------- DATE: November 25, 1997
Nancy Smith --------------------
DATE:
---------------------
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Exhibit 10.33
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only
August 18 ,1998, is made by and between Mrs. Alberta M. Talley, Trustee
("Lessor") and Dynamic Circuits, Inc., a Delaware corporation, a wholly owned
Subsidiary of Details, 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 as 897 Ames Avenue, Milpitas, located in the County of Santa Clara, State
of California, and generally described as (describe briefly the nature of the
property and, if applicable, the "Project", if the property is located within a
Project) approximately 8,750 square foot freestanding building plus a portion of
the total parcel as outlined on "Exhibit A". Premises to be leased in "as is"
condition. ("Premises"). (See also Paragraph 2)
1.3 Term: 5 years and 0 months ("Original Term") commencing September 10,
1998 ("Commencement Date") and ending August 31, 2003 ("Expiration Date"). (See
also Paragraph 3)
1.4 Early Possession: See paragraph #51 ("Early Possession Date"). (See
also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $ 6,562.50 per month ("Base Rent"), payable on the first
(1st) day of each month commencing September (See also Paragraph 4)
|X| If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted and/or for common area maintenance charges.
1.6 Base Rent Paid Upon Execution: $4375.00 as Base Rent for the period
September 10-30, 1998.
1.7 Security Deposit: $14,875.00 ("Security Deposit"). (See also
Paragraph 5)
1.8 Agreed Use: General office and storage of Lessee's equipment and/or
products. (See also Paragraph 6)
1.9 Insuring Party. Lessor is the "Insuring Party". The annual "Base
Premium" is $1,927.00. (See also Paragraph 8)
1.10 Real Estate Brokers: (See also Paragraph 15)
(a) Representation: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):
|X| Colliers Parrish International, Inc. represents Lessor exclusively
("Lessor's Broker");
|X| Crubb & Ellis represents Lessee exclusively ("Lessee's Broker"); or
|_| __________________________________ represents both Lessor and Lessee ("Dual
Agency").
(b) Payment to Brokers: Upon execution and delivery of this Lease by
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both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement (or if there is no such agreement, the sum of --% of the total
Base Rent for the brokerage services rendered by said Broker).
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See also Paragraph 37)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 54 and Exhibits A, 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 size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 Condition. Lessor shall deliver the Premises broom clean and free of
debris on the Commencement Date or the Early Possession Date, whichever first
occurs ("Start Date"), and warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements of the building, in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on said date and that the surface and structural elements of the roof,
bearing walls and foundation of any buildings on the Premises (the "Building")
shall be free of material defects. If a non-compliance with said warranty exists
as of the Start 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, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within (i) six (6) months as to
the HVAC systems or (ii) thirty (30) days as to the remaining systems and other
elements of the Building, correction of such non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense, except for the roof,
foundations, and bearing walls which are handled as provided in paragraph 7.
2.3 Compliance. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("Applicable Requirements") in effect on the
Start 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. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, 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 Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("Capital Expenditure"), Lessor and Lessee shall allocate the
cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
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responsible for the cost thereof,
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use; (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises; and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease shall,
however, be in effect during such period. Any such early possession shall not
affect the Expiration Date.
3.3 Delay in Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
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Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within thirty (30)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such thirty (30) day period,
cancel this Lease, in which event the Parties shall be discharged from all
obligations hereunder. If such written notice is not received by Lessor within
said ten (10) day period, Lessee's right to cancel shall terminate. Except as
otherwise provided, if possession is not tendered to Lessee by the Start Date
and Lessee does not terminate this Lease, as aforesaid, any period of rent
abatement that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay
caused by the acts or omissions of Lessee. If possession of the Premises is not
delivered within four (4) months after the Commencement Date, this Lease shall
terminate unless other agreements are reached between Lessor and Lessee, in
writing.
3.4 Lessee Compliance. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. Rent.
4.1. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent 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 said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, 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, expense, loss or damage 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 monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
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thereof. Lessor shall not be required to keep the Security Deposit separate from
its general accounts. Within fourteen (14) days after the expiration or
termination of this Lease, if Lessor elects to apply the Security Deposit only
to unpaid Rent, and otherwise within thirty (30) days after the Premises have
been vacated pursuant to Paragraph 7.4(o) below, Lessor shall return that
portion of the Security Deposit not used or applied by Lessor. No part of the
Security Deposit shall be considered to be held in trust, to bear interest or to
be prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to Premises.
If Lessor elects to withhold consent, Lessor shall within five (5) business days
after such request give written notification of same, which notice shall include
an explanation of Lessor's 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, or waste whose
presence, use, manufacture, disposal, transportation, or release, 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 potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "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, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
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modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) Duty to inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance 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, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) Lessee Remediation. 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 or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessee's obligations 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, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
alterations) of the Premises, in which event Lessee shall be responsible for
such payment. Lessee shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessor's agents to have reasonable
access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
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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 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 occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may. within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements 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 the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times
after providing Lessee advance notice for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease. The cost of any such inspections shall be paid by Lessor, unless a
violation of Applicable Requirements, or a contamination is found to exist or be
imminent, or the inspection is requested or ordered by a governmental authority.
In such case, Lessee shall upon request reimburse Lessor for the cost of such
inspections, so long as such inspection is reasonably related to the violation
or contamination.
7. Maintenance; Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole expense, keep the Premises, Utility Installations, and
Alterations in good order, condition and repair. Except for damage caused by
Lessee's intentional, reckless, or grossly negligent acts or as otherwise
provided in the Lease, Lessor shall be solely responsible
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for any replacements of the Basic Elements, structural portions of the roof,
foundation, or bearing walls. Any repair of the Basic Elements, non-structural
portions of the roof or other non-structural portions of the foundation, bearing
walls or utility services shall be the responsibility of the Lessee, including,
but not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), ceilings, floors, windows, doors, skylights, landscaping, driveways,
parking lots, fences, signs, sidewalks and parkways located in, on, or adjacent
to the Premises. Lessee is also responsible for keeping the roof and roof
drainage clean and free of debris. Lessor shall keep the surface and structural
elements of the roof, foundations, and bearing walls in good repair (see
paragraph 7.2). 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. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a condition (including,
e.g., graffiti removal) consistent with the exterior appearance of other similar
facilities of comparable age and size in the vicinity.
(b) Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and
pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v )driveways and
parking lots, (vi) clarifiers, (vii) basic utility feed to the perimeter of the
Building, and (viii) any other equipment, if reasonably required by Lessor.
(c) Replacement Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 9
(Damage or Destruction) and 14 (Condemnation), it is intended by the Parties
hereto that Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, or the equipment therein, all of which obligations are
intended to be that of the Lessee, except for the surface and structural
elements of the roof, foundations and bearing walls, the repair of which shall
be the responsibility of Lessor upon receipt of written notice that such a
repair is necessary. 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, and they expressly waive the benefit of any statute now
or hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
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refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems and signs, communication
systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on 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, 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 pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to 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) without such consent but upon notice to
Lessor, 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 this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(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 detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) Indemnification. Lessee shall pay, in any instance where Lessee
is responsible for such work, 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 mechanic's 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. If Lessee shall contest the validity of any such
lien, claim or demand, [ILLEGIBLE INSERT] 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. If Lessor shall require, Lessee shall furnish a surety
bond in an amount equal to one and one-half times the amount of such contested
lien, claim or demand, indemnifying Lessor against liability for the same. If
Lessor elects to participate in any such action, Lessee shall pay Lessor's
attorneys' fees and costs.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) Removal. By delivery to Lessee of written notice from Lessor not
earlier than ninety (90) and not later than thirty (30) days prior to the end of
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the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. 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.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom 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. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment 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
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase
("Insurance Cost Increase") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the insurance
required under Paragraph 8.2(b), 8.3(a) and 8.3(b) ("Required Insurance"), over
and above the Base Premium as hereinafter defined calculated on an annual basis.
"Insurance Cost Increase" shall include but not be limited to increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of mortgage or deed of trust covering the Premises,
increased valuation of the Premises and/or a premium rate increase. The parties
are encouraged to fill in the Base Premium in Paragraph 1.9 with a reasonable
premium for the Required Insurance based on the Agreed Use of the Premises. If
the parties fail to insert a dollar amount in Paragraph 1.9, then the Base
Premium shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term for the Agreed
Use of the Premises. In no event, however, shall Lessee be responsible for any
portion of the increase in the premium cost attributable to liability insurance
carried by Lessor under Paragraph 8.1(b) in excess of $2,000,000 per occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond the term of this Lease, shall be prorated to
correspond to the term of this Lease.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
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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 $2,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises
Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement"
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 shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance 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. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), 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 a policy or policies in the name of Lessor, with loss payable to
Lessor, any groundlessor, and to any 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 any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property 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 or
included in the Base Premium), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered 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.
(b) Rental Value. The Insuring Party shall obtain and keep in force
a policy or policies in the name of Lessor, with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. 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 Rent 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
Rent otherwise payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger
building, or 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.
8.4 Lessee's Property/Business Interruption Insurance.
(a) Property Damage. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
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Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures, and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 Insurance Policies. Insurance required herein shall be by companies
duly licensed or admitted 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, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to procure and
maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's gross negligence or willful misconduct,
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, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the use and/or occupancy of the
Premises by Lessee. If any action or proceeding is brought against Lessor by
reason of any of the foregoing matters, Lessee shall upon notice 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 defended or 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,
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leakage. obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC 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. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations, Utility
Installations and Trade Fixtures, which can reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, 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 Requirements, 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 any
applicable 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 as and when
required to complete said repairs. In the event, however, such shortage 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
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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 such funds or assurance are not received, Lessor
may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to: (i) 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; or (ii) have this Lease terminate thirty
(30) days thereafter. Lessee shall not be entitled to reimbursement of 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,
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 grossly negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may 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) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such 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 after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate immediately
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
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 terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, 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, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
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 such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
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(a) Abatement. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) Remedies. If Lessor Shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration 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
and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "Commence" 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 Termination-Advance Payments. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or 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.
9.8 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 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises. Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. 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 during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) Payment of Taxes. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("Tax Increase"). Subject to Paragraph 10.2(b), payment of any such Tax Increase
shall be made by Lessee to Lessor within thirty (30) days after receipt of
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Lessor's written statement setting forth the amount due and the computation
thereof. If any such taxes shall cover any period of time prior to or after the
expiration or termination of this Lease, Lessee's share of such taxes shall be
prorated to cover only that portion of the tax bill applicable to the period
that this Lease is in effect.
(b) Advance Payment. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that the Tax Increase be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the amount 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 an amount equal to the amount of the
estimated installment of the Tax Increase divided by the number of months
remaining before the month in which said installment becomes delinquent. When
the actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payments shall be adjusted as required to provide the
funds needed to pay the applicable Tax Increase. If the amount collected by
Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay
Lessor, upon 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 its obligations under this Lease, then
any balance of funds paid to Lessor under the provisions of this Paragraph may
at the option of Lessor, be treated as an additional Security Deposit.
(c) Additional Improvements. Notwithstanding anything to the
contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor
the entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessors work sheets or such other information as
may be reasonably available.
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. When possible, Lessee shall cause such 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's property within ten (10) days
after receipt of a written statement.
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.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
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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 by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution 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, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(o) or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may (i) terminate this Lease.
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 Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept 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 Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee. Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(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 fee of $1,000 or
ten percent (10%) of the current monthly Base Rent applicable to the portion of
the Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed 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 to in writing.
12.3 Additional Terms and Conditions Applicable to Subletting. The
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following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. 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 all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require 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 prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(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. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, and/or Security
Deposit or where the coverage of the property insurance described in Paragraph
8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
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the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) 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 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,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach 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 of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in 11 U.S.C. ss. 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions. If any of the events set forth in subsection (e)(i)
through (e)(iv) occur, Lessee shall immediately notify Lessor.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor 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 basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide 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 of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, 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 upon receipt of a commercially reasonable 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 by Lessee to be by cashier's check. In the event of a
Breach, Lessor may, 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:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. in such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
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the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the 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 any leasing commission paid by Lessor in connection with this Lease
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 immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, 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 this Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture. Any agreement for free or abated rent or other
charges, 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. Upon Breach of this Lease
by Lessee, 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, 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
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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
of Rent 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 any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each 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 such late
payment. 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 the exercise of 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 any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Interest. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within thirty (30) days following the date on which it was due for non-
scheduled payment, shall bear interest from the date when due, as to scheduled
payments, or the thirty-first (31st) day after it was due as to non-scheduled
payments. The interest ("Interest") charged shall be equal to the prime rate
reported in the Wall Street Journal as published closest prior to the date when
due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. 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, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor, 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 are reasonably required for its performance,
then Lessor shall not be in breach if performance is commenced within such
thirty (30) day period and thereafter diligently pursued to completion.
(b) Performance by Lessee on Behalf of Lessor. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said written notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach at
Lessee's expense and offset from Rent an amount equal to the greater of one
month's Base Rent or the Security Deposit, and to pay an excess of such expense
under protest, reserving Lessee's right to reimbursement from Lessor. Lessee
shall document the cost of said cure and supply said documentation to Lessor.
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
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within thirty (30) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within thirty (30) 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
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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 proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. Brokers' Fee.
15.2 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice. Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 Representations and Indemnities of Broker Relationships. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnity, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. Estoppel Certificates.
(a) 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 "Estoppel Certificate" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party; (ii) there are no uncured defaults in the Requesting Party's performance:
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
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estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof. Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements 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.
17. Definition of Lessor. 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 this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. 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. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. Limitation on Liability. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or Lessee or its or
their individual partners, directors, officers or shareholders, and Lessee shall
look to the Premises, and to no other assets of Lessor for the satisfaction of
any liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor or Lessee, or its or their individual
partners, directors, officers or shareholders, or any of their personal assets
for such satisfaction.
21. 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.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein. and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees). of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. Notices.
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23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) 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 notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 Date of Notice. 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
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. No Right To Holdover, Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. 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.
28. Covenants and Conditions; Construction of Agreement. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both parties
had prepared it.
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29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3. Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, 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. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the Non-
Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's
option, directly contact Lessor's lender and attempt to negotiate for the
execution and delivery of a Non-Disturbance Agreement.
30.4 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
subordination, attainment and/or Non-Disturbance Agreement provided for herein.
31. Attorneys' Fees, If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' 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
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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 attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to reasonable attorneys' fees, costs and expenses [INSERT ILLEGIBLE]
incurred in the preparation and service of notices of Default and consultations
in connection therewith, whether or not a legal action is subsequently commenced
in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times, after 24 hour previous notice to
Lessee by Lessor, for the purpose of showing the same to prospective purchasers,
lenders, or lessees, and making such alterations, repairs, improvements or
additions to the Premises as Lessor may deem necessary. All such activities
shall be without abatement of rent or liability to Lessee. Lessor may at any
time place on the Premises any ordinary "For Sale" signs and Lessor may during
the last six (6) months of the term hereof place on the Premises any ordinary
"For Lease" signs. Lessee may at any time place on or about the Premises any
ordinary "For Sublease" sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. Signs: Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. Consents. Except 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'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting 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. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within ten (10) business days following such request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a guaranty in
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the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a certified copy
of a resolution of its board of directors authorizing the making of such
guaranty, (b) current financial statements, (c) Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent 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 and
quiet enjoyment of the Premises during the term hereof.
39. Options.
39.1 Definition. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured: (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee); (iii) during the
time Lessee is in Breach of this Lease; or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, 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) 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 prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. Multiple Buildings. If the Premises are a part of a group of buildings
27
<PAGE>
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay.
44. Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, 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. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. 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 a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease [_] is [X] is not attached to this Lease.
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
28
<PAGE>
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.
- ------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- ------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: San Jose, Ca. Executed at: Milpitas, CA
------------------------- --------------------------
on: 9-14-98 on: 9/10/98
---------------------------------- -----------------------------------
By LESSOR: By LESSEE:
Mrs. Alberta M. Talley, Trustee Dynamic Circuits, Inc., a Delaware
- ------------------------------------- --------------------------------------
corporation, a wholly owned subsidiary
- ------------------------------------- --------------------------------------
of Details, Inc.
- ------------------------------------- --------------------------------------
By: /s/ Alberta Talley, Trustee By: /s/ Thomas Caldwell
---------------------------------- -----------------------------------
Name Printed: Alberta Talley, Trustee Name Printed: THOMAS CALDWELL
------------------------ -------------------------
Title: OWNER Title: VICE PRESIDENT
------------------------------- --------------------------------
By: By:
--------------------------------- ---------------------------------
Name Printed: Name Printed:
------------------------ -------------------------
Title: Title:
------------------------------- --------------------------------
Address: Address:
----------------------------- ------------------------------
- ------------------------------------- --------------------------------------
Telephone: ( ) Telephone: ( )
----------------- -------------------
Facsimile: ( ) Facsimile: ( )
----------------- -------------------
Federal ID No. Federal ID No.
29
<PAGE>
----------------------- ------------------------
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.
Fax No. (213) 687-8616
(c) Copyright 1997 - By American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced
in any form without permission in writing.
Addendum to Standard Industrial/Commercial Single-Tenant Lease -- Gross dated
August 18, 1998 by and between Mrs. Alberta Talley Trustee as Lessor, and
Dynamic Circuits, Inc., a Delaware Corporation, a wholly owned subsidiary
of Details, Inc. as Lessee for the property located
at a commonly known address of
897 Ames Avenue, Milpitas
50. Property Taxes: For the purpose of establishing the amount to be
reimbursed to Lessor by Lessee for Real Property Taxes under Paragraph
10.1 of this Lease, Lessee's proportionate share of the Real Property
Taxes are deemed to be 41% of the Property Tax bill covering Parcel Number
086-31-007.
51. Early Possession: Lessee shall be granted Early Occupancy of the premises
upon each and every one of the following: (a) receipt by Lessor of fully
executed Leases; (b) receipt by Lessor of satisfactory evidence of the
existence and adequacy of insurance coverage required under the Lease; and
c) receipt by Lessor from Lessee of the initial advance rental payment and
security deposit.
52. Base Rent / Year Monthly Rate
---------------- ------------
September 1, 1998 to August 31, 1999 $6,562.50
September 1, 1999 to August 31, 2000 $6,781.25
September 1, 2000 to August 31, 2001 $7,000.00
September 1, 2001 to August 31, 2002 $7,218.75
September 1, 2002 to August 31, 2003 $7,437.50
53. Signage: At Lessee's sole cost, Lessee shall be allowed to install signage
on the Premises subject to Lessor's review and approval of proposed
sign(s) and conformance with any governmental regulations.
54. Option to Renew: Provided that Lessee is not in default of any of the
provisions of the Lease and upon a minimum of one hundred eighty (180) and
a maximum two hundred seventy (270) days prior written notice given from
Lessee to Lessor, Lessor will grant a renewal option for a term of three
(3) years at the rates listed below. The provisions of Paragraph 39 of the
Lease apply to this Option to Renew.
Year Monthly Rate
---- ------------
September 1, 2003 to August 31, 2004 $7,656.25
September 1, 2004 to August 31, 2005 $7,875.00
September 1, 2005 to August 31, 2006 $8,093.75
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ------------------------------- ---------------------
Initials Initials
Lessor Lessee
30
<PAGE>
[GRAPHIC]
FOR LEASE
2 Freestanding Industrial Buildings
on 2.27 Acres (Zoned M-2; Heavy Manufacturing)
+/- 12,800 Sq. Ft. & 8,750 SQ. Ft. Plus Lots of Yard
[MAP]
897 Ames Avenue, Milpitas 893 Ames Avenue, Milpitas
- ------------------------- -------------------------
+/- 8,750 Sq. Ft. +/- 12,800 Sq. Ft.
+/- 900 Sq. Ft. Office Area +/- 1,000 Sq. ft. Office Area
600 Amps Power (277/480) 800 Amps Power (277/480)
14' Ceiling Clear Height 16' Ceiling Clear Height
3 Grade Level Doors (12'x 12') 2 Grade Level Truck Doors
Space Heating & Insulation (1) 12'x14.5'; (1) 28'x14.5'
Fire Sprinklered Space Heating & Insulation
Owner Prefers Single Tenant Occupant for Both Buildings
[MAP]
Contact Exclusive Agent
Mark Zamudio
COLLIERS PARRISH INTERNATIONAL, INC.
[LOGO] (408) 554-8181 main
COLLIERS INTERNATIONAL (408) 236-3139 direct
Colliers Parrish International, Inc.
EXHIBIT A
The information furnished has been obtained from sources we deem reliable
and is submitted subject to errors, omissions and changes. Although
Colliers Parrish International, Inc. has no reason to doubt its accuracy,
we do not guarantee it. All information should be verified by the recipient
prior to lease, purchase, exchange, or execution of legal documents.
[GRAPHIC] 71506 5/98
31
<PAGE>
EXHIBIT 10.34
LEASE AGREEMENT
STATE OF GEORGIA
COUNTY OF TROUP.
This lease made April 14, 1998 by and between continental Electric
Contractors, hereinafter referred to as "Lessor"; and Cuplex, Inc, hereinafter
referred to as "Lessee".
WITNESSETH:
1. That Lessor, for and in consideration of the rents, covenants,
agreements, and stipulations hereinafter mentioned, reserved, and contained, to
be paid, kept and performed by Lessee, has leased and rented, and by these
presents does lease and rent unto Lessee, and Lessee hereby leases and takes
upon the terms and conditions which hereinafter appear, the following described
property, hereinafter called "premises", to wit: 265 Davis Rd. LaGrange, GA
30240.
TERM
2. Lessee shall have and hold premises for a term beginning on May
12, 1998, and ending on May 11, 1999.
RENTAL
3. Lessee shall pay Lessor by payments to Spinks & Yates Management
or any place of which Lessee shall from time to time otherwise be notified,
promptly on the first day of each month in advance, a monthly rental of $1,810.
A late charge of 5% will be assessed for each rental payment received by Lessor
after the 5th day of each month. Rent shall be prorated for any month of this
lease which is less than a full calendar month. Tenant has option to renew for 1
additional year at a rate of $1,870 per month.
USE OF PREMISES
4. Lessee will use and occupy the leased premises for its lawful
business purposes. Lessee will not store any materials that would be hazardous,
toxic, explosive in such a way that it would otherwise increase the liability of
the Landlord, or cause Landlord's insurance cost to increase.
TAXES AND ASSESSMENTS
5. Lessor shall pay, prior to delinquency, all real estate taxes,
assessments, and charges which are levied, imposed, or assessed upon or against
the leased premises. If Lessor shall fail to pay any such taxes, assessments, or
charges prior to delinquency, Lessee shall have the right to pay same and to
deduct from any rent which may then or thereafter be due all amounts expended by
Lessee in making such payment.
UTILITIES
6. Lessee shall provide and pay for all electric, water, gas and
sewage disposal. Lessee shall provide and pay for the janitorial service for the
leased premises.
INSURANCE
7. (a) Lessor shall procure and maintain all insurance which it
deems necessary for its protection against loss or damage to the leased premises
1
<PAGE>
or any other property of Lessor situated thereon.
(b) Lessee shall procure and maintain all insurance which it
deems necessary for its protection against loss of or damage to any of its
property situated on the leased premises.
(c) Nothing contained in this lease shall be construed to
require either party to repair, replace, reconstruct, or pay for any property of
the other party which may be damaged or destroyed by fire, flood, windstorm,
earthquake, strikes, riots, civil commotions, acts of public enemy, acts of God,
or other casualty, and each party hereby waives on behalf of itself and its
insurer all rights of subrogation and all claims against the other for all loss
or damage arising out of perils normally insured against by standard fire and
extended coverage insurance.
REPAIRS BY LESSOR & LESSEE
8. Lessor agrees to keep in good repair the roof, foundations, and
exterior walls of the premises and underground utility and sewer pipes outside
the exterior walls of the building except repairs rendered necessary by the
negligence of Lessee, its agents, employees or invitee. Lessor gives to Lessee
exclusive control of the premises and shall be under no obligation to inspect
said premises. Lessee shall promptly report in writing to Lessor any defective
condition known to it which Lessor is required to repair, and failure so to
report such conditions shall make Lessee responsible to Lessor for any liability
incurred by Lessor by reason of such conditions. Lessor further agrees to
maintain yards and landscaping in a clean and neat condition.
DAMAGE TO OR DESTRUCTION OF PREMISES
9. If, during the term of this lease the leased premises are damaged
beyond normal use by fire, flood, windstorm, strikes, riots, civil commotions,
acts of public enemy, acts of God, or other casualty, then this lease shall be
terminated as of the date of such damage. The Lessee shall pay the cent
apportioned to the time of damage and shall immediately surrender the leased
premises to Lessor who may enter upon and repossess the same and Lessee shall be
relieved from any further liability hereunder.
ACTION OF PUBLIC AUTHORITIES
10. In the event that any exercise of the power of eminent domain by
any governmental authority, Federal, State, County, or Municipal, or by any
other party vested by law with such power shall at any time prevent the full use
and enjoyment of the leased premises by Lessee for the purposes set forth in
Section I, this lease shall terminate.
IMPROVEMENTS BY LESSEE
11. Lessee shall not have the right, to make any alterations,
additions, or improvements in or to the leased premises, without prior written
approval of Lessor.
INDEMNITY
12. Lessee agrees to, and hereby does, indemnify and save Lessor
harmless against all claims for damages to persons or property by reason of
2
<PAGE>
Lessee's use or occupancy of premises, and all expenses incurred by Lessor
because thereof, including attorney's fees and court costs. During the term
hereof, Lessee will maintain insurance on Lessee's operation in the premises
insuring against bodily injury in the amount of $500,000.00 per occurrence and
property damage in the amount of $500,000.00 in the aggregate. Lessee shall
supply proof to Lessor of the maintenance of such insurance upon demand.
TITLE
13. The property herein leased by Spinks & Yates Mgt. Co., 1111 N.
Greenwood St., LaGrange, GA 30240 as agents and Lessor covenants and warrants
that under the term of its lease it has lawful title and right to make this
lease, that it will maintain Lessee in full and exclusive possession of the
leased premises, and that if Lessee shall pay the rent and perform all the
agreements, covenants, and conditions required by this lease to be performed by
it, Lessee may freely, peaceable, and quietly occupy and enjoy the leased
premises without molestation or hindrance, lawful or unlawful, of any person
whomsoever.
SURRENDER
14. When this lease shall terminate in accordance with the terms
hereof, Lessee shall deliver up possession of the leased premises in as good
order, repair, and condition as the same are in at the beginning of the term of
this lease except for reasonable wear and tear and loss, damage, or destruction
caused by fire, flood, windstorm, earthquake, strikes, riots, civil commotion,
acts of public enemy, acts of God, or other casualty, or caused by negligence of
Lessor, its agents, employees, or invitee.
NOTICE
15. (a) Any notice or demand required by the provisions of this
lease to be given to Lessee shall be deemed to have been given adequately if
sent by Certified Mail to Lessee at the Following address: 11410 Pagemill Rd.,
Dallas, TX 75243.
(b) Any notice or demand required by the
Provisions of this lease to be given by Lessee shall be deemed to have been
given adequately if sent by Certified Mail to Lessor at: 1111 N Greenwood St.,
LaGrange, GA 30240.
(c) Either party shall have the right to change its address as
above designated by giving to the other party fifteen (15) days notice of its
intention to make such change and of the substituted address at which any notice
or demand may be directed to it.
ENTIRE AGREEMENT
16. The whole and entire agreement of the parties is set forth in
this Agreement and the parties are not bound by any agreements, understandings
or conditions otherwise than as expressly set forth and stipulated hereunder.
CHANGES, MODIFICATIONS, OR AMENDMENTS
17. This agreement may not be changed, modified, discharged, or
terminated orally or in any other manner than by an agreement mutually signed by
3
<PAGE>
the parties hereto or their respective successors and assigns.
COVENANTS TO BIND RESPECTIVE PARTIES
18. This lease, and all of the agreements, covenants, and conditions
contained herein shall be binding upon Lessor and Lessee and upon their
respective heirs, executors, administrators, successors, and assigns.
SECURITY DEPOSIT
19. Lessee agrees to pay to Lessor the sum of $1,750 as security
deposit prior to the occupancy of the premises unless such security payment has
already been made. The security deposit shall be held by Lessor as security of
Lessee's performance of this lease and against any damage to the premises or any
part of Lessor's property by Lessee, its agents, employees, or invitees. Lessee
understands and agrees that Lessor shall have no obligation to apply the
security deposit against such rent or against any other amount due from Lessee
to Lessor.
IN WITNESS WHEREOF, Lessor and Lessee have caused these presents to
be executed by their duly authorized officers and have caused their respective
seals to be hereto affixed, all as of the date and year first above written.
__________________________ Lessor: CONTINENTAL ELECT CONTR.
-------------------------------------
BY: /s/ [ILLEGIBLE]
-------------------------------------
__________________________ Lessee: CUPLEX, INC.
-------------------------------------
BY: /s/ [ILLEGIBLE]
-------------------------------------
__________________________
__________________________
4
<PAGE>
EXHIBIT 10.35
FIRST LEASE AMENDMENT
Agreement made this 7th day of August, 1996 by and between 410 Forest Street
Realty Trust, with a mailing address of 293 Boston Post Road West, Suite 320,
Marlborough, Massachusetts, 01752 (hereafter referred to as "Landlord") and
Cuplex, Inc. with a principal place of business at 1500 F. Highway 66, Garland,
Texas, 75040, (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant have entered into a certain lease dated July 1,
1996, (hereinafter referred to as the "Lease") relating to a certain space at
410 Forest Street, Marlborough, Massachusetts, 01752.
WHEREAS, Landlord and Tenant have agreed to modify and amend the Lease by
modifying the Term and to make such other modifications and amendments to the
Lease as may be necessary, all as more fully set forth hereinbelow, which
modifications and amendments shall be effective upon Execution of this document.
NOW THEREFORE, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:
Section 1 of said term is hereby further modified and amended by deleting
therefrom the dates "July 1, 1996 to June 30, 2006" set forth in the subsection
thereof entitled "Term" and by substituting therefor the dates "July 22, 1996 to
July 21, 2006".
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First Lease
Amendment under seal as of the 7th day of August, 1996.
LANDLORD: 65 Boston Post Road Realty Trust
/s/ David P. Depietri
-----------------------------------
By: David P. Depietri
Its: Trustee
TENANT: Cuplex, Inc.
/s/ Ronald Ryno
-----------------------------------
By: Ronald Ryno
Its: President
<PAGE>
LEASE
-----
THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and
the Tenant are the parties hereinafter named, and which relates to space in the
building known as and numbered as 410 Forest Street (the "Building")
Marlborough, Massachusetts which Building is situated on a certain parcel of
land containing approximately 3.4 acres (the "Land").
The parties to this instrument hereby agree with each other as
follows:
ARTICLE I
BASIC LEASE PROVISIONS
----------------------
1.1 INTRODUCTION. The following sets forth basic data and, where
appropriate, constitutes definitions of the term hereinafter listed.
1.2 BASIC DATA.
LANDLORD'S REPRESENTATIVE: David Depietri
Rosewood Development Corporation
LANDLORD'S ADDRESS
(FOR PAYMENT OF RENT): 410 Forest Street Realty Trust
c/o Rosewood Companies
293 Boston Post Road West
Suite 320
Marlboro, MA 01752
LANDLORD'S ADDRESS
(FOR NOTICE AND BILLING): Same as Above
TENANT: Cuplex, Inc.
1500 E. Highway 66
Garland, Texas 75040
TENANT'S REPRESENTATIVE: Michael Ryan
1
<PAGE>
TENANT'S PHONE NUMBER: (214) 276-0333 (Texas)
(508) 624-4615 (Marlborough)
PREMISES: 410 Forest Street, Marlborough, MA 01752
RENTABLE AREA OF PREMISES: 32,500 Square Feet.
RENTABLE AREA OF THE BUILDING: 32,500 Square Feet.
RENT COMMENCEMENT DATE: July 1, 1996 or upon completion
of Landlord's work required under 13.24
and 13.27 whichever is later.
TERM COMMENCEMENT DATE: July 1, 1996 or upon completion
of Landlord's work required under 13.24
and 13.27 whichever is later
LEASE TERMINATION DATE: Ten (10) years from the Term
Commencement Date.
TERM: Ten (10) years.
BASE RENT: SEE SCHEDULE BELOW:
YEARS NET. NET. NET NET. NET. NET NET. NET. NET
----- RATE PER SQ. FT. ANNUAL RENT MONTHLY RENT
---------------- ----------- ------------
1 $5.00 $162,500.00 S13,541.66
2 $5.50 $178,750.00 $14,895.83
3 $6.00 $195,000.00 $16,250.00
4 $6.50 $211,250.00 $17,604.17
5-10 $7.00 $227,500.00 $18,958.34
Use: Office, sales office, distribution, warehouse space and
mechanical and electronic assembly operations.
Description: The building containing the aggregate 32,500 +/- rentable
square feet of floor area as located and depicted on Exhibit
"A" attached hereto and made a part hereof.
2
<PAGE>
ARTICLE II
DESCRIPTION OF PREMISES
-----------------------
2.1 LEASE OF PREMISES. Landlord hereby demises and Leases to Tenant,
and Tenant hereby agrees to rent from Landlord, the Premises suitably identified
in the foregoing portions of this Lease.
Excepted and excluded from the Premises are the roof or ceiling, floor and all
perimeter walls of the Premises, except the inner surfaces thereof, but the
entry doors to the Premises are not excluded from the Premises; and further
reserving the right to replace, maintain, repair, install and use ducts, utility
lines, pipes and the like, to serve the Building and to replace maintain, and
repair such utility lines, pipes and like in, over and upon the Premises.
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the
Premises, the exclusive right to use and permit its invitees to use the parking
spaces and such internal roadways that service the Building, but such rights
always shall be subject to reasonable rules and regulations from time to time
established by Landlord by suitable notice.
ARTICLE III
TERM OF LEASE
-------------
3.1 COMMENCEMENT DATE. The term of this Lease shall be the period
specified in Section 1.2 hereof as the "Lease Term". The term of this Lease
shall commence on the Term Commencement Date. Landlord shall proceed with due
diligence to complete construction work described in Exhibit "A" annexed hereto
and hereby made a part hereof.
3.2 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Except to the extent
to which Tenant shall have given Landlord written notice (latent defects
excluded), not later than the end of the first full calendar month next
beginning after the date upon which Tenant first takes possession of the
Premises, of respects in which Landlord has not performed Landlord's obligations
under 13.26 and 13.27, Tenant shall have no claim that Landlord has failed to
perform any of Landlord's obligations under 13.26 and 13.27. AS to any latent
defects, unless Tenant has given written notice to Landlord no later than the
end of the sixth full (6th calendar month next after the date upon which tenant
first takes possession of the Premises specifying such latent defects, Tenant
shall have no claim against Landlord therefor.
3.3 OPTION TO TERMINATE. Tenant has the right to terminate this
Lease at the end of year seven (7) only with twelve (12) months prior written
notice to Landlord. A penalty of $100,000.00 will be due by Tenant to Landlord
upon termination, if option is exercised.
ARTICLE IV
RENT, TAXES, OPERATING COSTS AND OTHER EXPENSES
-----------------------------------------------
4.1 RENT. Tenant agrees to pay base rent to Landlord or as directed
by Landlord, in equal monthly installments as described in Article 1.2 in
advance, on the first day of each and every calendar month of the Lease Term at
Landlord's mailing address, or at such other place as Landlord shall from time
to time designate, until notice of some other designation is given, rent and all
other charges for which
3
<PAGE>
provision is herein made shall be paid by remittance to or to the order of 410
Forest Street Realty Trust.
Rent for any partial month shall be paid by Tenant to Landlord at such rate on a
pro rata basis, and, if the term of this Lease commences on a day other than the
first day of the month, the first payment which Tenant shall make to Landlord
shall be a payment equal to a proportionate part of such monthly rent for the
partial month from the then commencement date to the first day of the succeeding
month, and the rent for such succeeding calendar month.
Other charges payable by Tenant on a monthly basis, as hereinafter provided,
likewise shall be prorated, and the first payment on account thereof shall be
determined in similar fashion; and other provisions of this Lease calling for
monthly payments shall be read as incorporating this undertaking by Tenant.
4.2 TAXES. In addition to the base monthly rent to be paid by
Tenant, and as part of the total rent due hereunder, Tenant shall pay to
Landlord 100% of all taxes assessed against the Building and Land on which the
same are located for any tax period during the Lease Term.
The term "taxes" means the real estate taxes, levies, betterment's, general
assessments, water and sewer use, and other governmental charges and impositions
of a regular, common, ordinary or recurring nature, which are or shall be
imposed, become due and payable with respect to, the Building and the land on
which same are located.
The term "tax period" means the period during which taxes are required to be
paid, under applicable law. Thus, under the law presently in Marlborough,
Massachusetts, the tax period means the period from July 1 of a calendar year to
June 30 of the subsequent calendar year with one quarter of the taxes due and
payable on August 1, the second quarter of taxes due on November 1, the third
quarter due on February 1, and the last quarter on May 1.
Suitable adjustment in the determination of Tenant's obligation under this
provision shall be made in the computation for any tax period which is greater
than or less than twelve (12) full calendar months.
When the applicable tax bill is not available, then a tentative computation
shall be made or the basis of the taxes for the next prior tax period, with a
final adjustment to be made between Landlord and Tenant promptly after Landlord
shall have received the applicable tax bill.
Payments by Tenant on account of taxes shall be made monthly and at the time and
in the fashion herein provided for the payment of rent. The monthly amount so to
be paid to the Landlord, in the aggregate, shall equal each payment by the
Landlord on account of such taxes, at least ten (10) days before the day on
which such payments by the Landlord would become delinquent.
Promptly, after receipt by the Landlord of bills for such taxes the Landlord
shall advise the Tenant of the amount thereof, and furnish Tenant with a
photocopy of such tax bills, and the computation of the Tenant's share on
account thereof for the tax period included within the term of this Lease
covered by such bill. If payments theretofore made for such period by the
Tenant exceed such share, the Landlord shall credit the amount of overpayment
against subsequent obligations of the Tenant; but if such share is greater than
payments theretofore made on account for
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such period, the Tenant shall make suitable payment to the Landlord within
twenty (20) days after being so advised by the Landlord. Further, if such taxes
are abated, reduced or refunded, an equitable adjustment shall be made to
reflect the Tenant's pro-rata share of the amount of such reduction less all
costs incurred by the Landlord in securing the same; but the pendancy of any
application or other proceeding relating to any such abatement, reduction or
refund shall not delay the computation and payment by the Tenant to be made
hereunder. (In no event, however, will the base rent hereunder be reduced as a
result of any abatement or decrease in taxes.)
The Tenant's share of such taxes shall be adjusted equitably for and with
respect to any portion of the Lease Term hereof which does not include an entire
tax period.
Landlord shall have the same rights and remedies of the nonpayment by the Tenant
of any amounts due on account of such taxes as the Landlord has hereunder for
the failure of the Tenant to pay the rent.
If some method or type of taxation shall replace the current method of
assessment of real estate taxes, or the type thereof, the Tenant agrees that the
Tenant shall a an equitable share of the same computed in a fashion consistent
with the method of computation herein provided, to the end that the Tenant's
share thereof shall be, to the maximum extent practicable, comparable to that
which the Tenant would bear under the foregoing provisions.
4.3 SECURITY DEPOSIT. Upon the execution of this Lease, the Tenant
shall pay to the Landlord the amount of $13,000.00 which shall be held as
security for the Tenant's performance as herein provided and refunded to the
Tenant at the end of this Lease subject to the Tenant's satisfactory compliance
with the conditions hereof. Landlord hereby acknowledges receipt of security
deposit. The Tenant agrees it shall not be entitled any interest from Landlord
for said security deposit. The parties agree that said security deposit shall be
deposited in a money market, or equivalent account of the Landlord's choice. The
Tenant agrees the Landlord shall not be obligated to segregate said security
deposit, but rather may deposit same in account together with other funds owned
by the Landlord.
In the event Tenant defaults in respect of any term or provision of this Lease,
including without limitation, payment of rent, Landlord may use, apply or retain
the whole or any part of such security deposit for the payment of any rent in
default or for any sums which Landlord may spend or be required to spend by
reason of Tenant's default, whereupon Tenant shall promptly restore such
security deposit to its original amount.
4.4 OPERATING COSTS. In addition to the rent to be paid by Tenant
and as a part of the total rent due hereunder, Tenant shall pay to Landlord an
annual management fee of three percent (3%) of base rents, as well as the amount
of all reasonable Operating Costs of every type and nature (except as provided
below) attributable to the Building.
Without limitation, the term "Operating Costs" shall include, (1) all costs to
the Landlord for supplying snow removal and landscaping services to the land on
which the Building is located; (2) all costs and expenses to the Landlord
(including reasonable and appropriate reserves) for services, materials and
supplies furnished or used in the operation, replacement, repair, maintenance,
cleaning and protection of the Building and the Land on which same is located,
such costs and expenses to be reasonable and customary for similar buildings in
the areas in which the subject Premises are located; (3) all premiums for
insurance against damage or loss to the
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Building from such hazards as shall from time to time be generally required by
institutional lenders in the Boston area for similar properties, including, but
not limited to, insurance covering loss of rent attributable to any such hazards
and public liability insurance; 4 cost for the City of Marlborough water/sewer
connection.
Operating costs do not include the following; expenses for repairs, restoration
or other work occasioned by fire, wind, the elements or other casualty that are
paid by insurance; income and franchise taxes of Landlord; expenses incurred in
leasing or to procuring tenants, leasing commissions, advertising expenses and
expenses for the renovating of space for new tenants; interest or principal
payments on any mortgage encumbering the Land or the Building; compensation paid
to any employee of Landlord above the grade of property manager; or operating
costs which are the responsibility of Tenants.
Payments by Tenant on account of Operating Costs shall be made monthly, in
advance, and at a time and in fashion herein provided for the payment of Rent.
The amounts so to be paid to Landlord shall be an amount sufficient to cover, in
the aggregate, a sum equal to Operating costs for each calendar year during the
Lease Term.
Promptly after the end of each calendar year during the term of this Lease,
Landlord shall submit to Tenant a reasonably detailed accounting, in accordance
with accepted accounting practices, of Operating Costs for such calendar year,
and Landlord shall certify to the accuracy thereof. If payments theretofore made
for such calendar year by Tenant exceed actual operating costs, according to
such statement, Landlord shall refund the amount of overpayment within thirty
(30) days after submitting the accounting of Operating Costs; but, if actual
operating costs is greater than payments theretofore made on account for such
period, Tenant shall make suitable payment to Landlord within thirty (30) days
after being so advised by Landlord. Upon written request by Tenant made within
fifteen (15) days of the date of submission of said account Landlord shall
provide to Tenant for its review copies of any bill supporting the figures
contained in said account.
4.5 UTILITIES. Tenant shall pay prior to delinquency, directly to
the company furnishing same, all charges for all water, gas, heat, cooling,
light, power, telephone service, janitorial service, trash removal, lawn and
replacement of glass broken and all other services supplied to the Premises at
the request of Tenant during the Term, and for so long as Tenant occupies any
portion of the Premises.
Tenant covenants and agrees that at all times its use of any of the utility
services shall never exceed the capacity of the mains, ducts and conduits
bringing utility services to the Building or the Premises.
Tenant shall pay for any necessary maintenance charges for utility services
provided to the Premises and shall furnish all electrical lighting bulbs and
tubes.
Landlord shall not be liable for any interruption or failure of utility services
on the Premises not caused by Landlord.
4.6 TRIPLE NET LEASE. This Lease shall be deemed and construed to be
a "Net/Net/Net Lease," and the Landlord shall receive all rents provided for
herein, free from any charges, assessments, impositions, expenses or deductions
of any and every kind or nature whatsoever.
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ARTICLE V
USE OF PREMISES
---------------
5.1 PERMITTED USE. Tenant agrees that the Leased Premises shall be
used and occupied for the purpose specified as the Use thereof, in Section 1.2
of this Lease, and for no other purpose or purposes.
Tenant further agrees to conform to the following provisions during the entire
Lease Term:
(a) No auction, fire, distress, bankruptcy or other type sales may
be conducted within or without the Premises without the prior written consent of
Landlord;
(b) Tenant shall cause all freight to be delivered or removed, and
all garbage or refuse to be removed from the building and the Premises in
accordance with reasonable rules and regulations therefore established by
Landlord; and until removal is effected, Tenant shall keep all garbage or refuse
in the Premises suitably covered and deodorized.
(c) Tenant shall take any and all steps required reasonably to
prevent insect and vermin infestation of the Premises, and shall maintain such
practices as Landlord may require reasonably to that end;
(d) Tenant shall not place on the exterior or exterior walls
(including both interior and exterior surfaces of windows and doors), or on the
roof of the Building or in any other part of the Building or the Premises, any
signs or any symbol, advertisement, neon light, other light or other object or
thing visible to public view outside of the Premises without the prior consent
of Landlord, except the Building Standard of 10" black metal letters and signs
or lettering on the entry doors to the Premises of the type commonly and
customarily used for purpose of identifying and locating the Premises. Said
permitted signage is at the sole cost and expense of the Tenant. Where Landlord
establishes reasonable standards for such signs, Tenant agrees to conform to the
same and to submit for Landlord's prior approval, such approval not to be
withheld unreasonably, a plan or sketch of the sign to be placed on such entry
doors. Without limitation, lettering on windows is expressly prohibited; except
that Tenant may install on building the sign approved in the letter dated May 3,
1996.
(e) Tenant shall not perform any. acts or carry on any practice
which may injure the Premises or any part of the Building, or Overload the
floors or walls beyond design loads, or cause any offensive odors or loud noise,
nor shall Tenant permit or commit any waste;
(f) Tenant shall not alter or add to the Leased Premises except, on
each occasion, in accordance with written consent from Landlord, which consent
Landlord agrees not to withhold unreasonably. All allowed alterations or
additions shall be at the Tenant's expense and shall be in quality at least
equal to the present construction and made in accordance with all applicable
laws. All permanent Leasehold alterations or improvements made by the Tenant
shall become the property of the Landlord at the termination of occupancy as
provided herein except trade fixtures, equipment, machinery personal property,
appliances, environmental fans, electrical equipment, and other equipment
required for permitted use. However, at the expiration of this Lease, the Tenant
shall remove all of the Tenants goods, including without limitation, trade
fixtures, equipment, machinery appliances, wastewater treatment equipment,
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effects and property as are in the Leased Premises; as well as such of the
alterations and additions made by Tenant, if any, as Landlord may request; and
the Tenant shall repair any damage caused by such removal and restore the
Premises to the condition they were on the Commencement Date or as permitted or
required hereunder.
(g) Tenant will always conduct its operations in the Premises and
make any permitted alterations or improvements in compliance with all applicable
laws, rules, regulations and ordinances affecting the Premises or the specific
conduct of its business in the Premises; and if any governmental license or
permit shall be required for the proper and lawful conduct of the Tenant's
business in the Premises, Tenant, at its expense, shall duly procure and
thereafter maintain such license or permit and submit the same to inspection by
Landlord. Tenant shall at all times comply with the terms and conditions of each
such license or permit. Tenant shall make all repairs, alterations, additions or
replacements to the Leased Premises required by any order, ordinance, law, rule
or regulation of any public authority required solely because of Tenants
particular use of the Leased Premises.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
-------------------------
6.1 LANDLORD'S CONSENT. Tenant shall not, without first obtaining on
each occasion the written consent of the Landlord which consent shall not be
unreasonably withheld, (i) assign this Lease, (ii) sublet the whole or any part
of the Leased Premises, (iii) license any person or entity to use or occupy all
or any part of the Leased Premises, (iv) grant any person or entity the use,
benefit, enjoyment or right to occupy the whole or any part of the Leased
Premises, including without limitation any such arrangement pursuant to a
"management contract," so-called, or v) transfer the whole or any part of the
Tenant's interest hereunder, whether by absolute transfer or transfer by way of
security. No consent by the Landlord pursuant to this paragraph shall be deemed
a waiver of the obligation to obtain the Landlord's consent on any subsequent
occasion; no waiver of the foregoing restrictions or any portion thereof shall
constitute a waiver or consent in any other instance; and the Tenant shall
remain at all items responsible for the performance of all of the terms,
condition, covenants or agreements contained in this Lease.
In the event the Tenant intends to assign, sublet or part with the possession of
the Leased Premises or any part thereof, it shall deliver to the Landlord notice
in writing of such intention and the Landlord shall have thirty (30) days from
the date of the receipt of such notice within which to elect to terminate the
within Lease by notice in writing delivered to Tenant whereupon the within Lease
shall be terminated as of the expiration of such thirty (30) day period, then
the Tenant may with the consent of the Landlord in writing first had and
obtained, such consent not to unreasonably or arbitrarily withheld, assign or
sublet the Premises, provided further, however, and it is made a condition of
the giving of such consent that:
(a) The proposed assignee, sublessee or transferee of this Lease
shall agree in writing to assume and perform all of the terms, covenants,
conditions and agreements by this Lease imposed upon the Tenant herein in the
form to be approved by the Landlord;
(b) No assignment, sublease or transfer shall in any manner release
the Tenant and guarantor, if any, from its covenants and obligations hereunder.
If Tenant is a corporation, partnership or other legal entity and if all or
substantially all of the assets of Tenant shall be sold, assigned or transferred
with or without a
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specific assignment of this Lease or, if Tenant shall merge or consolidate with
any firm, corporation or other legal entity, and Tenant is not the survivor in
any such combination, Landlord at its option may, by giving ten (10) days prior
written notice to Tenant, declare such change a breach of this Lease subject to
the remedies provided for breach in Article XI hereof.
If tenant is a sole proprietorship, Landlord shall have the option to terminate
this Lease in the event of Tenant's incapacity or death upon ten (10) days'
prior written notice to Tenant or its legal representative.
In lieu of granting permission to assign or sublet as indicated above, Landlord
reserves the right to terminate this tease and enter into a new lease with a new
tenant.
ARTICLE VII
CONDITION OF THE PREMISES
-------------------------
7.1 LANDLORD'S AGREEMENT. Except as otherwise provided in this
Lease, Landlord agrees at its cost and expense to keep in good order, condition
and repair the roof, load-bearing walls, (excluding finish and coverings),
foundations and all other structural (i.e., load-bearing or otherwise essential
to the integrity of the Premises) portions of the Premises and the Building,
insofar as they affect the Premises, except that Landlord shall in no event be
responsible to Tenant for the condition of glass in and about the Premises or
for the doors leading to the Premises or for any condition in the Premises or
the Building caused by any act or neglect of Tenant or any contractor, agent,
invitee, licensee, servant or employee of Tenant.
7.2 MAINTENANCE. In addition to its obligation under Section 7.1,
Landlord agrees, (with reimbursement by Tenant), to otherwise keep, manage,
maintain and operate the common areas of the Building (including snow removal),
in good conditions and repair, provided that Landlord shall not be responsible
for any condition caused by the act or neglect of Tenant or any contractor,
agent, invitee, licensee, servant or employee of Tenant. Landlord shall not be
responsible for Tenant or those claiming through Tenant for any interruption in
any services to be provided by Landlord due to forces beyond Landlord's control.
7.3 LANDLORD'S LIABILITY. Landlord shall not be responsible to make
any improvements or repairs to the Building or the Premises other than as
expressly provided in this Article, unless expressly provided otherwise in this
Lease.
Further, Landlord shall never be liable for any failure to make repairs which,
under the provisions of this Article or elsewhere in this Lease, Landlord has
undertaken to make unless:
(a) Tenant has given notice to Landlord of the need to make such
repairs, or of a condition in the Building or in the Premises requiring any
repair for which Landlord is responsible; and
(b) Landlord has failed to commence to make such repairs within ten
(10) days after receipt of such notice, or fails to proceed with reasonable
diligence to complete such repairs.
Pending such repair by Landlord, Tenant shall take all reasonably prudent
temporary measures and safeguards to prevent any injury or loss or damage to
persons or property.
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7.4 TENANT'S AGREEMENT. Tenant acknowledges that, as of the date
hereof, the Premises are in good order, conditions and repair and as represented
to Tenant. Consistent therewith, Tenant acknowledges to Landlord its agreement
to Lease, in an "as is" condition, the entire Premises without any warranty or
obligation on the part of Landlord except for the work which Landlord has agreed
to undertake pursuant to the provisions of Article III hereof.
From and after the Commencement Date hereof, and for so long as Tenant remains
in occupancy of any part of the Premises, Tenant shall, at its sole cost and
expense, maintain and repair all equipment involved in the operation of the
Premises including, but without limitation all HVAC, electrical and plumbing
systems. If any HVAC, plumbing or electrical equipment or systems, fixture or
appliance requires replacement, Tenant shall notify Landlord in writing thereof
and Landlord shall make such replacement, and Tenant shall immediately pay to
the Landlord all costs incurred by Landlord in making such replacement. Tenant
shall enter into a regularly scheduled preventative maintenance service contract
with a maintenance contractor for servicing all HVAC systems and equipment
within the Premises. The service will include all services suggested by the
equipment manufacturer within the operation/maintenance manual and will become
effective within thirty (30) days of the date Tenant takes possession of the
Premises. Tenant shall, upon Landlord's request provide Landlord with evidence
that all HVAC systems have undergone continual preventative maintenance.
Should any major component of the HVAC equipment require replacement, Tenant
shall notify Landlord and Landlord shall make such replacement. If any
replacement, has been made during the original or extended term of this Lease,
Tenant shall, upon demand by Landlord, pay to Landlord that portion of the cost
of such replacement equipment (including but not limited to installation cost
thereof) as shall equal the product of such cost multiplied by a fraction, the
numerator of which is the number of years (and any portion of a year) remaining
in the original or extended term at the time of replacement and the denominator
of which is the useful life of the replacement equipment (as estimated by the
manufacturer).
Upon vacating the Premises, a "walk-through" will be made by the Tenant and a
representative of the Landlord. At that time the following work must be
scheduled: a) Interior carpets are to be vacuumed and shampooed, b) all holes or
scrapes on wall surfaces are to be repaired, c) concrete slabs in any warehouse
area are to be cleaned with a power scrubber, d) all bathroom fixtures, floors
and walls are to be thoroughly cleaned. Cost of repairs and inspection will be
at the sole expense of the Tenant.
Upon expiration or earlier termination of the Term, the Tenant will remove all
of its property from the Leased Premises. If within ten (10) days after such
expiration or termination, Tenant shall not have removed its property, Landlord
shall give notice to tenant, and said property shall be deemed abandoned if
Tenant has not removed same within ten (10) days of receipt of said notice. If
Landlord shall elect to remove and store Tenant's property, Tenant shall pay to
Landlord upon request for same, the costs and expenses incurred by Landlord in
removing and storing such property. Tenant shall also pay the reasonable cost of
repairing damage caused to the Premises by the removal of such property.
Property so stored by Landlord shall be made available to Tenant upon five (5)
days notice to Landlord and upon payment to Landlord of all sums remaining due
the Landlord under the provisions of the Lease.
In the event of a default under this Lease or in the event Landlord is caused to
expend sums pursuant to the provisions of this Article, Landlord shall have, in
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addition to any other remedies herein all rights under applicable law. To the
extent permitted by Law, all of Tenant's property which may be on the Premises
at any time or from time to time, during the Term shall be at Tenant's sole
risk. From and after the Commencement Date hereof, and until the end of the
Lease Term, and for so long thereafter as Tenant occupies any part of the
Premises, Tenant will keep neat and maintain in good order, and condition and
repair, the Premises and every part thereof, including glass, windows, and
doors, excepting only those repairs for which Landlord is responsible under the
terms of this Lease and damage by fire or other casualty and as a consequence of
the exercise of the power of eminent domain, and further excepting reasonable
wear and tear; and Tenant shall surrender the Premises, and all appurtenances
and equipment, at the termination of the Lease, in such condition and shall
remove all of Tenant's signs. Further, Tenant shall be responsible for the cost
of repairs, excluding normal wear and tear, damage by the elements and insured
casualty loss, which may be necessary by reason of damage to the Building by
Tenant, Tenant's independent contractors, or Tenant's invitees, agents and
servants, employees and licensees. Tenant shall replace any glass which may be
damaged or broken with glass of the same quality.
If repairs are required to be made by Tenant pursuant to the terms hereof,
Landlord may demand that Tenant make the same within ten (10) days, and if
Tenant refuses or neglects to commence such repairs and complete the same with
reasonable dispatch, after such demand, Landlord may (but shall not be required
to do so) make or cause such repairs to be made and shall not be responsible to
Tenant for any loss or damage that may accrue to Tenant's stock or business by
reason thereof. If Landlord makes or causes such repairs to be made, Tenant
agrees that Tenant will forthwith, on demand, pay to Landlord the cost thereof,
and if Tenant shall default in such payment, Landlord shall have the remedies
provided for the nonpayment of rent or other charges payable hereunder.
ARTICLE VIII
INDEMNITY AND GENERAL LIABILITY INSURANCE
-----------------------------------------
8.1 TENANT'S INDEMNITY. Tenant shall indemnify and hold harmless
Landlord from and against any and all claims of whatever nature arising out of,
directly or indirectly, any accident, injury or damage to person or property
that shall happen in or about the Leased Premises or within the Building or the
land on which the Building is located, where such accident, injury or damage
results from any negligent or intentional acts or omissions of the Tenant, or
Tenant's agents, employees, servants, licensee, or independent contractors.
This indemnity and hold harmless agreement shall include indemnity against all
costs, expenses and liabilities incurred in or in connection with any such claim
or proceeding brought thereon, and the defense thereof.
8.2 GENERAL LIABILITY INSURANCE. Tenant agrees to maintain in full
force from the date upon which Tenant first enters the Premises for any reason,
throughout the term of this Lease, and thereafter so long as Tenant is in
occupancy of any part of the Premises, written on an occurrence basis, a policy
Of general liability and property damage insurance under which Landlord (and
such other persons as are in privity of estate with Landlord as may be set out
in notice from time to time) and Tenant are named as insured, and under which
the insurer agrees to indemnify and hold Landlord and those in privity of estate
with Landlord, harmless from and against all cost, expense and/or liability
arising out of or based upon any and all claims, accidents, injuries and damages
mentioned in Section 8.1 of this Article VIII. Each such policy shall be
non-cancelable and non-amendable with
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respect to Landlord and Landlord's said designees without ten (10) days prior
notice to Landlord, and a duplicate original or certificate thereof shall be
delivered to Landlord. The limits of liability of such insurance shall be ONE
MILLION DOLLARS ($1,000,000.00) for bodily injury (Or death) whether to one or
more persons, and ONE HUNDRED THOUSAND DOLLARS ($100,000.00) with respect to
damage to property, and such higher limits, if procurable, as may from time to
time be reasonably required by Landlord's Lender. Further, Tenant shall maintain
and keep in force employees' compensation insurance prepared under Massachusetts
laws, and such other insurance necessary to protect Landlord against any other
liability to person or property arising hereunder by operation or law now in
effect or subsequently adopted.
8.3 TENANT'S RISK. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to use and occupy the Leased Premises
and to use such other portions of the Building, and the land on which the same
is located, as Tenant is herein given the right to use at Tenant's own risk; and
except for loss or damage arising from the acts, omissions or negligence of
Landlord, its contractors, licensees, agents, servants or employees, Landlord
shall have no responsibility for any loss of or damage to furniture,
merchandise, effects or other personal property of any kind of Tenant,
(excepting Leasehold improvements) or anyone claiming through Tenant. The
provisions of this Section shall be applicable from and after the execution of
this Lease and until the end of the term of this Lease, and during such further
period as Tenant my use or be in occupancy of any part of the Premises or of the
Building.
8.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent that this
agreement may be made effective according to law, Tenant agrees that Landlord
shall not be responsible or liable to Tenant, or to those claiming by, through
or under Tenant, for any loss or damage that may be occasioned by or through the
acts or omission of persons occupying adjoining Premises, or any part of
Premises adjacent to or connected to the Leased Premises or any part of the
Building, or otherwise or for ant loss or damage resulting to Tenant or those
claiming by, through or under Tenant or its or their property, resulting from
fire, explosion, falling plaster, steam, water, gas, sewer, steam pipes,
electricity, electrical disturbance, rain, snow, or leaks from any part of the
Building, or from the pipes, appliances, plumbing works, roof, street, or
subsurface or from any other place, or caused by dampness or by any other cause
or by whatever nature, unless caused by or due to the negligence of Landlord its
agents, servants or employees and then only after (i) notice to Landlord of the
condition claimed to constitute negligence, and (ii the expiration of a
reasonable time after such notice has been received by Landlord without Landlord
having taken all reasonable and practicable means to cure or correct such
condition and pending such cure or correction by Landlord, Tenant shall take all
reasonably prudent temporary measures and safeguards to prevent any injury, loss
or damage to persons or property.
ARTICLE IX
LANDLORD'S RIGHT OF ACCESS
--------------------------
9.1 LANDLORD'S RIGHT OF ACCESS. Landlord and its designees shall
have the right to enter the Premises at all reasonable hours for the purpose of
inspecting or of making repairs upon 24 hours notice (it being understood and
agreed, however, that said notice and hour requirements shall in no event apply
to emergency situations) to the same, or for the purpose of exhibiting the
Leased Premises to prospective or existing mortgagees or purchasers of all or
any part of the Building; and or a period commencing six (6) months prior to the
expiration of the
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term of this Lease, Landlord may have reasonable access to the Premises upon 24
hour notice, at all reasonable hours for the purpose of exhibiting the same to
prospective tenants.
ARTICLE X
FIRE, EMINENT DOMAIN, ETC.
--------------------------
10.1 ABATEMENT OF RENT. If the Premises shall be damaged by fire or
casualty, the rent and the charges payable by Tenant under Section 4.1, Section
4.2 and Section 4.4 hereof shall abate or be reduced proportionately for the
period in which, by reason Of such damage, there is substantial interference
with the operation of Tenant's use of the Premises, having regard to the extent
to which Tenant may be required to discontinue Tenant's use of the Premises, but
such abatement or reduction shall end as and when Landlord shall have restored
the Premises to such conditions as will allow Tenant to recommence Tenant's use
of the Premises, as hereinafter provided. In the event of termination of this
Lease pursuant to this Article, this Lease shall come to an end and cease as of
the date of such destruction or damage, except Tenant shall be liable for and
pay promptly to Landlord any rent or other charges then in arrears.
If the Premises shall be affected by any exercise of the power of eminent
domain, then the rent and the charges payable by Tenant under Sections 4.1, 4.2
and 4.4 hereof shall be justly and equitably abated and reduced according to the
nature and extent of the loss of use thereof suffered by Tenant.
10.2 LANDLORD'S RIGHT OF TERMINATION. In case during the term hereof
the Leased Premises or the Building shall be partially damaged (as distinguished
from "substantially damaged," as that term is hereinafter defined) by fire or
other casualty, Landlord shall forthwith proceed to repair such damage and
restore the Leased Premises, or so much thereof as was originally constructed by
Landlord, to substantially their condition at the time of such damage, (subject,
however, to zoning laws and building codes then in existence), but Landlord
shall not be responsible for any delay which may result from any cause beyond
Landlord's reasonable control. If the Leased Premises or the Building are
partially damaged, Landlord's repairs must be substantially completed within
sixty (60) days from the date the damage occurred. If the Premises or the
Building are substantially damaged by fire or casualty (the term "substantially
damaged" meaning damaged of such a character that the same cannot, in ordinary
course, reasonably be expected to be repaired within sixty (60) days from the
time that repair work would commence, or any part of the Building is taken by
any exercise of the right of eminent) domain, then Landlord and Tenant shall
have the right to terminate this Lease (even if the Landlord's entire interest
in the Premises may have been divested) by giving notice of election so to do,
whereupon this Lease shall terminate as of the date of such notice with the same
force and effect as if such date were the date originally established as the
expiration date hereof.
If this Lease is not terminated as hereinbefore provided, Landlord shall
commence restoration not later than thirty (30) days after the occurrence of
damage by fire or casualty or condemnation, but if Landlord shall not
substantially complete said restoration within ninety (90) days following the
commencement of restoration, Tenant shall have the right to then terminate this
Lease without liability or penalty for same by giving written notice to Landlord
of its intent to do so, whereupon this Lease shall terminate as of the date of
such notice and be of no further force and effect, except Tenant shall remain
liable and promptly pay to Landlord any rent or other charges then in arrears.
Further, in the event this Lease is not terminated as
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hereinbefore provided, Landlord shall only be required to repair or restore so
much of the Premises originally constructed by Landlord to substantially their
condition at the time of such damage (subject, however, to zoning and building
laws and codes then in existence); and Landlord shall not be responsible for any
delay which may result from any cause beyond Landlord's reasonable control.
Landlord's obligations hereunder shall in no event include Tenant's fixtures,
furnishings or equipment and Tenant shall at its own expense, proceeding with
all reasonable diligence, repair, or replace such of its fixtures, furnishings
and equipment as may have been damaged or destroyed.
10.3 AWARD. Landlord shall have and hereby reserves and excepts, and
Tenant hereby grants and assigns to Landlord, all rights to recover for damages
to the Building and the land on which the same is located, as aforesaid. With
regard to any eminent domain proceedings affecting the Premises of which
Landlord has noticed, Landlord shall notify Tenant in writing of such
proceedings.
Tenant shall have the right, at its sole cost and expense to prosecute in any
such condemnation proceeding a claim for the value of any of Tenant's Leasehold
interest and usual trade fixtures installed in the Premises by Tenant at
Tenant's expense and for relocation expenses, provided that such action shall
not affect the amount of compensation otherwise recoverable by Landlord from the
taking authority, and provided further, that Tenant shall have no recourse
against Landlord for any compensation for the value of Tenant's leasehold
interest and/or trade fixtures installed in the Premises by Tenant at Tenant's
expense and for relocation expenses, provided that such action shall not affect
the amount of compensation otherwise recoverable by Landlord from the taking
authority.
ARTICLE XI
DEFAULT
-------
11.1 TENANT'S DEFAULT. If - - -
(a) Tenant shall fail to pay the base rent or other charge for which
provision is made herein on or before the date on which the same becomes due and
payable, and the same continues for five (5) days after written notice from
Landlord is delivered to Tenant thereof, or
(b) Landlord having rightfully given the notice specified in
subsection a) above to Tenant twice in any six (6) month period, Tenant shall
thereafter fail to pay the base rent or other charges on or before the date on
which the same becomes due and payable; or
(c) Tenant shall fail to perform or observe some term or condition
of this which because of its character, would immediately jeopardize Landlord's
interest; or
(d) Tenant shall fail to perform or observe any other term or
condition contained in this Lease, and Tenant shall not cure such failure within
thirty (30) days after written notice from Landlord delivered to Tenant; or
(e) The estate hereby created shall be taken on execution or by
other process of law, or if Tenant shall be judicially declared bankrupt or
insolvent according to taw, or if any assignment or trust mortgage arrangement,
so-called, shall be made of the property of Tenant for the benefit of creditors,
of if a receiver, guardian, conservator, trustee in involuntary bankruptcy or
other similar officer shall
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be appointed to take charge of all or any substantial part of Tenant's property
by a court of competent jurisdiction, which proceeding shall not have been
diligently contested by Tenant within sixty (60) days after their commencement,
or if a petition shall be filed for the reorganization of Tenant under any
provisions of the Bankruptcy Act now or hereafter enacted, of if Tenant shall
file a petition for such reorganization, or for arrangements under provisions of
the Bankruptcy Act now or hereafter enacted and providing a plan for a debtor to
settle, satisfy or extend the time for payment of debts, or if the interest of
the Tenant herein shall be sold under execution or any other legal process.
(f) Tenant fails to comply with the Use of the Premises specified in
paragraph 1.2.
(g) There occurs any interruption for a period of thirty (30) or
more days of Tenant's possession of Premises or cessation of Tenant's business
as conducted at the commencement of the Lease, whether voluntary or involuntary
(unless caused by the actions of Landlord or another tenant occupying the
Building).
Then and in any of such events, and in addition to any rights or remedies of the
Landlord, hereunder and/or provided by law, at the option of the Landlord:
- - - - (i) Upon five (5) days written notice to Tenant, Landlord
may declare the Term ended and re-enter the Premises and take possession thereof
and remove all persons and property therefrom, and the Tenant shall have no
further claim thereon or thereunder and the Landlords shall hold the Premises as
if this Lease had not been made; or
- - - - (ii) Landlord may elect to terminate this Lease and recover,
as damages from Tenant: (a) the worth at the time of award of the unpaid rent
which had been earned through the time of termination; and (b) the work at the
time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that the Tenant proves could have been reasonably avoided; and (c)
the worth at the time of award of the amount by which the unpaid rent of the
balance of the Term after the time of award exceeds the amount of such rental
loss that the Tenant proves could be reasonably avoided; and (d) any other
amount necessary to compensate the Landlord for all the detriment approximately
caused by the Tenant's failure to perform its obligations under this Lease or
which in the ordinary course would be likely to result therefrom, including but
not limited to those incurred in retaking possession of any Premises in making
repairs that the Tenant was obligated to make in preparing the Premises for
re-letting, in re-letting the Premises in and reasonable attorney's fees and
court costs. The "worth at the time of award" of the amounts referred to in
subparagraph (ii) (a) above in this Article, shall be computed, by allowing
interest at the rate of two percent (2%) in excess of the "Prime Rate" being
charged at the First National Bank of Boston. The "worth at the time of award"
of the amount referred to in subparagraph (ii) (c) above in this Article shall
be computed by discounting such above amount at the "Discount Rate" of the
Federal Reserve Bank of Boston in effect at the time of award plus one percent
(1%). Landlord shall use its best efforts to mitigate damages to the extent
required by Massachusetts law. Efforts by the Landlord to mitigate the damages
caused by the Tenant's breach of this Lease do not constitute a waiver of the
Landlord's right to recover the damages under this subparagraph (h) and nothing
in this subparagraph (h) affects the right of the Landlord to indemnification
for liability arising prior to the termination of this Lease for personal
injuries or property damage as provided in this Lease; or
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---- (iii) Landlord may elect not to terminate this Lease and for 50
long as the Landlord does not terminate the Tenant's right to possession, this
Lease shall continue in effect and the Landlord shall continue to perform its
obligations under this Lease and may enforce all its rights and remedies under
this Lease, including, but not by the way of limitation, the right to recover
the rent as it becomes due under this Lease. For the purposes of this
subparagraph "(iii)" the following shall not constitute a termination of the
Tenant's right to possession: (a) acts of maintenance or preservation or efforts
to relet the Premises; or (b) the appointment of a receiver upon initiative of
the Landlord to protect the Landlord's interest under this Lease.
Nothing in this Article 11.1 shall affect the rights of the parties under
statutory provisions relating to actions for unlawful detainer, forcible entry
and forcible detainer; provided, however, after the Landlord obtains possession
of the Premises under a judgment for restitution or forfeiture of the Tenant's
interest, the Landlord will no longer be entitled to treat this Lease as
continuing in effect unless the Tenant obtains relief from the forfeiture or
restitution to its former estate under the applicable statutory provisions. The
bringing of any action described in this subparagraph shall not affect the
Landlord's right to bring a separate action for relief on termination, for
liquidated damages, or in equity, but the Landlord shall recover no damages in
the subsequent action for any detriment for which a claim for damages was made
and determined on the merits in the previous action.
In the event of any entry or taking possession of the Premises by Landlord under
this Article 11.1, the Landlord shall have the right, but not the obligation to
remove therefrom all or any part of the personal property located therein and
may place the same in storage at a public warehouse at the expense and risk of
the owner or owners thereof.
For all applicable purposes of this Article 11.1 the rental agreed to be paid by
Tenant or the amount of rent payable by the Tenant shall be deemed to be the sum
total of the following: the rent reserved in Article 4.1 thereof, the taxes and
assessments reserved in Article 4.2 thereof, the sums called for in Articles 4.4
and 8.2 and all other sums and charges which Tenant is obligated to pay under
this Lease.
The remedies given to Landlord in this Article shall be cumulative and in
addition to all other rights or remedies which the Landlord may have under
applicable laws then in force.
11.2 LATE CHARGE. The Tenant shall pay to Landlord a late charge of
10 percent (10%) of any rent or other payment due hereunder not received by
Landlord within ten (10) days after said payment is due. Said late charge shall
continue to accrue each month until said arrearage is paid in full.
11.3 ATTORNEYS FEES. Landlord shall be entitled to collect all
reasonable costs and expenses, including but not limited to, reasonable
attorney's fees, expended by Landlord to collect any rent or other payments due
hereunder or in any manner to enforce the Tenant's obligations hereunder.
11.4 LANDLORD'S DEFAULT. Landlord shall in no event be in default in
the performance of any of Landlord's obligations hereunder unless and until
Landlord shall have failed to perform such obligations within thirty (30) days
(or such shorter period of time as may be specified in this Lease), or such
additional time as is reasonably required to correct any such default, after
notice by Tenant to Landlord properly specifying wherein Landlord has failed to
perform any such obligation.
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ARTICLE XII
BANKRUPTCY OR INSOLVENCY
------------------------
l2.1 In the event that the Tenant or any general partner of the
Tenant shall become a Debtor under the Bankruptcy Code and the Trustee or the
Tenant shall elect to assume this Lease for the purpose of assigning the same or
otherwise, such election and assignment may only be made if all the terms and
conditions of Article XII, subsections 2 and 4 hereof are satisfied. If such
Trustee shall fail to elect to assume this Lease within sixty (60) days after
the filing of the Petition, this Lease shall be deemed to have been rejected.
The Landlord shall be thereupon immediately entitled to possession of the
demised Premises without further obligation to the Tenant or the Trustee, and
this Lease shall be terminated, but the Landlord's right to be compensated for
damages both at law and as provided in Article XI hereof in such case shall
survive.
12.2 No election by the Trustee or Debtor-In-Possession to assume
this Lease, whether under Chapter 7, 11 or 13, shall be effective unless each of
the following conditions, which the Landlord and the Tenant acknowledge and
agree are commercially reasonable in the context of a bankruptcy case of the
Tenant, have been satisfied, and the Landlord has so acknowledged in writing:
1. The trustee or the Debtor-In-Possession has cured, or has
provided the Landlord adequate assurance (as hereinafter defined) that:
(a) Within ten (10) days from the date of such assumption, the
Trustee will cure all monetary defaults under this Lease; and
(b) Within thirty (30) days from the date of such assumption,
the Trustee will cure all non-monetary defaults under this Lease.
2. The Trustee or Debtor-In-Possession has compensated, or has
provided to the Landlord adequate assurance (as hereinafter defined) that within
ten (10) days from the date of assumption, the Landlord will be compensated
for any pecuniary loss incurred by the Landlord arising from the default of the
Tenant, the Trustee, or the Debtor-In-Possession as recited the Landlord's
written statement of pecuniary loss sent to the Trustee or Debtor-In-Possession.
3. The Trustee or the Debtor-In-Possession) has provided the
Landlord with adequate assurance (as hereinafter defined) of the future
performance of each of the Tenant's, the Trustee's or Debtor-In-Possession's
obligation under this Lease, provided, however that:
The obligations imposed upon the Trustee or Debtor-In-Possession under this
Lease shall continue with respect to the Tenant or any assignee of this Lease
after the completion of the bankruptcy case, subject to any further and/or
increased obligations which thereafter are imposed by any provisions of this
Lease.
4. The assumption of this Lease will not:
(a) Breach any provision in this Lease or any other Lease,
mortgage, financing agreement or other agreement by which the Landlord is bound
relating to the Office Building: or
(b) Disrupt, in the Landlord's judgment, the Tenant mix of the
Building or any other attempt by the Landlord to provide a specific variety of
Tenant'
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uses in the Building which, in the Landlord's judgment, would be most beneficial
and would enhance the image, reputation, and profitability of the Building.
5. The assumption has been ratified and approved by order of such
court or courts as have final jurisdiction over the Bankruptcy Code.
B. For the purposes of this Section 12.2, the Landlord and the
Tenant acknowledge that, in the context of a bankruptcy proceeding of the
Tenant, at a minimum, "adequate assurance" shall mean:
1. The Trustee or Debtor-In-Possession has and will continue to have
sufficient unencumbered assets after the payment of all secured obligations and
administrative expenses to assure the Landlord that the Trustee or
Debtor-in-Possession will have sufficient funds to fulfill the obligations of
the Tenant under this Lease, and to keep the demised Premises operating with
sufficient employees to conduct a fully-operational, actively promoted business
on the demised Premises; and
2. The Bankruptcy Court or such court as is exercising jurisdiction
over the Bankruptcy Code shall have entered an Order segregating sufficient cash
payable to the Landlord and/or the Trustee or Debtor-In-Possession shall have
granted a valid and perfected first lien and security interest and/or mortgage
in property of the Tenant, the Trustee or Debtor-In-Possession, acceptable as to
value and kind to the Landlord, to secure to the Landlord the obligation of the
Trustee or Debtor-In-Possession to cure any monetary and/or nonmonetary defaults
under this Lease within the time periods set forth above.
12.3 In the event that this Lease is assumed by a Trustee appointed
for the Tenant or by the Tenant as Debtor-In-Possession and thereafter the
Tenant is liquidated or files as subsequent Petition for reorganization or
adjustment of debts under Chapter 11 or 13 of the Bankruptcy Code, then, and in
either such event, the Landlord may, at its option, terminate this Lease and all
rights of the Tenant hereunder, by giving the Tenant written notice of its
election so to terminate, within thirty (30) days after the Landlord shall have
received written notice of the occurrence of either such event, but the
Landlord's right to be compensated for damages both at law and as provided in
Article XI hereof shall survive.
12.4 If the Trustee or Debtor-In-Possession has assumed this Lease
pursuant to the terms and provisions of sections 12.1 and 12.2 hereof, for the
purpose of assigning (or elects to assign) the Tenant's interest under this
Lease, or the estate created thereby to any other person such interest or estate
may be so assigned only if the Landlord shall acknowledge in writing that the
intended assignee has provided adequate assurance of the future performance (as
defined in this Section 12.4) of all of the terms, covenants and conditions of
this Lease to be performed by the Tenant.
For the purposes of this Section 12.4, the Landlord and the Tenant acknowledge
that, in the context of a bankruptcy proceeding of the Tenant, at a minimum,
"adequate assurance of future performance" shall mean that each of the following
conditions have been satisfied, and the Landlord has so acknowledged in writing:
(1) The assignee has submitted a current financial statement audited
by a Certified Public Accountant which shows a net worth and working capital in
amounts (which amounts shall in no event be less that the greater of those of
the Tenant and any guarantor of the Tenant's obligations hereunder at the time
of the
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execution of this Lease) determined to be sufficient by the Landlord to assure
the future performance by such assignee of then Tenant's obligations under this
Lease;
(2) The assignee, if requested by the Landlord, shall have obtained
guarantees in form and substance satisfactory to the Landlord from one or more
persons who satisfy the Landlord's standards of creditworthiness;
(3) The assignee has submitted in writing evidence, satisfactory to
the Landlord, of substantial experience in the conducting of the type of
business permitted under this Lease;
(4) The Landlord has obtained all consents and waivers from any
third party required under any Lease, mortgage, financing arrangement or other
agreement by which the Landlord is bound to permit the Landlord to consent to
such assignment;
(5) The assignee has supplied such additional information required
to be supplied by Article VI hereof and has complied with any other provisions,
conditions and requirements set forth in said Article VI for an assignment of
the Tenant's interest in this Lease or the estate created thereby; and
(6) The assignee had deposited with the Landlord a security deposit
in such amount as determined by the Landlord to be appropriate based upon the
financial information supplied under this Section 12.4.
12.5 When, pursuant to the Bankruptcy Code, the Trustee or
Debtor-In-Possession shall be obligated to pay reasonable use and occupancy
charges for the use of the demised Premises or any portion thereof, such charges
shall not be less than the average monthly amount paid on account of rent for
the preceding calendar month and any other charges payable by the Tenant
hereunder.
12.6 Neither the Tenant's interest in this Lease, nor any lesser
interest of the Tenant herein, nor any estate of the Tenant created hereby,
shall pass to any trustee, receiver, assignee for the benefit of creditors, or
any other person or entity, or otherwise by operation of law under the laws of
any state having jurisdiction of the person or property of the Tenant unless the
Landlord shall consent to such transfer in writing. No acceptance by the
Landlord of rent or any other payments from any such trustee, receiver,
assignee, person or other entity shall be deemed to have waived, nor shall it
waive the need to obtain the Landlord's consent or the Landlord's right to
terminate this Lease for any transfer of the Tenant's interest under this Lease
without such consent.
12.7 The rights and remedies of the Landlord contained in the
provisions of this Article XII are and shall be deemed to be in addition to, and
not in limitation of, applicable provisions of Article XI and other provisions
hereof, and any other rights which the Landlord may have under applicable
statutory or case law. Whenever any of the terms or provisions of this Lease,
including, without limitation, rental obligations, are modified pursuant to the
provisions of this Article, upon the Landlord's request the parties hereto
promptly shall execute, acknowledge and deliver a written instrument evidencing
and confirming the same. In no event shall this Lease, after the term hereof has
expired or has been terminated in accordance with the provisions hereof, be
revived, and no stay or other proceeding shall nullify, postpone or otherwise
affect the expiration or earlier termination of the term of this Lease pursuant
to the provisions of Article XI hereof or prevent the Landlord from regaining
possession of the demised Premises thereupon.
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12.8 The provisions of the Article XII shall apply to any general
partner of the Tenant with the same force and effect as they shall apply to the
Tenant.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
------------------------
13.1 OIL AND HAZARDOUS WASTE. Tenant agrees that except in
compliance with Environmental Laws, that Tenant shall not introduce on or
transfer to the Premises or Property, any hazardous materials (as hereinafter
defined); nor to dump, flush or otherwise dispose of any hazardous materials
into the drainage, sewage or waste disposal systems serving the Premises or
Property; nor to generate, store, use, release, spill or dispose of any
hazardous materials in or on the Premises or the Property, or to transfer any
hazardous materials from the Premises to any other location; and not to commit
or suffer to be committed in or on the Premises or Property any act which would
require any reporting or filing of any notice with any governmental agency
pursuant to any statutes, laws, codes, ordinances, rules or regulations, present
or future, applicable to the Property or to hazardous materials. The prohibition
on storage and use of hazardous materials shall in no event, however, preclude
Tenant from the lawful storage and use of normal quantities of normal office
products.
Tenant agrees that if it or anyone claiming under it shall generate,
store, release, spill, dispose of or transfer to the Premises or Property any
hazardous materials, it shall forthwith remove the same, at its sole cost and
expense, in the manner provided by all applicable Environmental Laws, regardless
of when such hazardous materials shall be discovered. Furthermore, Tenant shall
pay any fines, penalties or other assessments imposed by any governmental agency
with respect to any such hazardous materials and shall forthwith repair and
restore any portion of the Premises or Property which it shall disturb in so
removing any such hazardous materials to the condition which existed prior to
Tenant's disturbance thereof.
Tenant agrees to deliver promptly to Landlord any notices, orders or
similar documents received from any governmental agency or official concerning
any violation of any Environmental Laws or with respect to any hazardous
materials affecting the Premises or Property. In addition, Tenant shall, within
ten (10) days of receipt, accurately complete any questionnaires from Landlord
or other informational requests relating to Tenant's use of the Premises and, in
particular, to Tenant's use, generation, storage and/or disposal of Hazardous
Materials at, to, or from the Premises.
For purposes of this Lease, the term "hazardous materials" shall
mean and include any oils, petroleum products, asbestos and any other toxic or
hazardous wastes, materials and substances which are defined, determined or
identified as such in any Environmental Laws, or in any judicial or
administrative interpretation of Environmental Laws.
"Environmental Laws" shall mean any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, codes, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements or other governmental restrictions relating to the
environment or to emissions, discharges or releases of pollutants, contaminants,
or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of
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pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
redemption thereof.
Landlord warrants and represents that: (a) the ownership and
operation of the Premises and the Property and any use, storage, treatment,
disposal, or transportation of hazardous materials that has occurred in or on
the Premises or the Property prior to the date of this Lease have been in
compliance with Environmental Laws; (b) no release, leak, discharge, spill,
disposal, or emission of hazardous materials has occurred in, on, or under the
Premises or the Property in a quantity or manner that violates or requires
further investigation or remediation under Environmental Laws; (c) the Premises
and Property are free of Hazardous Materials as of the date of this Lease.
Landlord represents and warrants that there is no pending or threatened
litigation or administrative investigation or proceeding concerning the Property
of the Premises involving Hazardous Materials. Landlord warrants and represents
that there are no asbestos-containing materials within the Premises or the
Property, whether friable or non-friable. Landlord agrees to indemnify and hold
harmless the Tenant from any and all claims, damages, fines, judgments,
penalties, costs, liabilities, or losses (including, without limitation, any and
all sums paid for settlement of claims, attorneys' fees, consultant, and expert
fees) arising during or after the term of this Lease from or in connection with
(i) the presence or suspected presence of asbestos-containing materials and any
other hazardous materials introduced by the Tenant during its occupancy; or (ii)
any violation of Environmental Laws by Landlord or any other tenant of the
Property. The scope of this indemnity shall not include any liabilities arising
from a violation of Environmental Laws by Tenant. This indemnity shall
specifically survive the termination of: (i) the term of this Lease; (ii) the
occupancy of the Premises by Tenant; or (iii) this Lease.
13.2 NON-SUBROGATION. Insofar as, and to the extent that, the
following provisions may be effective without invalidating or making it
impossible to secure insurance coverage obtainable from responsible insurance
companies doing business in the Commonwealth of Massachusetts (even though extra
premium may result therefrom), Landlord and Tenant mutually agree that, with
respect to any hazard which is covered by insurance then being carried by them,
respectively, the one carrying such insurance and suffering such loss releases
the other of and from any and all claims with respect to such loss; and they
further mutually agree that their respective insurance companies shall have no
right of subrogation against the other on account thereof.
In the event that extra premium is payable to either party as a result of this
provision, the other party shall reimburse the party paying such premium the
amount of such extra premium. If, at the request of one party, this release and
non-subrogation provisions is waived, then the obligation of reimbursement shall
cease for such period of time as such waiver shall be effective, but nothing
contained in this Section shall derogate from or otherwise affect releases
elsewhere here contained of either party for claims.
13.3 WAIVER. Failure on the part of Landlord or Tenant to complain
of any action or non-action on the part of the other, no matter how long the
same may continue, shall never be a waiver by Tenant or Landlord, respectively,
of any of the other's right hereunder. Further, no waiver at any time of any of
the provisions hereof by Landlord or Tenant shall be construed as a waiver of
any of the other provisions hereof, and a waiver at any time of any of the
provisions hereof, shall not be construed as a waiver at any subsequent time of
the same provisions. The consent or approval of Landlord or Tenant to or of any
action by the other requesting such consent or approval shall not be construed
to waive or render
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unnecessary Landlord's or Tenant's consent or approval to or of any subsequent
similar act by the other.
No payment by Tenant, or acceptance by Landlord, of a lesser amount than shall
be due from Tenant to Landlord shall be treated otherwise than as a payment on
account. The acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon, or upon any letter accompanying such check,
that such lesser amount is payment in full, shall be given no effect, and
Landlord may accept such check without prejudice to any other rights or remedies
which Landlord may have against Tenant.
13.4 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and
provisions of this Lease on payment of the rent and observing keeping and
performing all of the terms and provisions of this Lease on Tenant's part to be
observed, kept and performed shall exclusively, lawfully, peaceably and quietly
have, hold, occupy and enjoy the Premises and all appurtenances thereto during
the term hereof, including any extensions thereof, without hindrance or
elections by Landlord or any persons lawfully claiming under Landlord to have
title to the Premises superior to Tenant; the foregoing covenant of quiet
enjoyment is in lieu of any other covenant, expressed or implied; and it is
understood and agreed that this covenant any and all other covenants of Landlord
contained in this Lease shall be binding upon Landlord and landlord's successors
only with respect to breaches occurring during Landlord's and Landlord's
successors', respective ownership of Landlord's interest hereunder.
Further, Tenant specifically agrees that neither any Trustee nor Beneficiary of
Landlord (original or successor, shall ever by personally liable for any
judgment against Landlord or for the payment of any monetary obligation to
Tenant. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Tenant might otherwise have to obtain a
money judgment against Landlord and/or Landlord's assets and/or injunctive
relief against Landlord or Landlord's successors in interest, or any action not
involving the personal liability of Landlord (original or successor) any
successor Trustee to the persons named herein as Landlord, or any beneficiary of
any Trust of which any person holding Landlord's interest is Trustee.
With respect to any obligation of Landlord to repair or replace or restore the
Premises or with respect to services to be furnished by Landlord to Tenant,
Landlord shall in no event be liable for failure to furnish the same when
prevented from doing so by strike, lockout, breakdown, accident, order or
regulations of or by any governmental authority, or failure of supply or
inability by the exercise of reasonable diligence to obtain supplies, parts or
employees necessary to furnish such services, or because of war or other
emergency, or for any cause beyond Landlord's reasonable control, or for any
cause due to any act or neglect of Tenant or Tenant's servants, agents,
employees, licensees or any person claiming by, through or under Tenant.
13.5 ASSIGNMENT OF RENTS. With reference to any assignment by
Landlord of Landlord's interest in this Lease, or the rents payable hereunder,
conditional in nature or otherwise, which assignment is made to the holder of a
mortgage on property which includes the Leased Premises, Tenant agrees:
a) that, execution thereof by Landlord, and acceptance thereof
by the holder of such mortgage shall never by treated as an assumption by such
holder of any of the obligations of Landlord hereunder, unless such holder
shall, by notice sent to Tenant, specifically otherwise elect; and
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(b) that, except as aforesaid, such holder shall be treated as
having assumed Landlord's obligations hereunder only upon foreclosure of such
holder's mortgage and the taking of possession of the Premises by such holder.
With reference to any assignment of rents to a mortgage holder, Landlord shall
assign to said mortgage holder only such rights to collect rents as Landlord
shall have hereunder.
13.6 MECHANICS' LIENS. Tenant agrees within thirty (30) days after
Tenant has notice or within thirty (30) days after Landlord has notified Tenant
thereof (whichever shall first occur) immediately to discharge (either by
payment or by filing the necessary bond, or otherwise) any mechanics',
materialmen's or other lien against the Premises and/or Landlord's interest
therein, which liens may arise out of any payment due for, or purported to be
due for, any labor, services, materials, supplies, or equipment alleged to have
been furnished to or for Tenant in, upon or about the Premises.
13.7 BROKERAGE. Landlord and Tenant respectively warrant and
represent to the other that each has dealt with only Delta Commercial Properties
as broker in connection with the consummation of this Lease and each party
agrees to defend the same and indemnify the other party against any such claim
for a brokerage commission arising by, through or under the other party as the
case may be. Landlord agrees to pay all brokerage commission due.
13.8 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision
of this Lease, or the application thereof to any person or circumstance shall,
to any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
13.9 PROVISIONS BINDING, ETC. Except as herein otherwise provided
the terms hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant and, if Tenant
shall be an individual, upon and to his heirs, executors, administrators,
successors, and assigns. Each term and each provision of this Lease to be
performed by Tenant shall be construed to be both a covenant and a condition.
The reference contained to successors and assigns of Tenant is not intended to
constitute a consent to assignment by Tenant, but has reference only to those
instances in which Landlord may later give written consent to a particular
assignment or transfer as required by the provisions of Article VI hereof.
13.10 NOTICES. Whenever, by the terms of this Lease, any
communication, request, advice or notice shall or may be given either to
Landlord or to Tenant, same shall be in writing and shall be sent by registered
or certified mail, postage prepaid:
If intended for Landlord, addressed to Landlord at the address set forth in
Section 1.2 of this Lease (or to such other address or addresses as may from
time to time hereafter be designated by Landlord by like notice).
23
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If intended for Tenant, addressed to Tenant at the address set forth in Section
1.2 of this Lease (or to such other address or addresses as may from time to
time hereafter be designated by Landlord by like notice).
All such notices shall be effective when deposited in the United States mail
within the Continental United States, provided that the same are received in
ordinary course at the address to which the same were sent.
Where provisions is made for the attention of an individual or department, the
notice shall be effective only if notice is addressed to the attention of such
individual or department.
13.11 WHEN LEASE BECOMES BINDING. Employees or agents of Landlord
have no authority to make or agree to make a Lease any other agreement or
undertaking in connection herewith. The submission of this document for
examination and negotiation or option for, does not constitute an Agreement for
the Land or the Premises and this document shall become effective and binding
only upon the execution and delivery hereof by both Landlord and Tenant. All
negotiations, considerations, representations and understandings between
Landlord and Tenant are incorporated herein and may be modified or altered only
upon written agreement between Landlord and Tenant and no act or omission of any
employee or agent of Landlord or Tenant shall alter, change or modify any of the
provisions hereof.
13.12 PARAGRAPH HEADINGS. The paragraph headings throughout this
instrument are for convenience and reference only, and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
13.13 RIGHTS OF MORTGAGEE. The Lease shall be subject and
subordinate to any first mortgage on the Building, now in effect, unless the
holder of such mortgage elects by notice to Tenant to have this Lease superior
to its mortgage. In addition, Landlord shall have the option to subordinate this
Lease to any other mortgage or deed of trust which includes the Premises as part
of the mortgaged Premises, provided that the holder thereof enters into an
agreement with Tenant by the terms of which (a) in the event of acquisition of
title by such holder through foreclosure proceedings or otherwise, and provided
Tenant is not in default hereunder, the holder will agree to recognize the
rights of Tenant under this Lease and to accept Tenant as Tenant of the Premises
under the terms and conditions of this Lease and (b) Tenant will agree to
recognize the holder of such mortgage as Landlord in such event. This agreement
shall be made to expressly bind and inure to the benefit of the successors and
assigns of Tenant and of the holder and upon anyone purchasing said Premises at
any foreclosure sale. Any such mortgage to which the Lease shall be subordinated
may contain such terms, provisions and conditions as the holder deems usual or
customary. The Lot or Building, or both, are separately and together hereinafter
in this Section 13.13 referred to as "the mortgaged Premises". The word
"mortgagee" as used in this Lease shall include the holder for the time being
whenever the context permits.
Upon entry and taking possession of the mortgaged Premises for any purpose other
than foreclosure, the holder of a mortgage shall have all rights of Landlord and
during the period of such possession, the duty to perform all Landlord's
obligations under this Lease. No such holder shall be liable to perform any
other of Landlord's covenants and obligations under this Lease.
24
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Except as otherwise provided in Section 13.13 hereof, no such holder or a
mortgage shall be liable, either as mortgagee or as holder of a collateral
assignment of this Lease, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord unless and until such holder shall
enter and take possession of the mortgaged Premises for the purpose of
foreclosing a mortgage. Upon entry for the purpose of foreclosing a mortgage,
such holder shall be liable to perform all of the subsequent obligations of
Landlord, subject to the provisions of this Section 13.13 and subject to and
with the benefit of the provisions of Section 13.13, Provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance under
said provisions to the owner of the equity of the mortgaged Premises.
No fixed rent, additional rent, or any other charge shall be paid more then ten
(10) days prior to the due dates hereof and payments made in violation of this
provision shall (except to the extent that such payments are actually received
by a mortgagee in possession or in the process of foreclosing its mortgage) be a
nullity as against such mortgagee and Tenant shall be liable for the amount of
such payments to such mortgagee.
No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result in a release or termination
of such obligations or a termination of this Lease unless (i) Tenant shall have
first given written notice of Landlord's act or failure to act to Landlord's
mortgagees of record, if any, specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenants rights; and (ii) such
mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter; but
nothing contained in this Section 13.13 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable Time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged Premises, if the mortgagee elects to do so, and a reasonable time to
correct or cure the condition if such condition is determined to exist.
Notwithstanding any other provision to the contrary contained in this Lease, if
prior to substantial completion of Landlord's obligations under Article III, any
holder of a mortgage on the mortgaged Premises enters and takes possession
thereof for the purpose of foreclosing the mortgage, such holder may elect not
to perform Landlord 5 obligation under Article III and in such event such holder
and all persons claiming under it shall be relieved of all obligations to
perform, and all liability for failure to perform, said Landlord's obligations
under Article III.
No assignment of this Lease and no agreement to make or accept any surrender,
termination or cancellation of this Lease and no agreement to modify so as to
reduce the rent, change the Term, or otherwise materially change the rights of
Landlord under this Lease, or to relieve Tenant of any obligations or liability
under this Lease, shall be valid unless consented to in writing by Landlord's
mortgagees of record, if any.
The covenants and agreements contained in this Lease with respect to the rights,
powers and benefits of a mortgagee (particularly, without limitation thereby,
the covenants and agreement contained in this Article 13.13) constitute a
continuing offer to any person, corporation or other entity, which by accepting
or requiring an assignment of this Lease or by entry or foreclosure assumes the
obligations herein set forth with respect to such mortgagee; such mortgagee is
hereby constituted a party to this Lease as an obligee hereunder to the same
extent as though its name were
25
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written hereon as such, and such mortgagee shall be entitled to enforce such
provisions in its own name.
Tenant agrees on request of Landlord to execute and deliver from time to time
any agreement which may reasonably be deemed necessary to implement the
provisions of this Article 13,13. In the event Tenant has not executed and
delivered such subordination agreement to the holder within fifteen (15) days of
its request, then Tenant shall be deemed to be in immediate default of the terms
of this Lease, with out any notice or time to cure.
13.14 STATUS REPORT. Recognizing that both parties may find it
necessary to establish to third parties, such as accountants, banks, mortgagees
or the like, the then current status of performance hereunder, either party, on
the request of the other made from time to time, will promptly furnish to
Landlord, or the holder of any mortgage encumbering the Premises, or to Tenant,
as the case may be, a written statement of the status of any matter pertaining
to this Lease, including, without limitation, acknowledgments that (or the
extent to which) each party is in compliance with its obligations under the
terms of this Lease.
13.15 BUILDING FURTHER DEFINED. Whenever reference in this Lease is
made to the term "Building", the same shall be read so the context appropriately
admits or requires.
13.16 SELF-HELP. Either party shall have the right, but shall not be
required to do so, to pay such sums or, do any act which requires the
expenditure of monies which may be necessary or appropriate by reason of the
failure or neglect of the other to perform any of the provisions of this Lease,
and in the vent of the exercise of such right by the non-defaulting party, the
defaulting party agrees to pay to the non-defaulting party forthwith upon demand
all such sums; and if Tenant shall default in such payment, Landlord shall have
the same rights and remedies as Landlord has hereunder for the failure of Tenant
to pay the minimum rent.
13.17 HOLDING OVER. Any holding over by Tenant after the expiration
of the terms of this Lease shall be treated as a tenancy at sufferance at the
rents and other charges herein (prorated on a daily basis) and shall otherwise
be on the terms and conditions set forth in this Lease, as far as applicable.
13.18 GOVERNING LAW. This Lease shall be governed exclusively by the
provisions hereof and by the law of the Commonwealth of Massachusetts, as the
same may from time to time exist.
13.19 COMPLIANCE WITH REQUIREMENTS OF INSURER. The Tenant agrees to
conform to and comply with all federal, state and municipal laws having
jurisdiction of the Building and Leased Premises and to and with the
requirements of regulations of any Board of Fire Underwriters or insurance
company insuring the Building and the Leased Premises at the time with respect
to care, maintenance, use and any consented-to alteration or addition of the
Leased Premises and all at the Tenant's own expense.
13.20 SALE OF PREMISES BY LANDLORD. In the event of any sale of the
Premises by the Landlord and the assignment of this Lease to the Purchaser, upon
execution and delivery to Tenant of a written agreement to assume and carry out
the duties and obligations of the Landlord under this Lease, the Landlord shall
be entirely freed and relieved of all liability under any and all of its
covenants and obligations
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hereunder arising out of any act or omission occurring after the consummation of
such sale.
13.21 CORPORATE VOTE, TRUSTEE CERTIFICATE, ETC. In the event Tenant
is other than an individual, prior to the execution hereof, Tenant shall furnish
to Landlord such written evidence of its authority to execute this Lease and
perform its covenants herein set forth, as Landlord may require.
13.22 MASSACHUSETTS QUALIFICATION. The Tenant shall promptly qualify
to do business in the Commonwealth of Massachusetts.
13.23 ROOF LEAKS. Prior to the Lease Commencement Date, Landlord
shall repair the existing roof leaks.
13.24 FUTURE EXPANSION NEEDS. Landlord will work with Tenant to the
best Of Landlord's ability to meet Tenant's future expansion needs, either by
constructing an addition to the Building or providing other lease space to
Tenant.
13.25 NON-DISTURBANCE AGREEMENT. Landlord will use its best effort
to obtain a Non-Disturbance Agreement from the Mortgagor.
13.26 TENANT IMPROVEMENTS. Landlord shall supply and install an
additional overhead door at dock level as indicated on attached plan.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed, under seal, as of the date set forth below.
CUPLEX, INC. 410 FOREST STREET REALTY TRUST
/s/ Ronald Ryno /s/ David P. Depietri
- --------------------------------- ---------------------------------------
RONALD RYNO, PRESIDENT DAVID P. DEPIETRI, TRUSTEE
5/13/96
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EXHIBIT 10.36
TRAMMELL CROW COMPANY
COMMERCIAL LEASE AGREEMENT
TRAMMELL CROW INTERNATIONAL PARTNERS, a Texas Limited Partnership
-----------------------------------------------------------------
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Lessor
AND
CUPLEX, INC.
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Lessee
CREA - '93
<PAGE>
STANDARD INDUSTRIAL LEASE AGREEMEENT 33,149 Square Feet
TRAMMELL CROW COMPANY ------------------------
COMMERCIAL - CREA '93 11420 Pagemill Road
------------------------
Dallas, Texas 75243
------------------------
214830-15
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between Trammell Crow
international Partners, a Texas Limited Partnership hereinafter referred to as
"Lessor", and Cuplex. Inc. hereinafter referred to as "Lessee";
WITNESSETH:
1. PREMISES AND TERM.
A. In consideration of the mutual obligations of Lessor and Lessee set
forth herein, Lessor leases to Lessee, and Lessee takes from Lessor the
approximately 33,149 square feet (the "Premises"), which Premises are part of
that approximately 48,862 square foot building (the "Building") located on the
real property situated within the County of Dallas, State of Texas, which real
property is more particularly described on EXHIBIT "A" attached hereto and
incorporated herein by reference (the "Land"), together with all rights,
privileges,, easements, appurtenances, and amenities belonging to or in any way
pertaining to the Premises, to have and to hold, subject to the terms, covenants
and conditions in this Lease. If more than one building is located on the Land,
then all references herein to "Building" shall be deemed to refer to all such
buildings collectively unless the context otherwise requires.
B. The term of this Lease shall commence upon either (i) October 1, 1995,
or (ii) if Lessor is required to construct improvements in the Premises pursuant
to Paragraph 1.C. below, on the date of substantial completion of any such
alterations or improvements to the Premises described in Paragraph 1.C. below
(the "Commencement" Date). The term of this Lease shall end on the last day of
the calendar month that is 36 full calendar months after the Commencement Date.
C. If an Exhibit "B" is attached hereto, then Lessor shall construct and
install in the Premises those improvements and alterations to be constructed and
installed by Lessor pursuant to the plans and specifications described on such
Exhibit "B" attached hereto and incorporated herein by reference (the "Plans").
As used herein, the term "substantial completion" or "substantially completed"
shall mean that, in the opinion of the architect or space planner that prepared
the Plans, such improvements have been completed in accordance with the Plans
and the Premises are in good and satisfactory condition, subject only to
completion of minor punch list items. As soon as such improvements have been
substantially completed. Lessor shall notify Lessee in writing that the
Commencement Date has occurred. Within ten (10) days thereafter Lessee shall
submit to Lessor in written a punch list of items needing completion or
correction. Lessor shall use its best efforts to complete such items within
thirty (30) days after the receipt of such notice. In the event Lessee, its
employees, agents or contractors cause construction of such improvements to be
delayed, the Commencement Date shall be deemed to be the date that, in the
opinion of the architect or space planner that prepared the Plans, substantial
completion would have occurred if such delays had not taken place.
2. BASE RENT, SECURITY DEPOSIT AND ESCROW PAYMENTS.
A. Lessee agrees to pay to Lessor Base Rent (herein so called) for the
Premises, in advance, without demand, deduction or set off, at the rate of Nine
thousand six hundred sixty-eight and 46/100 Dollars ($9,668.46) per month during
the term hereof. One such monthly installment, plus the other monthly charges
set forth in Paragraph 2.C below, shall be due and payable on the date hereof
and a like monthly installment shall be due and payable on or before the first
day of each calendar month succeeding the Commencement Date; provided, however,
that should this Lease commence on a day other than the first day of a calendar
month or terminate on a day other than the last day of a calendar month the
rental for such partial month shall be prorated.
B. In addition, Lessee shall deposit with Lessor on the date hereof the
sum of Twelve thousand one hundred seven and 40/100 Dollars ($12,107.40) (the
"Security Deposit"), which shall be held by Lessor as security for performance
of Lessee's obligations under this Lease, it being expressly understood and
agreed that the Security Deposit is not an advance rental deposit or a measure
of Lessor's damages in case of an event of default. Upon each occurrence of an
event of default, Lessor may use all or part of the Security Deposit to pay past
due rent or other payments due Lessor
1 CREA - '93
<PAGE>
under this Lease, and the cost of any other damage, injury, expense or
liability, chargeable to Lessee hereunder, without prejudice to any other remedy
provided herein or provided by law. Lessee shall pay Lessor the amount that will
restore the Security Deposit to its original amount. If, during the term of this
Lease, Lessor, in Lessor's sole opinion, deems itself insecure as to the
performance or prospect of performance by Lessee as to any of Lessee's
obligations pursuant to this Lease, Lessee shall be required to provide Lessor
with an additional security deposit, in an amount and form acceptable to Lessor,
The Security Deposit shall be deemed the property of Lessor, but any remaining
balance of the Security Deposit shall be returned by Lessor to Lessee when
Lessee's obligations under this Lease have been fulfilled.
C. Lessee agrees to pay, as additional rent, its Proportionate Share (as
defined in Paragraph 22.B. below) of (1) Taxes (hereinafter defined) payable by
Lessor pursuant to Paragraph 3.A. below, (2) the cost of any utilities used in
the Building which are not otherwise paid for by Lessee pursuant to Paragraph 8,
below or billed separately to another tenant of the Building, (3) the cost of
any insurance maintained by Lessor on the Building or Land, and (4) the cost of
repairs, replacement, management fees, a replacement reserve for capital items
and other operating expenses required by this Lease, including, without
limitation, those expenses referred to in Paragraph 5.D. hereof (but excluding
those expenses otherwise specifically paid for by Lessee pursuant to the terms
hereof or expenses billed separately to other tenants of the Building). During
each month of the term of this Lease, on the same day that Base Rent is due
hereunder, Lessee shall escrow with Lessor an amount equal to 1/12 of Lessor's
estimate of annual cost of its Proportionate Share of such items. Lessee
authorizes Lessor to use the funds deposited with Lessor under this Paragraph
2.C. to pay such costs. The initial monthly escrow payments are based upon
Lessor's estimate of amounts for the year in question, and shall be increased or
decreased annually to reflect the projected actual cost of all such items. If
Lessee's total escrow payments are less than Lessee's actual Proportionate Share
of all such items, Lessee shall pay the difference to Lessor within ten (10)
days after demand. If the total escrow payments of Lessee are more than Lessee's
actual Proportionate Share of all such items, Lessor shall retain such excess
and credit it against Lessee's next annual escrow payments. The amount of the
monthly rental and the initial monthly escrow payments are as follows:
(a) Base Rent as set forth in Paragraph 2.A ............... $ 9,668.46
---------
(b) Taxes as set forth in Paragraph 2.C.(1) ............... $ 1,620.71
---------
(c) Utilities, Insurance and other Operating Expenses as set
forth in Paragraphs 2.C.(2), (3) and (4) .............. $ 818.23
insurance $81.49; CAM $736.74 ---------
Monthly Payment Total ................................. $12,107.40
---------
D. In calculating the annual cost of the items described in subparagraph C
above, if during any period during the relevant year the Building is less than
one hundred percent (100%) occupied, then in computing the amount of Lessee's
obligations Lessor shall "gross-up" the amount of any of Lessor's expenses which
fluctuate with Building occupancy to the amount which, in Lessor's reasonable
estimation, such fluctuating expenses would have been if the Building had been
one hundred percent (100%) occupied for the entire year. Lessee will then pay
Lessee's Proportionate Share of such grossed-up amount so that the actual amount
paid by Lessee in respect of such fluctuating expenses is not affected by
occupancy or non-occupancy of the remainder of the Building.
3. TAXES.
A. Lessor agrees to pay all taxes, assessments and/or governmental charges
of any kind and. nature (collectively referred to herein as "Taxes") that accrue
against the Premises, the Land and/or the Building, If at any time during the
term of this Lease, there shall be levied, assessed or imposed on Lessor a
capital levy or other tax directly on the rents received hereunder and/or a
franchise tax, assessment, levy or charge measured by or based, in whole or in
part upon such rents from the Premises, the Land and/or the Building, then all
such taxes, assessments, levies or charges, or the part thereof so measured or
based, shall be deemed to be included within the term "Taxes" for the purposes
hereof. The Lessor shall have the right to employ a tax consulting firm to
attempt to assure a fair tax burden on the Building and the Land within the
applicable taxing jurisdiction. Lessee agrees to pay its Proportionate Share of
the cost of such consultant. In addition, if the Building is a multiple
occupancy Building and the cost of any improvements constructed on the Premises
is disproportionately higher than the cost of improvements constructed on the
premises of other tenants of the Building, then the Lessor, at its option. may
require that Lessee pay the amount of Taxes attributable to such
disproportionately more expensive improvements in addition to its Proportionate
Share of Taxes.
B. Prior to delinquency, Lessee shall (i) pay all taxes levied or assessed
against any personal property or fixtures placed in the Premises, and (ii) upon
the request of Lessor, deliver to Lessor receipts from the applicable taxing
authority or other evidence acceptable to Lessor to verify that such taxes upon
personal property and fixtures have been paid by Lessee. If any such taxes are
levied or assessed against Lessor or Lessor's property and (i) Lessor pays the
same or (ii) the assessed value of Lessor's property is increased by inclusion
of such personal property and fixtures and Lessor pays the increased taxes,
then, upon demand Lessee shall pay to Lessor such taxes.
2 CREA - '93
<PAGE>
4. LESSOR'S REPAIRS.
A. Lessee understands and agrees that this Lease is intended to be a "net"
lease, and as such, Lessor's maintenance, repair and replacement obligations are
limited to those set forth in this Paragraph 4.A. Lessor, at its own cost and
expense, shall be responsible for repair and replacement of only the roof, the
foundation and the structural members of the exterior walls of the Building. The
terms "roof" and "walls" as used herein shall not include skylights, windows,
glass or plate glass, doors, special store fronts or office entries. Lessee
shall immediately give Lessor written notice of defect or need for repairs,
after which Lessor shall have reasonable opportunity to repair same or cure such
defect. Lessor's liability with respect to any defects, repairs, replacement or
maintenance for which Lessor is responsible hereunder shall be limited to the
cost of such repairs or maintenance or the curing of such defect.
B. Lessor reserves the right to perform Lessee's maintenance, repair and
replacement obligations and any other items that are otherwise Lessee's
obligations under Paragraph 5.B, in which event, Lessee shall pay to Lessor any
cost or expense incurred by Lessor in making such repairs within ten (10) days
after demand.
5. LESSEE'S MAINTENANCE AND REPAIR OBLIGATIONS.
A. Lessee, at its own cost and expense, shall maintain all parts of the
Premises (except those for which Lessor is expressly responsible hereunder) in
good condition, ordinary wear and tear excepted, and promptly make all necessary
repairs and replacements to the Premises.
B. In addition to Lessee's obligations under the preceding subparagraph
A., if Lessee is the only tenant of the Building, Lessee shall be responsible
for causing the parking areas, driveways, alleys and grounds surrounding the
Premises to be maintained in a good, neat, clean and sanitary condition,
consistent with the operation of a first class office/warehouse building. which
includes, without limitation, prompt maintenance, repairs and replacements (1)
of any drill or spur track servicing the Premises, (2) of the parking area
associated with the Building, (3) of all grass, shrubbery and other landscape
treatments surrounding the Building, (4) of the exterior of the Building
(including painting), (5) of sprinkler systems and sewage lines, and (6) of any
other maintenance, repair or replacement items normally associated with the
foregoing. In addition, Lessee shall repair and pay for any damage caused by the
negligence of Lessee, or Lessee's employees, agents or invitees, or caused by
Lessee's default hereunder.
C. In the event that the Lessee is not the sole tenant of the Building,
then subject to payment by Lessee, Lessor shall perform the maintenance, repair,
and replacement obligations set forth in the foregoing Subparagraph B. Lessee
shall pay its Proportionate Share of the cost and expense of such repair,
replacement, replacement reserve, maintenance and other such items as additional
rent, pursuant to Paragraph 2.C. above. The amount of Lessee's rental obligation
set forth in Paragraph 2.A. above does not include the cost of such items, and
Lessor's performance of repair, replacement, maintenance and other items, is not
a condition to payment of such rental obligations.
D. Lessee agrees to pay as additional rent (pursuant to Paragraph 2.C.
above) its Proportionate Share of the cost of (1) operation, maintenance and/or
landscaping of any property or facility that is operated, maintained or
landscaped by any property owner or community owner association that is named in
any restrictive covenants or deed restrictions to which the Premises are subject
and which are actually billed to the Building, and (2) operating and maintaining
any property, facilities or services provided for the common use of Lessee and
other lessees of the Building, which costs shall include, without limitation,
management fees, maintenance and repair costs, sewer, landscaping, trash and
security (if furnished by Lessor), wages and employee benefits payable to
employees of Lessor whose duties are connected with the operation and
maintenance of the Building, amounts paid to contractors or subcontractors for
work or services performed in connection with the operation and maintenance of
the Building, all service, supplies, repairs, replacements or other expenses for
maintaining and operating the Building, and any other facilities or services
provided for the common use of Lessee and other losses of the Building.
E. If Lessor has entered into one or more regularly scheduled preventive
maintenance/service contracts with a maintenance contractor for servicing hot
water, heating, air conditioning, and/or other systems and equipment within the
Premises, then upon execution of this Lease, Lessor shall assign such
contract(s) to Lessee and Lessee shall be responsible for all costs and expenses
required thereunder. If Lessor has not entered into such a contract for
regularly scheduled preventative maintenance and service as to any one or more
of such system and equipment, then upon execution of this Lease. Lessee shall
enter into such a contract with a contractor responsible acceptable to Lessor,
and Lessee shall be responsible for all costs and expenses required thereunder.
F. Lessee agrees to sign a joint maintenance agreement with the railroad
company, if any, servicing the Premises if requested by the railroad company.
Lessor shall have the right to coordinate all repairs and maintenance of any
rail tracks serving or intended to serve the Premises and, if Lessee uses such
rail tracks. Lessee shall reimburse Lessor from time to time, upon demand, for
its Proportionate Share of the costs of such repairs and maintenance and any
other sums specified in any agreement respecting such tracks to which Lessor is
a party.
3 CREA - '93
<PAGE>
6. ALTERATIONS. Lessee shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Lessor.
Lessee, at its own cost and expense. may erect such shelves, bins, machinery and
trade fixtures as it desires provided that (a) such items do not alter the basic
character of the Premises or the Building; (b) such items do not overload or
damage the same; (c) such items may be removed without injury to the Premises;
and (d) the construction, erection or installation thereof complies with all
applicable governmental laws, ordinances, regulations and with Lessor's
specifications and requirements. All installations, removals and restoration
shall be performed in a good and workmanlike manner so as not to damage or alter
the primary structure or structural qualities of the Building or the Premises.
7. SIGNS. Lessee shall not place, install or attach any signage,
decorations, advertising media, blinds, draperies, window treatments, bars, or
security installations to the Premises or the Building without Lessor's prior
written approval. Lessee shall repair, paint, and/or replace any portion of the
Premises or the Building damaged or altered as a result of its signage, upon the
earlier of vacation of the Premises by Lessee or the removal or alteration of
its signage, all of which shall be accomplished at Lessee's sole cost and
expense. Lessee shall not, (i) make any changes to the exterior of the Premises
or the Building, (ii) install any exterior lights, decorations, balloons, flags,
pennants, banners or painting, or (iii) erect or install any signs, windows or
door lettering. decals. window and storefront stickers, placards, decorations or
advertising media of any type that can be viewed from the exterior of the
Premises, without Lessor's prior written consent.
8. UTILITIES. Lessee shall obtain and pay for all water, gas, heat,
light, power, telephone, sewer, sprinkler charges and other utilities and
services used on or at the Premises, together with any taxes, penalties,
surcharges or the like pertaining to the Lessee's use of the Premises, and any
maintenance charges for utilities. Lessor shall have the right to cause any of
said services to be separately metered to Lessee, at Lessee's expense. If any
such services are not separately metered to Lessee, Lessee shall pay on demand
to Lessor a reasonable proportion, to be determined by Lessor, of all charges
jointly metered with other premises in the Building. Lessor shall not be liable
for any interruption or failure of utility service on the Premises.
9. INSURANCE.
A. Lessor shall maintain insurance covering the Building and the Premises
in an amount not less than eighty percent (80%) of the "replacement cost"
thereof insuring against the perils and costs of Fire, Lightning, Extended
Coverage, Vandalism and Malicious Mischief, Liability and Rental Interruption
and such other insurance as Lessor shall deem necessary.
B. Lessee, at its own expense, shall maintain during the term of this
Lease (1) a policy or policies of worker's compensation and comprehensive
general liability insurance (with contractual liability endorsement), including
personal injury and property damage in the amount of Five Hundred Thousand
Dollars ($500,000.00) per occurrence for property damage and One Million Dollars
($1,000,000.00) per occurrence for personal injuries or deaths of persons
occurring in or about the Premises and (2) fire and extended coverage insurance
covering the replacement cost of (a) all alterations, additions, partitions and
improvements installed or placed on the Premises, (b) all of Lessee's personal
property contained within the Premises, and (c) business interruption insurance
insuring loss of profits in the event of an insured peril damaging the Premises.
Said policies shall (i) name Lessor, as well as such entities or firms as Lessor
may engage from time to time as property managers and/or asset or investment
managers, as additional insureds (until further notice, it is expressly agreed
that Trammell Crow Company. Trammell Crow Company Dallas Industrial, Inc., and
Copley Real Estate Advisors, Inc. shall be named as additional insureds), (ii)
be issued by an insurance company which is acceptable to Lessor, (iii) provide
that such insurance shall not be canceled unless thirty (30) days prior written
notice shall have been given to Lessor, (iv) shall be delivered to Lessor by
Lessee prior to the Commencement Date and at least fifteen (15) days prior to
each renewal of said insurance, and (v) shall provide primary coverage to Lessor
when any policy issued to Lessor is similar or duplicate in coverage, in which
case Lessor's policy shall be excess over Lessee's policies.
C. Lessee will not permit the Premises to be used for any purpose or in
any manner that would (1) void the insurance thereon, (2) increase the insurance
risk, or (3) cause the disallowance of any sprinkler credits. Lessee shall pay
to Lessor on demand any increase in the cost of any insurance on the Premises or
the Building incurred by Lessor, which is caused by Lessee's use of the Premises
or because Lessee vacates the Premises.
10. FIRE AND CASUALTY DAMAGE.
A. Lessee immediately shall give written notice to Lessor if the Premises
or the Building are damaged or destroyed. If the Premises or the Building should
be totally destroyed by an insured peril, or so damaged by an insured peril
that, in Lessor's estimation, rebuilding or repairs cannot be completed within
days after the date of Lessor's actual knowledge of such damage, then in either
case this Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective upon the date of the occurrence of
such damage.
B. If the Building or the Premises should be damaged but not totally
destroyed by any insured peril, and in Labor's estimation, rebuilding or repairs
can be substantially completed within
4 CREA - '93
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days after the date of Lessor's actual knowledge of such damage, this Lease
shall not terminate, and Lessor shall restore the Premises to substantially its
previous condition, except that Lessor shall not be required to rebuild, repair
or replace any part of the partitions, fixtures, additions and other
improvements or personal property required to be covered by Lessee's insurance
pursuant to Paragraph 9.B. above. Effective upon the date of the occurrence of
such damage and ending upon the date of substantial completion (as defined in
Paragraph 1.C. above) of Lessor's repair or restoration work, if the Premises
are untenantable in whole or part during such period, then the rent shall be
reduced to such extent as may be fair and reasonable under all of the
circumstances. If such repairs and rebuilding have not been substantially
completed within days after the date of such damage, Lessee, as Lessee's
exclusive remedy, may terminate this Lease by delivering written notice of
termination to Lessor, in which event the rights and obligations hereunder shall
cease and terminate, provided, however, that any liabilities of Lessee which
accrued prior to termination of this Lease shall survive such termination.
C. In connection with any repair or reconstruction to the Premises arising
from or necessitated by fire or other casualty which is covered by the insurance
provided pursuant to Paragraph 9.A. above, Lessee shall pay Lessor upon demand
its Proportionate Share of the amount of any deductible of such insurance.
D. Notwithstanding anything herein to the contrary, in the event the
Premises are destroyed or substantially damaged by any peril not covered by the
insurance required to be carried by Lessor pursuant to Paragraph 9.A above, or
if the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that insurance proceeds be applied to such
indebtedness, then Lessor shall have the right to terminate this Lease by
delivering written notice of termination to Lessee within fifteen (15) days
after such requirement is made known by any such holder, whereupon all rights
and obligations hereunder shall cease and terminate, provided, however, that any
liabilities of Lessee which accrued prior to termination of this Lease shall
survive such termination.
E. Anything in this Lease to the contrary notwithstanding, to the extent
of a recovery of loss proceeds under the policies of insurance described in this
Lease. Lessor and Lessee hereby waive and release each other and any of their
respective related parties and affiliates of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the Premises,
the Building, or personal property within the Building and/or Premises arising
from or caused by fire or other casualty or hazard covered or required to be
covered by hazard insurance under this Lease. Upon execution of this Lease.
Lessor and Lessee shall notify their respective insurance companies of the
mutual waivers contained herein and, if available, shall cause each policy
described in this Lease to be so endorsed.
11. LIABILITY AND INDEMNIFICATION.
A. Lessee agrees that it will indemnify and hold harmless Lessor, its
successors, assigns, agents, employees, contractors, partners, directors,
officers and affiliates (as that term is defined in the Securities Act of 1933)
(collectively, the "Indemnified Parties") from and against all fines, suits,
losses, costs, liabilities, claims, demands, actions and judgments of every kind
or character (a) arising from any breach, violation or non-performance of any
term, provision, covenant, agreement or condition on the part of Lessee
hereunder, (b) recovered from or asserted against any of the Indemnified Parties
on account of injury or damage to person or property to the extent that any such
damage or injury may be incident to, arise out of, or be caused, either
proximately or remotely, wholly or in part, by any act, omission, negligence or
misconduct on the part of Lessee or any of its agents, servants, employees,
contractors, or invitees or of any other person entering upon the Premises under
or with the express or implied invitation or permission of Lessee, (c) arising
from or out of the occupancy or use by Lessee, its agents, servants, employees,
contractors, or invitees of the Premises or arising from or out of any event,
circumstance, or occurrence within the Premises, howsoever caused, and/or (d)
suffered by, recovered from or asserted against any of the Indemnified Parties
by Lessee's employees, agents, servants, contractors, or invitees. Such
indemnification of the Indemnified Parties by Lessee shall be effective (i)
unless such damage to property results from the gross negligence or willful
misconduct of Lessor or any of its duly authorized agents or employees, and (ii)
unless such injury to person results from the negligence or willful misconduct
of Lessor or any of its duly authorized agents or employees.
B. Lessee covenants and agrees that in case any of the Indemnified Parties
shall be made a party to any litigation commenced by or against Lessee with
respect to which Lessee has agreed to indemnify the Indemnified Parties
hereunder or relating to this Lease or to the Premises, then Lessee shall and
will pay all costs and expenses, including reasonable attorneys' fees and court
costs, incurred by or imposed upon any of the Indemnified Parties by virtue of
any such litigation and the amount of all such costs and expenses, including
attorneys' fees and court costs, shall be a demand obligation owing by Lessee to
the Indemnified Parties.
C. The provisions of this Paragraph shall survive the expiration or
termination of this Lease with respect to any claims or liability occurring
prior to such expiration or termination. The indemnification provided by this
Paragraph 11, is subject to Lessor's waiver of recovery in the preceding
Paragraph 10., to the extent of Lessor's recovery of loss proceeds under
policies of insurance described in Paragraph 10.
5 CREA - '93
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12. USE.
A. The Premises shall be used only for the purpose of receiving, storing,
shipping and selling (other than retail) products. materials and merchandise
made and/or distributed by Lessee and for such other lawful purposes as may be
incidental thereto. Lessee shall not use the Premises for the receipt, storage
or handling of any product, material or merchandise that is explosive or highly
inflammable or hazardous. Outside storage, including without limitation, storage
of trucks and other vehicles, is prohibited without Lessor's prior written
consent. Lessee shall comply with all federal, state and local governmental and
regulations applicable to the use of the Premises, and promptly shall comply
with all governmental orders and directives for the correction, prevention and
abatement of nuisances in or upon, or connected with, the Premises, all at
Lessee's sole expense. Lessee shall not permit any objectionable or unpleasant
odors, smoke, dust, gas, light, noise or vibrations to emanate from the
Premises, nor take any other action that would constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Lessor or any other lessees of
the Building.
B. Lessee and its employees, customers and licensees shall have the
non-exclusive right to use, in common with others, any parking areas associated
with the Premises which Lessor has designated for such use, subject to (1) all
reasonable rules and regulations promulgated by Lessor and (2) rights of ingress
and egress of other lessees and their employees, customers, agents and invitees.
Lessor shall not be responsible for enforcing Lessee's parking rights against
any third parties.
13. INSPECTION. Lessor and Lessor's agents and representatives shall have
the right to enter the Premises at any reasonable time during business hours to
inspect the Premises and to make such repairs as may be required or permitted
pursuant to this Lease. During the period that is twelve (12) months prior to
the end of the Lease term, Lessor and Lessor's representatives may enter the
Premises during business hours for the purpose of showing the Premises. In
addition, during the same twelve (12) month period Lessor shall have the right
to erect a suitable sign on the Premises indicating that the Premises are
available. Lessee shall notify Lessor in writing at least thirty (30) days prior
to vacating the Premises and shall arrange to meet with Lessor for a joint
inspection of the Premises prior to vacating. If Lessee fails to give such
notice or to arrange for such inspection, then Lessor's inspection of the
Premises shall be deemed correct for the purpose of determining Lessee's
responsibility for repairs and restoration of the Premises.
14. ASSIGNMENT AND SUBLETTING.
A. Lessee shall not have the right to sublet all or part of the Premises
or to assign, transfer or encumber this Lease, or any interest therein, without
the prior written consent of Lessor. Any attempted assignment, subletting,
transfer or encumbrance by Lessee in violation of the terms and covenants of
this Paragraph shall be void. No assignment, subletting or other transfer,
whether consented to by Lessor or not, or permitted hereunder, shall relieve
Lessee of its liability hereunder. If an event of default occurs while the
Premises or any part thereof are assigned or sublet, then Lessor, in addition to
any other remedies herein provided, or provided by law. may collect directly
from such assignee. sublessee or transferee all rents payable to the Lessee and
apply such rent against any sums due Lessor hereunder. No such collection shall
be construed to constitute a novation or a release of Lessee from the further
performance of Lessee's obligations hereunder.
B. If Lessee is a corporation, partnership, or other entity, for purposes
of subparagraph A above, any transfer or series of related transfers of equity
ownership interests in Lessee (or any direct or indirect owners of Lessee) that
results in the change of the ultimate ownership of more than fifty percent (50%)
of the equity ownership of Lessee shall constitute an assignment of this Lease.
The foregoing provision shall not apply, however, if at the time of execution of
this Lease Lessee is a corporation the shares of which are listed on a
recognized security exchange or in the over-the-counter market.
C. Upon the occurrence of an assignment or subletting, whether consented
to by Lessor, or mandated by judicial intervention, Lessee hereby assigns,
transfers and conveys all rents or other sums received by Lessee under any such
assignment or sublease, which are in excess of the rents and other sums payable
by Lessee under this Lease, and Lessee agrees to pay to Lessor such amounts
within ten (10) days after receipt.
D. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. (S) 101 et. seq. (the "Bankruptcy
Code"), any and all monies or other consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Lessor, shall be and remain the exclusive property of Lessor and shall not
constitute property of Lessee or of the estate of Lessee within the meaning of
the Bankruptcy Code. Any and all monies or other considerations constituting
Lessor's property under the preceding sentence not paid or delivered to Lessor
shall be held in trust for the benefit of Lessor and be promptly paid or
delivered to Lessor.
E. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed, without further act or deed,
to have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall upon demand execute and deliver
to Lessor an instrument confirming such assumption.
6 CREA - '93
<PAGE>
15. CONDEMNATION. If more than fifty percent (50%) of the Premises are
taken for any public or quasipublic use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking prevents or materially interferes with the use of the
remainder of the Premises for the purpose for which they were leased to Lessee,
this Lease shall terminate and the rent shall be abated during the unexpired
portion of this Lease, effective on the date of such taking. If (i) less than
fifty percent (50%) of the Premises are taken for any public or quasi-public use
under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof; or (ii) more than fifty percent
(50%) of the Premises are taken for any public or quasipublic use under
governmental law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof, but the taking does not prevent or materially
interfere with the use of the remainder of the Premises for the purpose for
which they were leased to Lessee, this Lease shall not terminate, but the rent
payable hereunder during the unexpired portion of this Lease shall be reduced to
such extent as may be fair and reasonable under all of the circumstances. All
compensation awarded in connection with or as a result of any of the foregoing
proceedings shall be the property of Lessor and Lessee hereby assigns any
interest in any such award to Lessor; provided, however, Lessor shall have no
interest in any award made to Lessee for loss of business or goodwill or for the
taking of Lessee's fixtures and improvements, if a separate award for such
items is made to Lessee.
16. SURRENDER OF PREMISES; HOLDING OVER.
A. At the termination of this Lease, whether caused by lapse of time or
otherwise, Lessee shall at once surrender possession of the Premises and deliver
them to Lessor in as good repair and condition as existed at the Commencement
Date, reasonable wear and tear excepted, and shall deliver to Lessor all keys
(or other access control devices) to the Premises, and, if such possession is
not immediately surrendered, Lessor may forthwith enter upon and take possession
of the Premises and expel or remove Lessee and any other person who may be
occupying them, or any part thereof, without having any civil or criminal
liability therefor.
B. All alterations, additions or improvements (whether temporary or
permanent in character) made to or fixtures installed in or upon the Premises,
either by Lessor or Lessee, shall be Lessor's property on termination of this
Lease and shall remain on the Premises. Notwithstanding the foregoing, upon the
termination of this Lease Lessor may direct Lessee, at Lessee's expense, to
remove all alterations, improvements, and additions installed by Lessee and
return the Premises to the condition that existed at the Commencement Date.
Subject to Paragraph 25 hereof and provided that all sums owed by Lessee
hereunder have been paid, all movable office furniture and equipment not
attached to the Building may be removed by Lessee at the termination of this
Lease. All such removals shall be accomplished in a good workmanlike manner so
as not to damage the Premises or the structural components of the Building or
the plumbing, electrical lines or other utilities, and any damage resulting from
such removals shall be repaired at Lessee's expense.
C. All alterations, additions, and improvements directed by Lessor to be
removed and all movable office furniture and equipment not attached to the
Building not promptly removed after such termination shall thereupon be
conclusively presumed to have been abandoned by Lessee, and Lessor may, at its
option, take over possession of such property and either (a) declare same to be
the property of Lessor by written notice thereof to Lessee or (b) at the sole
cost and expense of Lessee remove and store the same or any part thereof in any
manner that Lessor shall choose without incoming liability to Lessee or any
other person (any such removal and storage costs and expenses being payable by
Lessee upon demand).
D. Should Lessee continue to hold the Premises after the termination of
this Lease, whether the termination occurs by lapse of time or otherwise, such
holding over shall, unless otherwise agreed by Lessor in writing, constitute and
be construed as a tenancy at will at a daily rental equal to one-thirtieth of an
amount equal to of the amount of the monthly rental payable during the last
month prior to the termination of this Lease, and upon and subject to all of the
other terms, provisions, covenants and agreements set forth herein except any
right to renew this Lease. No payments of money by Lessee to Lessor after the
termination of this Lease shall reinstate, continue or extend the term of this
Lease and no extension of this Lease after the termination hereof shall be valid
unless and until the same shall be reduced to writing and signed by both Lessor
and Lessee. Lessee shall be liable to Lessor for all damage which Lessor shall
suffer by reason of any holding over by Lessee and Lessee shall indemnify Lessor
against all claims made by any other tenant or prospective tenant against Lessor
resulting from delay by Lessor in delivering possession of the Premises to such
other tenant or prospective tenant.
17. QUIET ENJOYMENT. Lessor covenants that on or before the Commencement
Date it will have good title to the Premises, free and clear of all liens and
encumbrances, excepting only the lien for current taxes not yet due such
mortgage or mortgages as are permitted by the terms of this Lease, zoning
ordinances and other restrictions and other conditions of record. If this Lease
is a sublease, then Lessee agrees to take the Premises subject to the provisions
of the prior lease. Lessor represents that it has the authority to enter into
this Lease and that so long as Lessee pays all amounts due hereunder and
performs all other covenants and agreements herein set forth, Lessee shall
peaceably and quietly have, hold and enjoy the Premises for the term hereof
without hindrance or molestation from Lessor, subject to the terms and
provisions of this Lease.
7 CREA - '93
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18. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "event of default" on the part of Lessee under this
Lease:
A. Lessee shall fail to pay any rental or other payment or reimbursement
payable by Lessee hereunder when due, or Lessee shall fail to pay any payment or
reimbursement required under any other lease with Lessor when due, and in either
case such failure shall continue for a period of five (5) days from the date
such payment was due.
B. Lessee shall fail to pay any amounts owed to contractors or
subcontractors for work or services performed in connection with the operation,
construction, management or maintenance of the Building as provided herein, and
such failure shall continue for a period of five (5) days from the date such
payment was due.
C. Lessee or any guarantor of the Lessee's obligations hereunder shall (i)
become insolvent; (ii) admit in writing its inability to pay its debts; (iii)
make a general assignment for the benefit of creditors; (iv) commence any case,
proceeding or other action seeking to have an order for relief entered on its
behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or of any
substantial pant of its property; or (v) take any action to authorize or in
contemplation of any of the actions set forth above in this subparagraph C.
D. Any case, proceeding or other action against the Lessee or any
guarantor of Lessee's obligations hereunder shall be commenced seeking (i) to
have an order for relief entered against it as debtor or to adjudicate it a
bankrupt or insolvent; (ii) reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii)
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial pant of its property, and such case, proceeding or
other action (a) results in the entry of an order for relief against it which it
is not fully stayed within seven (7) business days after the entry thereof or
(b) shall remain undismissed for a period of forty-five (45) days.
E. Lessee shall fail to discharge any lien placed upon the Premises in
violation of Paragraph 21. hereof within twenty (20) days after any such lien
or encumbrance is filed against the Premises.
F. Lessee shall fail to comply with any term, provision or covenant of
this Lease (other than those listed in this Paragraph 18.), and shall not cure
such failure within twenty (20) days after written notice thereof to Lessee.
19. REMEDIES.
A. Upon each occurrence of an event of default, and in addition to and
not in limitation of any other remedy permitted by law or equity or by this
Lease, Lessor shall have the option to pursue any one or more of the following
remedies without any notice or demand:
(1) Terminate this Lease; and/or
(2) Enter upon and take possession of the Premises without
terminating this Lease; and/or
(3) Alter all locks and other security devices at the Premises with
or without terminating this Lease, deny access to Lessee, and pursue, at
Lessor's option, one or more remedies pursuant to this Lease, Lessee hereby
specifically waiving any state or federal law to the contrary. This provision
shall control over any conflicting provisions of the Texas Property Code or any
successor statute governing the right of landlords to change the door locks of
commercial tenants to the extent permitted by applicable law.
B. Upon the occurrence of any event of default Lessee immediately shall
surrender the Premises to Lessor, and if Lessee fails so to do, Lessor, without
waiving any other remedy it may have, may enter upon and take possession of the
Premises and expel or remove Lessee and any other person who may be occupying
the Premises or any part thereof, without being liable for prosecution or any
claim of damages therefor.
C. If Lessor repossesses the Premises with or without terminating the
Lease, Lessee, at Lessor's option, shall be liable for and shall pay Lessor on
demand all rental and other payments owed to Lessor hereunder accrued to the
date of such repossession, plus all amounts required to be payed by Lessee to
Lessor until the date of expiration of the term as stated in Paragraph 1.
Actions to collect amounts due by Lessee to Lessor under the Lessor's
subparagraph may be brought from time to time, on one or more occasions, without
the necessity of Lessor's
8 CREA - '93
<PAGE>
waiting until expiration of the Lease term. Lessor may relet the whole or any
portion of the Premises for any period, to any tenant and for any use and
purpose.
D. Upon an event of default, in addition to any sum provided to be paid
herein, Lessee also shall be liable for and shall pay to Lessor (1) any
brokerage fees incurred by Lessor in connection with the execution of this
Lease; (2) brokers' fees incurred by Lessor in connection with any reletting of
the whole or any pant of the Premises; (3) the costs of removing and storing
Lessee's or other occupant's property; (4) the costs of repairing, altering,
remodeling or otherwise putting the Premises into condition acceptable to a new
lessee or lessees; and (5) all reasonable expenses incurred by Lessor in
enforcing or defending Lessor's rights and/or remedies. If either party hereto
institutes any action or proceeding to enforce any provision hereof by reason of
any alleged breach of any provision of this Lease, the prevailing party shall be
entitled to receive from the losing party all reasonable attorney's fees and all
court costs in connection with such proceeding.
E. Exercise by Lessor of any one or more remedies hereunder granted or
otherwise available, including without limitation, the institution by Lessor,
its agents or attorneys of a forcible detainer or ejectment action to re-enter
the Premises shall not be construed to be an election to terminate this Lease or
relieve Lessee of its obligation to pay rent hereunder and shall not be deemed
to be an acceptance of surrender of the Premises by Lessor, whether by agreement
or by operation of law, it being understood that such surrender can be effected
only by the written agreement of Lessor and Lessee. Lessee and Lessor further
agree that forbearance by Lessor to enforce its rights pursuant to the Lease at
law or in equity shall not be a waiver of Lessor's right to enforce one or more
of its rights in connection with any subsequent default.
F. In the event Lessee fails to make any payment due hereunder when
payment is due, to help defray the additional cost to Lessor for processing such
late payments, Lessee shall pay to Lessor on demand a late charge in an amount
equal to five percent (5%) of such installment; and the failure to pay such
amount within ten (10) days after demand therefor shall be an additional event
of default hereunder. The provision for such late charge shall be in addition to
all of Lessor's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Lessor's remedies in any manner.
G. If Lessor repossesses the Premises pursuant to the authority herein
granted, then Lessor shall have the right to (i) keep in place and use or (ii)
remove and store, at Lessee's expense, all of the furniture, fixtures and
equipment at the Premises, including that which is owned by or leased to Lessee
at all times prior to any foreclosure thereon by Lessor or repossession thereof
by any Lessor thereof or third party having a lien thereon. Lessor also shall
have the right to relinquish possession of all or any portion of such furniture,
fixtures, equipment and other property to any person ("Claimant") who presents
to Lessor a copy of any instrument represented by Claimant to have been executed
by Lessee (or any predecessor of Lessee) granting Claimant the right under
various circumstances to take possession of such furniture, fixtures, equipment
or other property, without the necessity on the part of Lessor to inquire into
the authenticity or legality of said instrument. Lessor may. at its sole option
and without prejudice to, or waiver of any rights it may have i) escort Lessee
to the Premises to retrieve any personal belongings of Lessee and/or its
employees not covered by the Lessor's lien and security interest described in
Paragraph 25. hereof, or ii) obtain a list from Lessee of the personal property
of Lessee and/or its employees that is not covered by the Lessor's lien and
security interest described in Paragraph 25 hereof, and make such property
available to Lessee and or Lessee's employees; provided, however, Lessee first
shall pay in cash all costs and estimated expenses to be incurred in connection
with the removal of such property and making it available. Any such property not
removed by Lessee within five (5) days after demand therefor by Lessor shall
thereupon be conclusively presumed to have been abandoned by Lessee to Lessor,
and Lessor may, at its option, take over possession of such property and declare
same to be the property of Lessor by written notice thereof to Lessee. The
rights of Lessor herein stated shall be in addition to any and all other rights
that Lessor has or may hereafter have at law or in equity, and Lessee stipulates
and agrees that the rights herein granted Lessor are commercially reasonable.
H. If Lessor fails to commence to perform any of its obligations hereunder
within thirty (30) days after written notice from Lessee specifying such
failure. Lessee's exclusive remedy shall be an action for damages. Unless and
until Lessor fails to so cure said default after such notice, Lessee shall not
have any remedy or cause of action by reason thereof. All obligations of Lessor
hereunder will be binding upon Lessor only during the period of its possession
of the Premises and not thereafter. The term Lessor shall mean only the owner,
for the time being, of the Premises, and in the event of the transfer by such
owner of its interest in the Premises, such owner shall thereupon be released
and discharged from all covenants and obligations of the Lessor thereafter
accruing, but such covenants and obligations shall be binding during the Lease
term upon each new owner for the duration of such owner's ownership.
Notwithstanding any other provision hereof, Lessor shall not have any personal
liability hereunder. In the event of any breach or default by Lessor in any term
or provision of this Lease, and, as a consequence, if Lessee shall recover a
money judgment against Lessor, such judgments shall be satisfied only out of the
proceeds received at a judicial sale upon execution and levy against the right,
title and interest of Lessor in the Building, and in the rents or other income
from the Building receivable by Lessor, and neither Lessor nor Lessor's owners,
partners or ventures shall have any personal, partnership, corporate or other
liability hereunder.
9 CREA - '93
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20. MORTGAGES. Lessee accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter constituting a lien
or charge upon the Premises, the improvements situated thereon, the Building or
the Land, and to any and all increases, renewals, modifications, consolidations.
replacements and extensions of such mortgages and deeds of trust; provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Lessee's interest in this Lease superior to any such
instrument, then by notice to Lessee from such mortgagee, trustee or holder,
this Lease shall be deemed superior to such lien, whether this Lease was
executed before or after said mortgage or deed of trust. The provisions of this
Paragraph 20 shall be self-operative, and no further instrument shall be
required to effect such subordination of this Lease. Lessee shall however, at
any time hereafter, within ten (10) days after demand, execute any instruments,
releases or other documents that may be required by any mortgagee for the
purpose of subjecting and subordinating this Lease to the lien of any such
mortgage. If Lessee fails to execute the same within such ten (10) day period.
Lessor is hereby authorized to execute the same as attorney-in-fact for Lessee.
Lessee agrees to attorn upon demand to any mortgagee, trustee under a deed of
trust or purchaser at a foreclosure sale or trustee's sale as Lessor under this
Lease. The agreement of Lessee to attorn upon demand contained in the
immediately preceding sentence shall survive any such foreclosure sale or
trustee's sale. Lessee shall upon demand at any time or times, before or after
any such foreclosure sale or trustee's sale, execute, acknowledge and deliver to
any mortgagee, trustee under a deed of trust or purchaser at a foreclosure sale
or trustee's sale any and all instruments and certificates that in the judgment
of such party may be necessary or proper to confirm or evidence such attornment,
and Lessee hereby irrevocably appoints any such mortgagee, trustee under a deed
of trust or purchaser at a foreclosure sale or trustee's sale as Lessee's agent
and attorney-in-fact for the purpose of executing, acknowledging and delivering
any such instruments and certificates.
21. MECHANIC'S LIENS. Lessee has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Lessor or Lessee in the Premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Lessee, including those who may furnish materials or perform labor
for any construction or repairs. Lessee covenants and agrees that it will pay or
cause to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Lessor harmless from any and all loss,
cost or expense based on or arising out of asserted claims or liens against the
leasehold estate or against the right, title and interest of the Lessor in the
Premises or under the terms of this Lease. Lessee agrees to give Lessor
immediate written notice of the placing of any lien or encumbrance against the
Premises.
22. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.
B. In the event the Premises constitute a portion of a multiple occupancy
building, Lessee's "Proportionate Share", as used in this Lease, shall mean a
fraction, the numerator of which is the space contained in the Premises and the
denominator of which is the entire rentable space contained in the Building.
C. The terms, provisions and covenants and conditions contained in this
Lease shall run with the land and shall apply to, inure to the benefit of, and
be binding upon, the parties hereto and upon their respective heirs, executors,
personal representatives, legal representatives, successors and assigns, except
as otherwise herein expressly provided. Lessor shall have the right to transfer
and assign, in whole or in part, its rights and obligations in the Building and
property that are the subject of this Lease. Each party agrees to furnish to the
other, promptly upon demand, a corporate resolution, proof of due authorization
by partners, or other appropriate documentation evidencing the due authorization
of such party to enter into this Lease.
D. Lessor shall not be held responsible for delays in the performance of
its obligations hereunder when caused by strikes, riots, acts of God, shortages
of labor or materials, war, governmental laws, regulations or restrictions or
any other cause of any kind whatsoever which are beyond the control of Lessor.
E. Lessee agrees, from time to time, within ten (10) days after request of
Lessor, to deliver to Lessor, or Lessor's designee, a Certificate of Occupancy
for the Premises, financial statements for itself and any guarantor of its
obligations hereunder, and an estoppel certificate stating that this Lease is in
full force and effect, the date to which rent has been paid, the unexpired term
of this Lease and such other factual matters pertaining to this Lease as may be
requested by Lessor. It is understood and agreed that Lessee's obligation to
furnish the above-described items in a timely fashion is a material inducement
for Lessor's execution of this Lease. If Lessee fails to execute any such
estoppel certificate within such ten (10) day period. Lessor is hereby
authorized to execute the same as attorney-in-fact for Lessee.
F. This Lease constitutes the entire understanding and agreement of the
Lessor and Lessee with respect to the subject matter of this Lease, and contains
all of the covenants and agreements of Lessor and Lessee
10 CREA - '93
<PAGE>
with respect thereto. Lessor and Lessee each acknowledge that no
representations, inducements, promises or agreements, oral or written, have been
made by Lessor or Lessee, or anyone acting on behalf of Lessor or Lessee, which
are not contained herein, and any prior agreements, promises, negotiations, or
representations not expressly set forth in this Lease are of no force or effect.
This Lease may not be altered, changed or amended except by an instrument in
writing signed by both parties hereto.
G. All obligations of Lessee hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation, all payment obligations with respect to taxes and insurance and all
obligations concerning the condition and repair of the Premises. Upon the
expiration or earlier termination of the term hereof, and prior to Lessee
vacating the Premises, Lessee shall pay to Lessor any amount reasonably
estimated by Lessor as necessary to put the Premises, including without
limitation, all heating and air conditioning systems and equipment therein, in
good condition and repair, reasonable wear and tear excluded. Lessee shall also,
prior to vacating the Premises, pay to Lessor the amount, as estimated by
Lessor, of Lessee's obligation hereunder for real estate taxes and insurance
premiums for the year in which the Lease expires or terminates. All such amounts
shall be used and held by Lessor for payment of such obligations of Lessee
hereunder, with Lessee being liable for any additional costs therefor upon
demand by Lessor, or with any excess to be returned to Lessee after all such
obligations have been determined and satisfied as the case may be. Any security
deposit held by Lessor shall be credited against the amount due by Lessee under
this Paragraph 22.G.
H. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added, as a
part of this Lease, a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
I. All references in this Lease to "the date hereof" or similar references
shall be deemed to refer to the last date, in point of time, on which all
parties hereto have executed this Lease.
J. Lessee represents and warrants that it has dealt with no broker, agent
or other person in connection with this transaction or that no broker, agent or
other person brought about this transaction, other than as may be referenced in
a separate written agreement executed by Lessee, and delivered to Lessor prior
to execution of this Lease, and Lessee agrees to indemnify and hold Lessor
harmless from and against any claims by any other broker, agent or other persons
claiming a commission or other form of compensation by virtue of having dealt
with Lessee with regard to this leasing transaction.
K. If and when included within the term "Lessor", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address for the receipt of notices
and payments to Lessor. If and when included within the term "Lessee", as used
in this instrument, there is more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Lessee. All parties
included within the terms "Lessor" and "Lessee", respectively, shall be bound by
notices given in accordance with the provisions of Paragraph 23, hereof to the
same effect as if each had received such notice.
11 CREA - '93
<PAGE>
L. LESSEE ACKNOWLEDGES THAT (1) IT HAS INSPECTED AND ACCEPTS THE PREMISES
IN AN "AS IS. WHERE IS" CONDITION, (2) THE BUILDINGS AND IMPROVEMENTS COMPRISING
THE SAME ARE SUITABLE FOR THE PURPOSE FOR WHICH THE PREMISES ARE LEASED AND
LESSOR HAS MADE NO WARRANTY, REPRESENTATION, COVENANT, OR AGREEMENT WITH RESPECT
TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE PREMISES,
(3) THE PREMISES ARE IN GOOD AND SATISFACTORY CONDITION, (4) NO REPRESENTATIONS
AS TO THE REPAIR OF THE PREMISES, NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE
PREMISES HAVE BEEN MADE BY LESSOR (UNLESS AND EXCEPT AS MAY BE SET FORTH IN
EXHIBIT B ATTACHED TO THIS LEASE, IF ONE SHALL BE ATTACHED, OR AS IS OTHERWISE
EXPRESSLY SET FORTH IN THIS LEASE), AND (5) THERE ARE NO REPRESENTATIONS OR
WARRANTIES, EXPRESSED, IMPLIED OR STATUTORY, THAT EXTEND BEYOND THE DESCRIPTION
OF THE PREMISES.
M. Lessor and Lessee agree that the terms and conditions of this Lease are
confidential and the parties hereto agree not to disclose the terms of this
Lease to any third party.
N. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Lessee to or on behalf of Lessor under this Lease, whether or not
expressly denominated as rent, shall constitute rent.
O. This is a contract under which applicable law excuses Lessor from
accepting performance from (or rendering performance to) any person or entity
other than Lessee.
23. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivering of notice or the making of any payment by
Lessor to Lessee or with reference to the sending, mailing or delivering of any
notice or the making of any payment by Lessee to Lessor shall be deemed to be
complied with when and if the following steps are taken:
A. All rent and other payments required to be made by Lessee to Lessor
hereunder shall be payable to Lessor at the address for Lessor set forth below
or at such other address as Lessor may specify from time to time by written
notice delivered in accordance herewith. Lessee's obligation to pay rent and any
other amounts to Lessor under the terms of this Lease shall not be deemed
satisfied until such rent and other amounts have been actually received by
Lessor.
B. All payments required to be made by Lessor to Lessee hereunder shall be
payable to Lessee at the address set forth below, or at such other address
within the continental United States as Lessee may specify from time to time by
written notice delivered in accordance herewith.
C. Any written notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered upon the earlier to occur of (1)
tender of delivery (in the case of a hand-delivered notice) or (2) deposit in
the United States Mail, postage prepaid. Certified or Registered Mail, addressed
to the parties hereto at the respective addresses set out below, or at such
other address as they have theretofore specified by written notice delivered in
accordance herewith.
24. HAZARDOUS WASTE. The term "Hazardous Substances", as used in this
Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any
other substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "Environmental Law", which term shall
mean any federal, state or local law or ordinance relating to pollution or
protection of the environment. Lessee hereby agrees that (i) no activity will be
conducted on the Premises that will produce any Hazardous Substances, except for
such activities that are part of the ordinary course of Lessees business
activities (the "Permitted Activities") provided said Permitted Activities are
conducted in accordance with all Environmental Laws and have been approved in
advance in writing by Lessor; (ii) the Premises will not be used in any manner
for the storage of any Hazardous Substances except for any temporary storage of
such materials that are used in the ordinary course of Lessee's business (the
"Permitted Materials") provided such Permitted Materials are properly stored in
a manner and location meeting all Environmental Laws and approved in advance in
writing by Lessor; (iii) no portion of the Premises will he used as a landfill
or a dump; (iv) Lessee will not install any underground tanks of any type; (v)
Lessee will not allow any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute a public
or private nuisance; (vi) Lessee will not permit any Hazardous Substances to be
brought onto the Premises, except for the Permitted Materials, and if so brought
or found located thereon, the same shall be immediately removed, with proper
disposal, and all required cleanup procedures shall be diligently undertaken
pursuant to all Environmental Laws. If at any time during or after the term of
the Lease, the Premises is found to be so contaminated or subject to said
conditions, Lessee agrees to indemnify and hold Lessor harmless from all claims,
demands, actions, liabilities, costs, expenses, damages and obligations of any
nature arising from or as a result of the use of the Premises by Lessee. The
foregoing indemnification shall survive the termination or expiration of this
Lease.
Unless expressly identified on an addendum to this Lease, as of the date
hereof there are no "Permitted Activities" and/or "Permitted Materials" for
purposed of the foregoing provision and none shall exist unless and until
approved in writing by Lessor.
12 CREA - '93
<PAGE>
25. Lessor hereby waives any Landlord's liens and lien rights it might
hold, including all statutory, common law, constitutional, contractual or other
liens and lien rights, to any inventory, equipment, machinery or other personal
property owned or leased by Lessee and now or hereafter located on the Premises.
EXECUTED BY LESSOR, this day of _____________. 19__.
TRAMMELL CROW INTERNATIONAL PARTNERS, a Texas Limited Partnership
By: Trammell Crow Ventures, Ltd:, a Texas limited partnership
By: Trammell Crow Ventures, Inc., a Texas Corporation
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
By:__________________________________
Title:_______________________________
ADDRESS: ADDRESS:
3500 Trammell Crow Center
- ---------------------------------------- -------------------------------------
2001 Ross Ave., Dallas, Texas 75201-2997
- ---------------------------------------- -------------------------------------
copy to: 220 Ross Avenue, Suite 3700
Dallas, Texas 75201
- ---------------------------------------- -------------------------------------
EXECUTED BY LESSEE this ______ day of _______________, 19__.
CUPLEX, INC.
- ---------------------------------------- -------------------------------------
By: By:
------------------------------------- ----------------------------------
J. Jeff Ryno
Title: Executive Vice President Title:
--------------------------------- -------------------------------
ADDRESS:
11420 Pagemill Road
- -------------------
Dallas Texas 75243
- -------------------
<PAGE>
SPECIAL PROVISIONS
FOR
CUPLEX
25a. HAZARDOUS WASTE
The term "Hazardous Substances," as used in this lease shall mean
pollutants, contaminants, toxic or hazardous wastes, or any other
substances, the use and/or the removal of which is required or the use of
which is restricted, prohibited or penalized by any "Environmental Law,"
which term shall mean any federal, state or local law, ordinance or other
statute of a governmental or quasi-governmental authority relating to
pollution or protection of the environment. Lessee hereby agrees that (i)
no activity will be conducted on the Premises that will produce any
Hazardous Substance, except for such activities that are part of the
ordinary course of Lessee's business activities (the "Permitted
Activities") provided said Permitted Activities are conducted in
accordance with all Environmental Laws and have been approved in advance
in writing by Lessor; Lessee shall be responsible for obtaining any
required permits and paying any fees and providing any testing required by
any governmental agency; (ii) the Premises will not be used in any manner
for the storage of any Hazardous Substances except for the temporary
storage of such materials that are used in the ordinary course of Lessee's
business (the "Permitted Materials") provided such Permitted Materials are
properly stored in a manner and location meeting all Environmental Laws
and approved in advance in writing by Lessor; Lessee shall be responsible
for obtaining any required permits and paying any fees and providing any
testing required by any governmental agency; (iii) no portion of the
Premises will be used as landfill or a dump; (iv) Lessee will not install
any underground tanks of any type; (v) Lessee will not allow any surface
or subsurface conditions to exist or come into existence that constitute,
or with the passage of time may constitute a public or private nuisance;
(vi) Lessee will not permit any Hazardous Substances to be brought onto
the Premises, except for the Permitted Materials described below, and if
so brought or found located thereon, the same shall be immediately
removed, with proper disposal, and all required cleanup procedures shall
be diligently undertaken pursuant to all Environmental Laws. Lessor or
Lessor's representative shall have the right but not the obligation to
enter the Premises for the purpose of inspecting the storage, use and
disposal of Permitted Materials to ensure compliance with all
Environmental Laws. Should it be determined, in Lessor's sole opinion,
that said Permitted Materials are being improperly stored, used, or
disposed of, then Lessee shall immediately take such corrective action as
requested by Lessor. Should Lessee fail to take such corrective action
within 24 hours, Lessor shall have the right to perform such work and
Lessee shall promptly reimburse Lessor for any and all costs associated
with said work. If at any time during or after the term of the Lease, the
Premises is found to be so contaminated or subject to said conditions,
Lessee shall diligently institute proper and thorough cleanup procedures
at Lessee's sole cost, and Lessee agrees to indemnify and hold Lessor
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the
use of the Premises by Lessee. The foregoing indemnifications and the
responsibilities of Lessee shall survive the termination or expiration of
this Lease. Notwithstanding anything in this Lease, Lessee shall not be
liable for nor indemnify Lessor from any Hazardous Substances or violation
of Environmental Law unless caused by Lessee.
Permitted: A wave soldering machine is permitted as long as it use
complies with all laws and regulations and the solder does not penetrate
the vinyl composition tile, the slab or any part of the Premises.
<PAGE>
25b. NONDISCLOSURE
Lessee acknowledges that Lessor has a business interest in maintaining the
confidentiality of the lease terms negotiated with various tenants. As a
material part of the consideration for this Lease, Lessee hereby agrees
that it shall not disclose the terms of this Lease to any person without
the prior written consent of Lessor. Lessee agrees, in addition to any
other rights or remedies which Lessor may possess, that Lessor shall be
entitled to injunctions without bond or security in the event of any
actual or threatened breach of this Section by Lessee. The provisions of
this Section shall survive the termination of this Lease.
25c. NONDISTURBANCE
Notwithstanding anything contained herein to the contrary (i) Lessor
covenants and agrees to use reasonable efforts to obtain from any mortgage
holder currently in place a nondisturbance agreement when requested by
Lessee, and (ii) Lessee's agreement to subordinate this Lease to any
future mortgage is expressly subject to and conditional upon Lessor using
reasonable efforts to obtain from such future mortgage holder an new
nondisturbance agreement in favor of Lessee.
25d. This Lease is contingent on the successful termination of the existing
Lessee (Avnet, Inc.)
25e. Lessee accepts the Premises in its "As-Is" condition.
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
-----------------
BEING approximately 33,149 square feet out of an approximate 48,862 square foot
facility commonly known as Northgate I, Building 15, located on Pagemill Road in
Dallas, Texas and situated on a tract of land described as follows:
BEING a tract of land situated in the John Jackson Survey, Abstract No. 699,
City of Dallas, Dallas County, Texas; and being part of Block B/8073 of the
Northgate Business Park, First Installment as recorded in Volume 74113, Page
1136 of the Map and Deed Records of Dallas County, Texas; and being more
particularly described as follows:
BEGINNING at a point in the East line of Pagemill Road (60' R.O.W.), said point
being in a Northerly direction along said East line of Pagemill Road a distance
of 337.00 feet from the intersection of said East line and the North line of
Chartwell Drive (60' R.O.W.).
THENCE North 13 degrees 20'55" East, along said East line of Pagemill Road, a
distance of 360.00 feet to a point for a corner;
THENCE South 76 degrees 39'05" East, a distance of 340.00 feet to a point for a
corner, said point being in the centerline of a railroad lead track;
THENCE South 13 degrees 20'55" West, along said centerline of a railroad lead
track, a distance of 360.00 feet to a point for a corner;
THENCE North 76 degrees 39'05" West, a distance of 340.00 feet to the POINT OF
BEGINNING and CONTAINING 122,400 square feet or 2.8099 acres of land, more or
less.
<PAGE>
SUPPLEMENTAL LEASE AGREEMENT
This Supplemental Lease Agreement is made and entered into this _______ day of
___________________, 1999 by and between:
NORTHGATE BUSINESS PARK, INC.
BY: KENNEDY ASSOCIATES REAL ESTATE COUNSEL, INC.
(ITS INVESTMENT MANAGER)
c/o THE INDUSTRIAL GROUP MANAGEMENT SERVICES, INC.
P.O. BOX 802047
DALLAS, TEXAS 75380-2047
AND
DYNAMIC DETAILS INCORPORATED
(FORMERLY KNOWN AS CUPLEX, INC.)
11410-11420 PAGEMILL ROAD
DALLAS, TEXAS 75243
(48,862 SQUARE FEET)
This Second Supplemental Lease Agreement shall modify the original Lease
Agreement between Northgate Business Park, Inc., successor in interest to
Trammel Crow International Partners (Lessor), and Dynamic Details Incorporated,
formerly know as Cuplex, Inc. (Lessee) dated on or about June 21, 1993, for
11410 Pagemill, as amended on or about September 12, 1995, and Lease Agreement
dated November 2, 1995, for 11420 Pagemill (which together with any amendments,
modifications and extensions thereof is hereinafter called the "Lease"); and
Supplement Lease Agreements dated June 24, 1998, in which certain real estate
and premises therein described and situated in the County of Dallas, City of
Dallas and the State of Texas were demised and leased by Landlord to Tenant.
It is the sole intent of this Supplemental Lease Agreement to modify the Lease
by the following provisions:
1. The original term of the Lease Agreement as described in Paragraph 1.
shall be extended for a further term of Thirty-six (36) months beginning
April 1, 1999 (the "Renewal Commencement Date") and ending March 31, 2002.
2. Beginning on the Renewal Commencement Date the monthly base rental as
referenced in Paragraph 2.A. of the original Lease Agreement shall be:
Months 1-36: $4.00 per square foot ($16,287.33 per month)
3. Tenant will continue to pay its proportionate share of the operating
expenses as per Paragraph 2C of the Original Lease Agreement.
4. Landlord and Tenant represent each to the other that it has full right and
authority to enter into this Supplemental Lease Agreement.
5. Lessor and Lessee upon execution of the document shall be known as
Landlord and Tenant.
6. Tenants total square footage consists of 48,862 square foot, which
reflects 11410 Pagemill Road and 11420 Pagemill Road.
7. Landlord will provide up to $50,000.00 for tenant improvements. Tenant
will be responsible for any costs in excess of $50,000.00. Landlord has
approved the plans for the tenant improvements as shown on "Exhibit A" and
tenant shall not be required to return the improvements outlined on
Exhibit A (except as provided herein) back to their original condition.
Furthermore, Landlord shall have approval of tenant's contractor. Tenant
contractor shall be required to have insurance requirements acceptable to
Landlord. After Landlord has received receipt of paid invoices and
executed lien waivers from Tenant, Landlord agrees to reimburse Tenant for
all approved expenditures for tenant improvements and construction up to
the provided amount of $50,000.00. These improvements shall be performed
within six (6) months of execution of this Supplemental Lease Agreement.
<PAGE>
8. Notwithstanding the provisions of the Original Leases to the contrary, the
name of the Lessee, Cuplex, Inc. shall be known as Dynamic Details
Incorporated.
9. Renewal Option - Provided that Tenant is not in default of any of the
terms, covenants and conditions hereof, and this Lease has not been
assigned or the premises (or a part thereof) sublet, Tenant shall have the
right and option to extend the original term of this Lease for one further
term of thirty six (36) months. Such extension of the original term shall
be on the same terms, covenants and conditions as provided for in the
original term except for this paragraph and except that the rental during
the extended term shall be at the fair market rental then in effect on
equivalent properties, of equivalent size, in equivalent areas (but in no
event less than the rental rate specified in Paragraph 2 of this
Supplemental Lease Agreement). Tenant shall deliver written notice to
Landlord of Tenant's intent to exercise the renewal option granted herein
not more than one hundred and eighty (180) days nor less than one hundred
fifty days (150) days prior to the expiration of the original term of this
Lease. In the event Tenant fails to deliver such written notice within the
time period set forth above then Tenant's right to extend the term hereof
shall expire and be of no further force and effect. In the event Landlord
and Tenant fail to agree in writing upon the fair market rental within
thirty (30) days after exercise by Tenant of this renewal option, Tenant's
right hereunder to extend the term under this Paragraph shall become null
and void.
10. Tenant may remove three (3) walls as shown on Exhibit A and highlighted in
yellow, provided Landlord may at its sole opinion require Tenant to
reconstruct walls and any other items affected by removing such walls
prior to Lease expiration.
Except as expressly provided herein all of the other terms and conditions of the
Lease shall remain in effect and unchanged.
Signed by Landlord this _____ day of _______________, 1999.
Landlord:
NORTHGATE BUSINESS PARK, INC.
Signed: _____________________________ Witness: ____________________________
Printed Name: _______________________ Title: ____________________________
Title: _______________________
Signed by Lessee this 2nd day of March, 1999.
Tenant:
DYNAMIC DETAILS INCORPORATED
Signed: /s/ T. Caldwell Witness: /s/ Nancy White
----------------------------- ----------------------------
Printed Name: T. Caldwell Title: Administrative Assistant
----------------------- --------------------------
Title: Vice President
-----------------------
<PAGE>
EXHIBIT A
[GRAPHIC OF 11410 PAGEMILL, DALLAS, TX]
3
<PAGE>
DDi CAPITAL AND DDi EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
YEAR ENDED
YEAR ENDED DECEMBER 31, ----------------------------------
-------------------------------------------------------------------- DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998 1997 (2) 1998 (3)
------- ------- ------- ------------------- ------------------- ---------------- -----------------
PRE-RECAPITALIZATION DDi DDi DDi DDi
COMPANY DDi CAPITAL DDi CAPITAL DDi CAPITAL DDi CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes $18,164 $26,385 $18,621 $(20,526) $(27,870) $(43,060) $(50,918) $32,138 $31,640 $(7,253) $(15,108)
------- ------- ------- -------- -------- -------- -------- ------- ------- ------- --------
Fixed charges:
Interest expense 181 371 9,518 17,852 25,196 27,483 35,320 14,377 22,219 30,967 38,801
Rentals 179 207 -- -- -- 495 495 -- -- 1,122 1,122
------- ------- ------- -------- -------- -------- -------- ------- ------- ------- --------
Total fixed
charges 360 578 9,518 17,852 25,196 27,978 35,815 14,377 22,219 32,089 39,923
------- ------- ------- -------- -------- -------- -------- ------- ------- ------- --------
Earnings before
income taxes and
fixed charges 18,524 26,963 28,139 (2,674) (2,674) (15,082) (15,103) 46,515 53,859 24,836 24,815
------- ------- ------- -------- -------- -------- -------- ------- ------- ------- --------
Ratio of earnings
to fixed charges 51.5x 46.6x 3.0x (1) (1) (1) (1) 3.2x 2.4x 0.8x 0.6x
</TABLE>
(1) Earnings were not sufficient to cover fixed charges in 1997 and 1998 by
$20.5 million and $43.1 million, respectively, for DDi and by $27.9 million
and $50.9 million, respectively, for DDi Capital.
(2) Assumes Senior Subordinated Notes and Discount Notes were outstanding at
the beginning of year. Loss before income taxes excludes $31.2 of non-
recurring stock compensation and related bonuses incurred in connection
with the Recapitalization and approximately $52,000 in stock compensation
in connection with the NTI acquisition.
(3) Assumes the acquisition of DCI was consummated at the beginning of 1998 and
after eliminating the non-recurring $39 million write off of acquired in-
process research and development related to the acquisition of DCI.
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
------------------------------
Name State of Incorporation
- ---- ----------------------
DDi Capital Corp. California
Dynamic Details, Incorporated California
(formerly Details, Inc.)
Dynamic Details Incorporated, Colorado Springs Colorado
(formerly Colorado Springs Circuits)
(doing business as NTI)
Dynamic Details Incorporated, Silicon Valley Delaware
(formerly Dynamic Circuits Inc.)
Dynamic Details Incorporated, Texas Delaware
(formerly known as DCI)
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
We, the undersigned Officers and Directors of DDi Holdings Corp., DDi
Capital Corp. and Dynamic Details, Incorporated, as the case may be, hereby
severally constitute and appoint Joseph P. Gisch, Bruce D. McMaster, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in the capacities indicated below,
the Form 10-K of the companies listed above and any and all amendments to said
Form 10-K, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto our said attorneys, and each of them acting alone, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in the premises, as fully to all intents and purposes as he or she might or
could do in person, and hereby ratify and confirm all that said attorneys or any
of them may lawfully do or cause to be done by virtue thereof.
WITNESS our hands and common seal on the date set forth below.
Signature Title Date
/s/ Bruce D. McMaster President, Chief Executive March 30, 1999
- --------------------------- Officer and Director of
Bruce D. McMaster Holdings, President and Chief
Executive Officer of DDi
Capital and DDi
/s/ Charles D. Dimick Director of Holdings, DDi March 30, 1999
- --------------------------- Capital and DDi
Charles D. Dimick
/s/ Joseph P. Gisch Chief Financial Officer and March 30, 1999
- --------------------------- principal accounting officer of
Joseph P. Gisch Holdings, DDi Capital and
DDi, Director of DDi Capital
and DDi
/s/ David Dominik Director of Holdings, DDi March 30, 1999
- --------------------------- Capital and DDi
David Dominik
<PAGE>
/s/ Edward W. Conard Director of Holdings March 30, 1999
- ---------------------------
Edward W. Conard
/s/ Stephen M. Zide Vice President and Director March 30, 1999
- --------------------------- of Holdings
Stephen M. Zide
/s/ Prescott Ashe Vice President and Director March 30, 1999
- --------------------------- of Holdings, DDi Capital and
Prescott Ashe DDi
/s/ Marshall Haines Director of Holdings March 30, 1999
- ---------------------------
Marshall Haines
/s/ Benjamin Hochberg Director of Holdings March 30, 1999
- ---------------------------
Benjamin Hochberg
/s/ Jeremy Schwartz Director of Holdings March 30, 1999
- ---------------------------
Jeremy Schwartz
/s/ Stephen E. Adamson Director of Holdings March 30, 1999
- ---------------------------
Stephen E. Adamson
/s/ Mark R. Benham Director of Holdings March 30, 1999
- ---------------------------
Mark R. Benham
/s/ Sean Brophy Director of Holdings March 30, 1999
- ---------------------------
Sean Brophy
-2-
<PAGE>
/s/ Christopher Behrens Director of Holdings March 30, 1999
- ---------------------------
Christopher Behrens
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DYNAMIC
DETAILS, INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0001050117
<NAME> DYNAMIC DETAILS, INCORPORATED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,905
<SECURITIES> 0
<RECEIVABLES> 36,192
<ALLOWANCES> (1,428)
<INVENTORY> 12,615
<CURRENT-ASSETS> 59,129
<PP&E> 92,235
<DEPRECIATION> (31,217)
<TOTAL-ASSETS> 358,457
<CURRENT-LIABILITIES> 45,948
<BONDS> 369,540
0
0
<COMMON> 245,532
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 358,457
<SALES> 174,853
<TOTAL-REVENUES> 174,853
<CGS> 119,288
<TOTAL-COSTS> 119,288
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,483
<INCOME-PRETAX> (43,060)
<INCOME-TAX> 471
<INCOME-CONTINUING> (43,531)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,414)
<CHANGES> 0
<NET-INCOME> (45,945)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DDi CAPITAL
CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0001050119
<NAME> DDi CAPITAL CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,905
<SECURITIES> 0
<RECEIVABLES> 36,192
<ALLOWANCES> (1,428)
<INVENTORY> 12,615
<CURRENT-ASSETS> 59,129
<PP&E> 92,235
<DEPRECIATION> (31,217)
<TOTAL-ASSETS> 362,166
<CURRENT-LIABILITIES> 45,948
<BONDS> 438,345
0
0
<COMMON> 194,738
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 362,166
<SALES> 174,853
<TOTAL-REVENUES> 174,853
<CGS> 119,288
<TOTAL-COSTS> 119,288
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,320
<INCOME-PRETAX> (50,918)
<INCOME-TAX> (2,675)
<INCOME-CONTINUING> (48,243)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,414)
<CHANGES> 0
<NET-INCOME> (50,657)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
