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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1998
REGISTRATION NO. 333-41187
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DETAILS CAPITAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 3672 33-0780382
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
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1231 SIMON CIRCLE ANAHEIM, CALIFORNIA 92806 (714) 630-4077
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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BRUCE D. MCMASTER DETAILS CAPITAL CORP. 1231 SIMON CIRCLE ANAHEIM, CALIFORNIA
92806 (714) 630-4077
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
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COPY TO:
LAUREN I. NORTON, ESQ. ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON,
MASSACHUSETTS 02110 (617) 951-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered or this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO +
+COMPLETION OR AMENDMENT. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1998
PROSPECTUS
DETAILS CAPITAL CORP.
OFFER TO EXCHANGE LOGO
SERIES B 12 1/2% SENIOR DISCOUNT NOTES DUE NOVEMBER 15, 2007
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
FOR AN EQUAL PRINCIPAL AMOUNT AT MATURITY OF ITS
12 1/2% SENIOR DISCOUNT NOTES DUE NOVEMBER 15, 2007,
WHICH HAVE NOT BEEN SO REGISTERED
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
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Details Capital Corp., a California corporation, ("Details Capital") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount of
up to $110,000,000 at maturity of its Series B 12 1/2% Senior Discount Notes
due 2007 (the "Exchange Discount Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount at maturity of its outstanding 12 1/2% Senior Discount Notes due 2007
(the "Original Discount Notes" and, together with the Exchange Discount Notes,
the "Discount Notes") from the holders (the "Holders") thereof. The terms of
the Exchange Discount Notes are identical in all material respects to those of
the Original Discount Notes, except for certain transfer restrictions and
registration rights relating to the Original Discount Notes.
Details Capital will accept for exchange any and all Original Discount Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1998, unless extended (as so extended, the "Expiration Date"). Tenders of
Original Discount Notes may be withdrawn at any time prior to the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount
of Original Discount Notes being tendered for exchange pursuant to the Exchange
Offer. Pursuant to the Registration Rights Agreement (as defined herein), the
Exchange Offer will remain open for the longer of 20 business days or 30 days
(unless extended if required by applicable law) after the date hereof. The
Exchange Offer is subject to certain other customary conditions. See "The
Exchange Offer."
The Exchange Discount Notes will accrete in value until November 15, 2002 at a
rate per annum of 12 1/2%, compounded semi-annually, to an aggregate principal
amount of $110.0 million at maturity on November 15, 2007. Cash interest will
not accrue on the Exchange Discount Notes prior to November 15, 2002.
Thereafter, interest on the Exchange Discount Notes will accrue at the rate per
annum of 12 1/2% and will be payable semi-annually in cash on May 15 and
November 15 of each year, commencing May 15, 2003. See "Description of Exchange
Discount Notes."
Except as described below, Details Capital may not redeem the Exchange Discount
Notes prior to November 15, 2002. On or after such date, Details Capital may
redeem the Exchange Discount Notes, in whole or in part, at the redemption
prices set forth herein together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time prior to November 15, 2000,
Details Capital may, at its option, redeem up to 40% of the aggregate principal
amount of the Exchange Discount Notes originally issued with the net proceeds
of one or more Equity Offerings (as defined), received by, or invested in,
Details Capital so long as there is a Public Market (as defined) at the time of
such redemption, at a redemption price equal to 112.5% of the Accreted Value
(as defined) thereof to be redeemed, to the date of redemption; provided that
at least 60% of the original principal amount of the Exchange Discount Notes
remains outstanding immediately after each such redemption. The Exchange
Discount Notes will not be subject to any sinking fund requirement. Upon a
Change of Control (as defined), (i) Details Capital will have the option, at
any time prior to November 15, 2002, to redeem the Exchange Discount Notes, in
whole but not in part, at a redemption price equal to 100% of the Accreted
Value thereof plus the Applicable Premium (as defined), as of the date of
redemption, and (ii) if Details Capital does not so redeem the Exchange
Discount Notes or if the Change of Control occurs after November 15, 2002, each
Holder will have the right to require Details Capital to make an offer to
repurchase the Exchange Discount Notes at a price equal to 101% of the Accreted
Value thereof, together with accrued and unpaid interest, if any, to the date
of repurchase. See "Description of Exchange Discount Notes."
The Exchange Discount Notes will be unsecured, senior obligations of Details
Capital and will rank pari passu in right of payment to all existing and future
indebtedness of Details Capital (including the guarantee by Details Capital of
the Senior Credit Facilities (as defined), which is secured by a pledge of the
capital stock of Details (as defined)). Details Capital is a holding company
that conducts substantially all of its business through its subsidiaries, and
the Exchange Discount Notes will be effectively subordinated to all existing
and future indebtedness and liabilities of Details Capital's subsidiaries
(including the Senior Subordinated Notes (as defined) and indebtedness of
Details Capital and its subsidiaries in respect of the Senior Credit
Facilities). On December 31, 1997, the aggregate principal amount of Details
Capital's outstanding indebtedness was approximately $61.0 million and the
aggregate principal amount of indebtedness of Details Capital's subsidiaries
was approximately $211.2 million. There is currently no indebtedness of Details
Capital subordinate to the Discount Notes.
The Exchange Discount Notes are being offered hereunder in order to satisfy
certain obligations of Details Capital contained in the Exchange and
Registration Rights Agreement dated November 18, 1997, among Details Capital,
as successor in interest to Details Holdings Corp., and the other signatories
thereto (the "Registration Rights Agreement"). Details Capital believes that
based on interpretations by the staff of the Securities and Exchange Commission
(the "Commission"), Exchange Discount Notes issued pursuant to the Exchange
Offer in exchange for Original Discount Notes may be offered for resale, resold
and otherwise transferred by each Holder thereof (other than any Holder which
is an "affiliate" of Details Capital within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange
Discount Notes are acquired in the ordinary course of such Holder's business
and such Holder has no arrangement with any person to participate in the
distribution of such Exchange Discount Notes.
Each broker-dealer that receives Exchange Discount Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Discount Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Discount Notes received in
exchange for Original Discount Notes where such Original Discount Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. Details Capital has agreed that, for a period of 90 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Details Capital will not receive any proceeds from the Exchange Offer and will
pay all expenses incident to the Exchange Offer.
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SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE
DISCOUNT NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
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The Exchange Offer is not being made to, nor will Details Capital accept
surrenders for exchange from, Holders of Original Discount Notes in any
jurisdiction in which such Exchange Offer or the acceptance thereof would not
be in compliance with the securities or blue sky laws of such jurisdiction.
The Exchange Discount Notes will be available initially only in book-entry
form. Details Capital expects that the Exchange Discount Notes issued pursuant
to this Exchange Offer will be issued in the form of a Global Discount Note
(as defined herein), which will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in its name or in
the name of Cede & Co., its nominee. Beneficial interests in the Global
Discount Note representing the Exchange Discount Notes will be shown on, and
transfers thereof will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global
Discount Note, Exchange Discount Notes in certificated form will be issued in
exchange for interests in the Global Discount Note only on the terms set forth
in the Indenture dated November 18, 1997 between Details Holdings Corp., the
sole stockholder of Details Capital ("Holdings"), and State Street Bank and
Trust Company, as trustee (the "Trustee") as amended and supplemented by a
Supplemental Indenture (as so amended and supplemented, the "Indenture")
between Holdings, Details Capital and the Trustee) dated as of , 1998. See
"Description of Exchange Discount Notes--Book-Entry Transfer."
Prior to this Exchange Offer, there has been no public market for the
Original Discount Notes. To the extent that Original Discount Notes are
tendered and accepted in the Exchange Offer, a Holder's ability to sell
untendered Original Discount Notes could be adversely affected. If a market
for the Exchange Discount Notes should develop, the Exchange Discount Notes
could trade at a discount from their accreted value (as defined herein).
Details Capital does not currently intend to list the Exchange Discount Notes
on any securities exchange or to seek approval for quotation through any
automated quotation system.
Neither Details Capital nor any of its subsidiaries will receive any cash
proceeds from the issuance of the Exchange Discount Notes offered hereby. No
dealer-manager is being used in connection with this Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL DISCOUNT NOTES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL DISCOUNT NOTES PURSUANT TO THE EXCHANGE
OFFER.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES" AND
SIMILAR EXPRESSIONS ARE USED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THE COMPANY WISHES TO
CAUTION READERS THAT ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS
UNDER "SUMMARY," "THE TRANSACTIONS," "UNAUDITED PRO FORMA FINANCIAL DATA,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-
LOOKING STATEMENTS. ALL OF THESE FORWARD-LOOKING STATEMENTS ARE BASED ON
ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH ALTHOUGH
BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE
SHOULD NOT BE PLACED ON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT IS
LIKELY THAT ACTUAL RESULTS WILL DIFFER
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MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2)
INCREASED COSTS; (3) INABILITY TO CONSUMMATE ACQUISITIONS ON ATTRACTIVE TERMS;
(4) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (5) INCREASES IN THE
COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL ON TERMS CONSIDERED REASONABLE BY MANAGEMENT; (6) ADVERSE STATE,
FEDERAL OR FOREIGN LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY
REGULATORS; (7) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY COMPETE AND FLUCTUATIONS IN DEMAND IN THE ELECTRONICS
INDUSTRY; AND (8) ABILITY TO SUSTAIN HISTORICAL MARGINS AS THE INDUSTRY
DEVELOPS. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND
ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT
THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS, SEE
"RISK FACTORS."
INDUSTRY DATA AND FINANCIAL INFORMATION
The Company relies on and refers to information it has received from various
industry analysts regarding the markets for its principal products, printed
circuit boards, which the Company believes to be reliable but the accuracy and
completeness of such information is not guaranteed and the Company has not
independently verified this market data. Similarly, internal Company surveys,
while believed by the Company to be reliable, have not been verified by
independent sources.
AVAILABLE INFORMATION
Details Capital has filed a registration statement on Form S-4 (herein
referred to, together with all exhibits and schedules thereto and any
amendments thereto, as the "Exchange Offer Registration Statement") under the
Securities Act with respect to the Exchange Discount Notes offered hereby.
This Prospectus, which forms a part of the Exchange Offer Registration
Statement, does not contain all of the information set forth in the Exchange
Offer Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to Details Capital and the Exchange Discount Notes offered hereby,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Exchange Offer Registration Statement.
Details Capital is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, Details Capital has agreed
that, whether or not it is required to do so by the rules and regulations of
the Commission, for so long as any of the Discount Notes remain outstanding,
Details Capital will furnish to the holders of the Discount Notes and file
with the Commission, if permitted, (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if Details Capital was required to file such
forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by Details Capital's certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if Details Capital were required to file such reports.
In addition, for so long as any of the Original Discount Notes remain
outstanding, Details Capital has agreed to make available to any prospective
purchaser of the Original Discount Notes or beneficial owner of the Original
Discount Notes in connection with any sale thereof the information required by
Rule 144A(d)(4) under the Securities Act.
ii
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Any reports or documents filed by Details with the Commission (including the
Exchange Offer Registration Statement) may be inspected and copied at the
Public Reference Section of the Commission's office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661). Copies of such reports or other documents may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a Web site that contains reports and other information that is filed
through the Commission's Electronic Data Gathering Analysis and Retrieval
System. The Web site can be accessed at http://www.sec.gov.
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SUMMARY
Unless otherwise stated in this Prospectus or unless the context otherwise
requires, references to (i) the "Company" means Details Capital and its wholly-
owned subsidiaries, and (ii) "Details" means Details, Inc., a California
corporation and a direct wholly-owned subsidiary of Details Capital. Details
Capital is a wholly-owned subsidiary of Details Holdings Corp. (f/k/a Details,
Inc.), a California corporation ("Holdings"). On November 3, 1997, Holdings
organized Details and contributed substantially all of its assets, subject to
certain liabilities (other than the Holdings Facility (as defined)) to Details.
On November 19, 1997, Holdings organized Details Capital and on January ,
1998, Holdings contributed substantially all of its assets, subject to certain
liabilities, including the Original Discount Notes, to Details Capital. The
following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the "Unaudited Pro Forma Financial Data," "Selected Historical Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements included
elsewhere in this Prospectus. Unless otherwise specified, "pro forma basis" as
used in this Summary means pro forma for the Transactions (as defined), the
Initial Offerings (as defined) and the NTI Acquisition (as defined). Unless
otherwise specified, "year-to-date" refers to the nine months ended September
30, 1997.
THE COMPANY
The Company believes, based on industry data, that it is one of the largest
manufacturers and marketers of complex printed circuit boards ("PCBs") for the
time critical or "quick-turn" segment of the domestic PCB industry. Printed
circuit boards are the basic platforms used to interconnect microprocessors,
integrated circuits, and other components essential to the functioning of
virtually all electronic products. Quick-turn PCBs, which are defined as
printed circuit boards manufactured within 10 days (and as little as 24 hours)
in prototype and pre-production quantities, are used in the design, test and
launch phases of new electronic products. The quick-turn market is
characterized by higher margins, faster growth and greater customer diversity
than the long-lead market. Approximately 70% of the Company's year-to-date
sales are quick-turn PCBs. Complex PCBs are those employing difficult to
manufacture specifications such as high layer counts, dense circuitry designs,
and exotic materials. Such boards command escalating pricing premiums the
greater the complexity. The Company's advanced engineering capability enables
it to produce boards with up to 40 layers employing leading-edge fabrication
technologies. The Company supplies over 300 customers in a wide range of end-
use markets including the telecommunications, computer, contract manufacturing,
industrial instrumentation, and consumer electronics industries. On a pro forma
basis for the twelve months ended September 30, 1997, the Company's net sales
and EBITDA would have been $103.0 million and $35.6 million, respectively.
Since the installation of a new management team in 1992, the Company has
successfully increased its sales and profitability and diversified its customer
base by strategically focusing on the quick-turn PCB market. As a result of
this strategic shift, the Company has grown net sales at a compound annual
growth rate ("CAGR") of 25% from $25.8 million in the fiscal year ended
December 31, 1992 to $73.9 million for the twelve months ended September 30,
1997. In the same time frame, the Company (excluding NTI (as defined)) has
grown pro forma EBITDA at a 27% CAGR from $10.0 million to $31.6 million. As a
result of the Recapitalization (as defined), management owns stock and options
for approximately 27.5% of the fully-diluted capital stock of Holdings. Such
equity ownership represents a significant economic commitment to, and
participation in, the Company.
The Company's principal executive offices are located at 1231 Simon Circle,
Anaheim, California 92806, and its telephone number is (714) 630-4077.
1
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INDUSTRY OVERVIEW
The Company primarily operates in the domestic market for quick-turn printed
circuit boards. The Company believes that the industry has the following
characteristics:
Large and Rapidly Growing Industry. In 1996, the worldwide market for printed
circuit boards was $30.4 billion, of which the U.S. represented 27%, or $8.3
billion. Approximately 87% of the domestic market, or $7.2 billion, was
supplied by merchant (i.e., non-captive) fabricators. Of this amount, quick-
turn PCBs accounted for 21%, or approximately $1.5 billion. The quick-turn
segment has experienced rapid growth, increasing at a 24% CAGR since 1992,
twice the rate for the overall domestic PCB industry. The Company believes that
the growing demand for quick-turn PCBs is due to a number of favorable trends,
including: (i) increasing importance to OEMs of being first to market in the
face of shortened product lifecycles; (ii) greater complexity of electronic
products which require increased prototyping and testing; (iii) general growth
in the number of products containing electronic components; and (iv) ongoing
outsourcing by OEMs of PCB design and fabrication.
Multiple Value-Added Segments. The customary evolution of an electronic
product results in several phases of PCB procurement: initially, in the design
and development stage, customers order small lot sizes (1-25 boards) and demand
quick-turn delivery ("prototype boards"); in the test-marketing and product
introduction stages, they order low to medium quantities (up to 5,000 boards)
which may or may not require quick-turn delivery ("pre-production boards"); and
in the product roll-out stage, they tend to order large volumes with lead times
in excess of three weeks ("production boards"). Prototype and pre-production
boards, the segments in which the Company competes, command escalating pricing
premiums the shorter the lead time and the greater the board complexity. PCB
complexity is determined by layer count, the use of exotic substrates and
materials, the fineness of line spaces and traces, the incorporation of buried
resistors and capacitors, the use of microvias and numerous other features. By
focusing on either time criticality, board complexity, or both, a PCB
fabricator can realize significant pricing premiums and commensurately higher
profitability per PCB than that attainable in the production segment of the
market.
Consolidating Industry. The domestic PCB industry is highly fragmented with
approximately 600 active fabricators. Although the industry has experienced
significant consolidation in the last four years, declining 37% from the
approximately 950 manufacturers in 1992, the top eight manufacturers still only
accounted for approximately 25% of industry sales in 1996. Consolidation in the
industry is being driven by (i) growing demand by electronic OEMs for both
increasingly complex PCBs and shortened delivery cycles which mandates
sophisticated design, engineering and manufacturing capabilities on the part of
PCB fabricators; (ii) ongoing outsourcing by electronic OEMs; and (iii)
increasing desire by OEMs to use fewer suppliers.
COMPETITIVE STRENGTHS
The Company believes that it has several competitive advantages in the PCB
industry, including:
Quick-Turn Market Leader. Based upon industry data, the Company believes that
it is one of the largest manufacturers of quick-turn PCBs in the United States,
with approximately 70% of its year-to-date sales derived from quick-turn
products. The Company routinely completes complex orders (up to 12 layers) in
less than 24 hours and believes that its engineering expertise and ability to
produce highly complex PCBs are competitive strengths in the quick-turn market.
Leading Technological Capabilities. The Company believes that its ability to
engineer advanced PCB materials and utilize advanced technologies is a
competitive strength in the quick-turn market.
2
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Customers utilize the technological expertise of Details' 66 front-end
engineers throughout the product development effort to achieve an integrated
cost-effective manufacturing solution. The Company has the ability to produce
boards with up to 40 layers, and approximately 40% of its sales year-to-date
included boards with layer counts of 8 or more.
Diverse and Loyal Customer Base. The Company believes that it has one of the
broadest customer bases in the industry, with more than 300 customers serving a
wide range of end-use markets. Year-to-date, the Company's largest customer
accounted for less than 11% of revenue. In addition, the Company has been
successful at retaining customers. For example, the Company has maintained a
relationship with its top three year-to-date customers--Motorola, Intel and
IBM--since at least 1993. The Company believes that its ability to rapidly
respond to changes in demand for new or modified board designs with consistent
high quality is a major factor in its success at creating customer
partnerships. The Company's customer list includes leading manufacturers of
telecommunications equipment, such as Motorola and Qualcomm; computer
workstations and servers, such as IBM and Silicon Graphics; semi-conductor
fabrication such as Intel; industrial products, such as Caterpillar and Delco;
computer assemblers, such as Dell and Compaq; and contract manufacturing firms
such as SCI and Jabil.
Experienced Management Team with Significant Equity Ownership. The Company's
President, Bruce McMaster, has a total of 16 years of experience in the PCB
industry. Mr. McMaster, together with the other members of his senior
management team--Lee Muse (Vice President of Sales and Marketing), Joseph Gisch
(Chief Financial Officer), Terry Wright (Vice President of Engineering),
Michael Moisan (Vice President of Operations), and James S. Marcelli (Vice
President--Details) --have over 70 years of industry experience and
approximately 30 years with the Company. Since 1992, management has
successfully developed and implemented manufacturing and marketing strategies
which have resulted in a compound annual growth rate in net sales of 25% from
the fiscal year ended December 31, 1992 to the twelve months ended September
30, 1997. As a result of the Recapitalization, management owns stock and
options for approximately 27.5% of the fully-diluted capital stock of Holdings.
Such equity ownership represents a significant economic commitment to, and
participation in, the Company.
BUSINESS STRATEGY
The Company's goal is to maintain its growth rate in sales and profitability
by leveraging its quick-turnaround capability, its market leading technology,
and its large customer base to increase its penetration of value-added market
segments. In order to accomplish its goal, the Company intends to:
Increase Technical Leadership in Quick-Turn Segment. The Company intends to
extend its leadership in the quick-turn segment by continuing to provide
consistent, rapid delivery through leading-edge processes and technology.
Currently, the Company is capable of delivering 12-layer boards in as little as
24 hours and had a less than 1% product return rate for the nine months ended
September 30, 1997. Such performance is largely due to the technology and
processes employed by the Company coupled with its engineering expertise and
customized design and development services. The Company intends to maintain its
focus on improving quality and delivery times by incorporating emerging
technologies and by continuously improving its manufacturing processes.
Cross-Sell Pre-Production to Quick-Turn Customers. The Company believes there
are substantial opportunities to leverage its strong customer relations in the
quick-turn segment by cross-selling 10 to 20 day pre-production volume to its
existing customers utilizing the additional production capacity obtained
through the recent acquisition (the "NTI Acquisition") of Colorado Springs
Circuits, Inc., a Colorado corporation and a subsidiary of NTI d/b/a NTI
("NTI"). NTI, a California corporation
3
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("Parent"), was the parent company of NTI prior to the NTI Acquisition. See
"Recent Developments." The Company recognizes OEMs' desire to continue to use
the same supplier through several stages of the product development process and
thereby reduce the number of suppliers used. Through the acquisition of NTI,
the Company intends to expand its services to the longer lead 10 to 20 day pre-
production phase of product development in addition to servicing the quick-turn
prototype phase, which the Company believes can thereby enhance the efficiency
of its customers' production process. Specifically, the Company believes that
by servicing a larger portion of its customer's production needs, it can:
(i) reduce customers' tooling costs, (ii) eliminate supplier switching risk,
and (iii) shorten customers' "time-to-market." In furtherance of this
initiative, the Company continues to make investments in capital equipment,
engineering capability and systems infrastructure.
Achieve International Presence. The Company believes there are substantial
opportunities to satisfy international demand for time-critical, complex PCBs.
Year-to-date, approximately 94% of the Company's revenues were generated
domestically despite the fact that the U.S. accounts for only 27% of the
worldwide market. In particular, the Company has established a sales office in
the United Kingdom to service existing European customers' needs and to broaden
the Company's European presence. The Company is currently developing a
manufacturers' representative arrangement in Singapore as an entry into the
Asian market.
Pursue Selective Acquisitions. The Company is currently pursuing selective
acquisitions to complement its organic growth. Due to the high degree of
fragmentation in the PCB industry, the Company believes substantial
consolidation opportunities exist. Consequently, the Company is actively
seeking acquisitions which will: (i) increase its 10 to 20 day pre-production
capacity, (ii) expand its international geographic coverage, (iii) strengthen
its position in existing markets, (iv) provide significant profit improvement
opportunities through the application of the Company's superior operating
capabilities, and (v) enhance its technology base. In furtherance of this
strategy, on December 22, 1997, the Company acquired all of the outstanding
shares of common stock of NTI. See "Recent Developments."
THE TRANSACTIONS
On or about October 4, 1997, Holdings and Holdings' stockholders entered into
a recapitalization agreement (as amended to date, the "Recapitalization
Agreement") with DI Acquisition Corp. ("DIA") which provided for the
recapitalization (the "Recapitalization") by means of a merger (the "Merger")
of DIA with and into Holdings.
On October 28, 1997, the Merger was consummated. In connection with the
Recapitalization, (i) certain stockholders and optionholders of Holdings
received an aggregate amount of cash equal to approximately $184.3 million,
(ii) Chase Manhattan Capital, L.P. ("CMC"), an affiliate of the Initial
Purchaser (as defined), retained a portion of its investment in Holdings
representing approximately 7.7%, and certain other stockholders of Holdings
retained a portion of their investments in Holdings representing approximately
2.8%, of the fully-diluted equity of Holdings (in each case after giving effect
to the Recapitalization and related transactions) (collectively, the "Existing
Owner Rollover"), and (iii) management retained certain shares representing
approximately 11.3%, and certain options to acquire shares of common stock of
Holdings representing approximately 5.8%, of the fully-diluted equity of
Holdings (after giving effect to the Recapitalization and related transactions)
(collectively the "Management Rollover Equity"). In addition, in connection
with the Recapitalization, management acquired additional shares and options to
acquire additional shares representing 10.4% of the fully-diluted equity of
Holdings (after giving effect to the Recapitalization and related
transactions). After the Recapitalization, management held shares and options
representing approximately 27.5% of the fully diluted equity of Holdings.
4
<PAGE>
Financing for the Recapitalization, and the related fees and expenses,
consisted of (i) $46.3 million of equity capital provided by investment funds
associated with Bain Capital, Inc. (the "Bain Capital Funds"); (ii) $11.2
million of equity capital provided by an affiliate of CMC; (iii) $4.9 million
of equity capital provided by certain other investors (the "Other Investors");
(iv) the $16.1 million Management Rollover Equity; (v) the $10.5 million
Existing Owner Rollover; (v) a senior subordinated loan facility of $85 million
(the "Senior Subordinated Facility"); (vi) a senior unsecured credit facility
of $55 million of Holdings (the "Holdings Facility"); and (vii) a syndicated
senior secured Tranche A term loan facility of $41.4 million as of the
Recapitalization closing date (the "Tranche A Facility"), a syndicated senior
secured Tranche B term loan facility of $50 million (the "Tranche B Facility"
and, together with the Tranche A Facility, the "Term Loan Facilities") and a
senior secured revolving credit facility of up to $30 million (the "Revolving
Credit Facility" and, together with the Term Loan Facilities, the "Senior
Credit Facilities"). The Recapitalization, the Merger, the Senior Subordinated
Facility, the Holdings Facility and the Senior Credit Facilities are referred
to herein as the "Transactions." For a more detailed discussion of the
Transactions, see also Note 10 of the Notes to the Consolidated Financial
Statements contained elsewhere in this Prospectus.
The following table sets forth the sources and uses of funds in connection
with the Recapitalization as of October 28, 1997:
<TABLE>
<CAPTION>
DOLLARS
IN MILLIONS
-----------
<S> <C>
SOURCES:
Senior Credit Facilities:
Revolving Credit Facility(1)................................... $ --
Term Loan Facilities(2)........................................ 91.4
Senior Subordinated Facility..................................... 85.0
Holdings Facility................................................ 55.0
Equity Investment(3)............................................. 62.4
Existing Owner Rollover.......................................... 10.5
Management Rollover Equity....................................... 16.1
------
Total Sources................................................ $320.4
======
USES:
Redemption of stock and distribution to shareholders............. $184.3
Repayment of Existing Indebtedness(4)............................ 96.4
Management Rollover Equity....................................... 16.1
Existing Owner Rollover.......................................... 10.5
Transaction Fees and Expenses(5)................................. 13.1
------
Total Uses................................................... $320.4
======
</TABLE>
- --------
(1) Under the Revolving Credit Facility, Details had, as of October 28, 1997,
availability of $30 million. See "Description of Other Indebtedness--
Senior Credit Facilities."
(2) Following the Recapitalization, there was an additional $25 million
available for borrowing under the Term Loan Facilities for future
acquisitions, subject to certain conditions and restrictions. See
"Description of Other Indebtedness--Senior Credit Facilities."
(3) Represents $46.3 million provided by the Bain Capital Funds, $11.2 million
provided by an affiliate of CMC and $4.9 million provided by Other
Investors.
(4) Includes the repayment of bank indebtedness as well as other obligations of
the Company paid in connection with the Recapitalization. See "Management."
(5) Includes underwriting fees, financial advisory fees, and legal, accounting
and other professional fees. See "Certain Relationships and Related
Transactions."
On November 3, 1997, Holdings formed Details, as a new wholly-owned
subsidiary, and contributed substantially all of its assets, subject to certain
liabilities (other than the Holdings Facility) to Details. On November 18,
1997, the Company consummated the sale of the Original Discount Notes in a
transaction exempt from the registration requirements of the Securities Act
(the "Initial Offering"). Concurrently with the Initial Offering, Details
conducted the offering (the "Note Offering" and together with the Initial
Offering, the "Initial Offerings") of its 10% Senior Subordinated Notes due
2005 in $100 million aggregate principal amount (the "Senior Subordinated
Notes").
5
<PAGE>
The Company used the net proceeds (after deduction of related fees and
expenses) from the Initial Offering of approximately $57.1 million, together
with a portion of the proceeds of the Note Offering, to repay the Holdings
Facility, plus accrued interest and related fees and expenses. In connection
with the Initial Offering, Holdings (the original issuer of the Original
Discount Notes and predecessor in interest to Details Capital under the
Registration Rights Agreement), entered into the Registration Rights Agreement
pursuant to which it agreed to register the Exchange Discount Notes under the
Securities Act and offer them in exchange for the Original Discount Notes. The
net proceeds of the Note Offering were used to repay the Senior Subordinated
Facility, plus accrued interest and related fees and expenses, a portion of the
Holdings Facility and indebtedness under the Term Loan Facilities of
approximately $10.3 million. On November 19, 1997, Holdings formed Details
Capital and on February , 1998, Holdings contributed substantially all of its
assets, subject to certain liabilities, including the Original Discount Notes,
to Details Capital.
RECENT DEVELOPMENTS
DESCRIPTION OF ACQUISITION OF NTI
On December 22, 1997, Details acquired all of the outstanding shares of
common stock of NTI for approximately $38.5 million. The purchase price
includes the assumption of approximately $7.4 million of NTI's debt without
giving effect to the final purchase price adjustment. 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 Details' Term Loan Facilities.
NTI manufactures complex PCBs for OEMs in the electronics industry and
focuses primarily on pre-production market opportunities with lead times of 10
to 20 days. NTI currently manufactures all of its products at two leased
facilities located in Colorado Springs, Colorado, occupying 84,000 square feet
(which also include its executive offices). NTI is operated as a wholly-owned
subsidiary of the Company and is currently headed by James S. Marcelli. Mr.
Marcelli, who has run NTI since 1991, is now a Vice President of Details and
President of NTI. As of September 30, 1997, NTI employed approximately 325
employees, all of whom are non-union employees.
6
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer............ Up to $110,000,000 aggregate principal amount
at maturity of Exchange Discount Notes are
being offered in exchange for a like aggregate
principal amount of Original Discount Notes.
Details Capital is making the Exchange Offer in
order to satisfy its obligations under the
Registration Rights Agreement relating to the
Original Discount Notes. For a description of
the procedures for tendering Original Discount
Notes, see "The Exchange Offer--Procedures for
Tendering."
Expiration Date............... 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended (in which
case the Expiration Date will be the latest
date and time to which the Exchange Offer is
extended). See "The Exchange Offer--Terms of
the Exchange Offer."
Conditions to the Exchange
Offer........................ The Exchange Offer is subject to the condition
that the Exchange Offer does not violate
applicable law or SEC staff interpretation. If
Details Capital determines that the Exchange
Offer is not permitted by applicable federal
law, it may terminate the Exchange Offer. The
Exchange Offer is not conditioned upon any
minimum principal amount of Original Discount
Notes being tendered. See "The Exchange Offer--
Conditions of the Exchange Offer."
Resale of the Exchange
Discount Notes................
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, Details Capital
believes that Exchange Discount Notes issued
pursuant to the Exchange Offer in exchange for
Original Discount Notes may be offered for
resale, resold and otherwise transferred by any
Holder thereof (other than (i) a broker-dealer
who purchased such Original Discount Notes
directly from Details Capital for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that the Holder
is acquiring the Exchange Discount Notes in its
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate,
in the distribution of the Exchange Discount
Notes. Holders of Original Discount Notes
wishing to accept the Exchange Offer must
represent to Details Capital that such
conditions have been met. In the event that
Details Capital's belief is inaccurate, Holders
of Exchange Discount Notes who transfer
Exchange
7
<PAGE>
Discount Notes in violation of the prospectus
delivery provisions of the Securities Act and
without an exemption from registration
thereunder may incur liability under the
Securities Act. Details Capital does not assume
or indemnify Holders against such liability,
although Details Capital does not believe that
any such liability should exist.
A broker-dealer that receives Exchange Discount
Notes in exchange for Original Discount Notes
held for its own account, as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Discount Notes.
Although such broker-dealer may be an
"underwriter" within the meaning of the
Securities Act, the Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
All resales must be made in compliance with
applicable state securities or "blue sky" laws.
Such compliance may require that the Exchange
Notes be registered or qualified in a
particular state or that the resales be made by
or through a licensed broker-dealer, unless
exemptions from these requirements are
available. Details Capital assumes no
responsibility with regard to compliance with
such requirements.
The Exchange Offer is not being made to, nor
will Details Capital accept surrenders for
exchange from, Holders of Original Discount
Notes in any jurisdiction in which the Exchange
Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws
of such jurisdiction.
Procedures for Tendering
Discount Notes................ Each Holder of Original Discount Notes wishing
to accept the Exchange Offer must complete,
sign and date the accompanying Letter of Trans-
mittal, as the case may be, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or oth-
erwise deliver such Letter of Transmittal, or
such facsimile, together with the Original Dis-
count Notes and any other required documenta-
tion to the Exchange Agent (as defined herein)
at the address set forth herein. By executing a
Letter of Transmittal, each Holder will repre-
sent to Details Capital conducting the Exchange
Offer that, among other things, (i) the Ex-
change Discount Notes acquired pursuant to such
Exchange Offer are being obtained in the ordi-
nary course of business of the person receiving
such Exchange Discount
8
<PAGE>
Notes, whether or not such person is the Hold-
er, (ii) neither the Holder nor any such other
person has any arrangement or understanding
with any person to participate in the distribu-
tion of such Exchange Discount Notes and that
such Holder is not engaged in, and does not in-
tend to engage in, a distribution of Exchange
Discount Notes, and (iii) that neither the
Holder nor any such other person is an "affili-
ate," as defined under Rule 405 of the Securi-
ties Act, of the Company. See "The Exchange Of-
fer--Procedures for Tendering."
Special Procedures for
Beneficial Owners............ Any beneficial owner whose Original Discount
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact
such registered Holder promptly and instruct
such registered Holder to tender on such
beneficial owner's behalf. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures.................... Holders of Original Discount Notes who wish to
tender their Original Discount Notes and whose
Original Discount Notes are not immediately
available or who cannot deliver their Original
Discount Notes, the Letter of Transmittal, as
the case may be, or any other documents
required by such Letter of Transmittal to the
Exchange Agent (as defined herein) (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Original Discount Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
Untendered Discount Notes..... Following the consummation of the Exchange
Offer, Holders of Original Discount Notes
eligible to participate but who do not tender
their Original Discount Notes will not have any
further exchange rights and such Original
Discount Notes will continue to be subject to
certain restrictions on transfer. Accordingly,
the liquidity of the market for such Original
Discount Notes could be adversely affected by
the Exchange Offer.
Consequences of Failure to
Exchange..................... The Original Discount Notes that are not
exchanged pursuant to the Exchange Offer will
remain restricted securities. Accordingly, such
Original Discount Notes may be resold only (i)
to Details Capital, (ii) pursuant to Rule 144A
or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective
registration statement under the
9
<PAGE>
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration Statement.. If (i) because of any change in law or
applicable interpretations thereof by the staff
of the Commission, Details Capital is not
permitted to effect the Exchange Offer as
contemplated hereby, (ii) any Securities (as
defined) validly tendered pursuant to the
Exchange Offer are not exchanged for Exchange
Securities (as defined) within 210 days after
the Issue Date (as defined), (iii) Chase
Securities Inc. (the "Initial Purchaser") so
requests with respect to Original Discount
Notes not eligible to be exchanged for Exchange
Discount Notes in the Exchange Offer, (iv) any
applicable law or interpretations do not permit
any Holder of Original Discount Notes to
participate in the Exchange Offer, (v) any
Holder of Original Discount Notes that
participates in the Exchange Offer does not
receive freely transferable Exchange Discount
Notes in exchange for tendered Original
Discount Notes, or (vi) Details Capital so
elects, Details Capital has agreed pursuant to
the Registration Rights Agreement to register
the Original Discount Notes issued by it on a
shelf registration statement (the "Shelf
Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practicable after
the filing thereof and if applicable, Details
Capital has agreed to use its reasonable best
efforts to keep the Shelf Registration
Statement effective for a period of two years
after the Issue Date.
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Original
Discount Notes and Delivery
of Exchange Discount Notes.. Details Capital will accept for exchange any
and all Original Discount Notes which are
properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Discount Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Federal Income Tax
Consequences................ The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See "Certain
Federal Income Tax Consequences."
Use of Proceeds............. There will be no cash proceeds to Details
Capital from the exchange pursuant to the
Exchange Offer.
Exchange Agent.............. State Street Bank and Trust Company.
10
<PAGE>
THE EXCHANGE DISCOUNT NOTES
Issuer...................... Details Capital Corp., as successor in interest
to Details Holdings Corp.
Securities Offered.......... $110,000,000 in aggregate principal amount at
maturity of Series B 12 1/2% Senior Discount
Notes due 2007.
Maturity Date............... November 15, 2007.
Principal Amount at
Maturity.................... $110,000,000.
Interest Rate and Payment The Exchange Discount Notes will accrete in value
Dates....................... until November 15, 2002 at a rate of 12.5% per
annum, compounded semi-annually. Cash interest
will not accrue on the Exchange Discount Notes
prior to November 15, 2002. Thereafter, interest
on the Exchange Discount Notes will accrue at a
rate per annum of 12.5% and will be payable in
cash semi-annually on May 15 and November 15 of
each year, commencing May 15, 2003.
Original Issue Discount..... The Exchange Discount Notes are being offered at
an original issue discount for United States
federal income tax purposes. Thus, although cash
interest will not be payable on the Exchange
Discount Notes prior to May 15, 2003, original
issue discount will accrue from the issue date of
the Original Discount Notes and will be included
as interest income periodically (including for
periods ending prior to May 15, 2003) in a
Holder's gross income for United States federal
income tax purposes in advance of receipt of the
cash payments to which the income is
attributable. See "Certain Federal Income Tax
Consequences."
Sinking Fund................ None.
Optional Redemption......... Except as described below, Details Capital may
not redeem the Exchange Discount Notes prior to
November 15, 2002. On or after such date, Details
Capital may redeem the Exchange Discount Notes,
in whole or in part, at the redemption prices set
forth herein together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time prior to November 15, 2000,
Details Capital may, at its option, redeem up to
40% of the aggregate principal amount of Exchange
Discount Notes originally issued with the net
proceeds of one or more Equity Offerings (as
defined), received by, or invested in, Details
Capital so long as there is a Public Market (as
defined) at the time of such redemption, at a
redemption price equal to 112.5% of the Accreted
Value (as defined) thereof to be redeemed, to the
date of redemption; provided that at least 60% of
the original principal amount of the Exchange
Discount Notes remains outstanding immediately
after each such redemption. See "Description of
Exchange Discount Notes--Optional Redemption."
11
<PAGE>
Change of Control........... Upon a Change of Control (as defined), (i)
Details Capital will have the option, at any time
prior to November 15, 2002, to redeem the
Exchange Discount Notes, in whole but not in
part, at a redemption price equal to 100% of the
Accreted Value thereof plus the Applicable
Premium (as defined), as of the date of
redemption, and (ii) if Details Capital does not
so redeem the Exchange Discount Notes or if the
Change of Control occurs after November 15, 2002,
each Holder will have the right to require
Details Capital to make an offer to repurchase
the Exchange Discount Notes at a price equal to
101% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date
of repurchase. See "Description of Exchange
Discount Notes--Change of Control."
Ranking..................... The Exchange Discount Notes will be unsecured,
senior obligations of Details Capital and will
rank pari passu in right of payment to all
existing and future indebtedness of Details
Capital (including the guarantee by Details
Capital of the Senior Credit Facilities, which is
secured by a pledge of the capital stock of
Details). All the operations of Details Capital
are conducted through its subsidiaries and
therefore Details Capital is dependent upon the
cash flow of its subsidiaries to meet its
obligations, including its obligations on the
Exchange Discount Notes. The Senior Credit
Facilities and the Senior Subordinated Notes will
restrict Details' ability to pay dividends or
make other distributions to Details Capital. The
Exchange Discount Notes will be effectively
subordinated to all existing and future
indebtedness and liabilities of Details Capital's
subsidiaries (including the Senior Subordinated
Notes and indebtedness of Details and its
Subsidiaries in respect of the Senior Credit
Facilities). At December 31, 1997, Details
Capital had no Indebtedness outstanding on a
stand alone basis (other than the Original
Discount Notes and Details Capital's guarantee of
the Senior Credit Facilities). As of December 31,
1997 the outstanding indebtedness of Details
Capital's subsidiaries was approximately $211.2
million including $100.0 million in aggregate
principal amount of the Senior Subordinated Notes
and $105.2 million of indebtedness in respect of
the Senior Credit Facilities. See "Description of
Exchange Discount Notes--Terms of Exchange
Discount Notes" and "Risk Factors--Limitation on
Access to Cash Flow of Subsidiaries; Holding
Company Structure."
Restrictive Covenants....... The Indenture limits (i) the incurrence of
additional indebtedness by Details Capital and
its Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of
Details Capital and its Restricted Subsidiaries
and the redemption of certain subordinated
obligations of Details Capital and its Restricted
Subsidiaries,
12
<PAGE>
(iii) investments, (iv) sales of assets and
subsidiary stock, (v) certain transactions with
affiliates, (vi) the types of businesses that
Details Capital and its Restricted Subsidiaries
may operate, (vii) the sale or issuance of
Preferred Stock of Restricted Subsidiaries, and
(viii) consolidations, mergers and transfers of
all or substantially all of Details Capital's
assets. The Indenture also prohibits certain
restrictions on distributions from Restricted
Subsidiaries. However, all of these limitations
and prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of Exchange Discount Notes--Certain
Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Discount Notes.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data of the Company set
forth below give effect in the manner described under "Unaudited Pro Forma
Financial Data" and the notes thereto to the Transactions, the Initial
Offerings and the NTI Acquisition as if they had occurred on January 1, 1996 in
the case of the pro forma statements of income data, and as of September 30,
1997 in the case of the unaudited pro forma balance sheet data. The unaudited
pro forma consolidated statements of income do not purport to represent what
the Company's results of operations would have been if the Transactions, the
Initial Offerings and the NTI Acquisition had occurred as of the date indicated
or what such results will be for future periods. The information contained in
this table should be read in conjunction with "Unaudited Pro Forma Financial
Data," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the accompanying notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS LATEST
ENDED TWELVE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
DECEMBER 31, ------------------ SEPTEMBER 30,
1996(1) 1996(1) 1997(1) 1997(1)
------------ -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................... $ 94,500 $ 71,047 $ 78,857 $103,041
Cost of goods sold............. 53,606 40,007 46,630 60,312
-------- -------- -------- --------
Gross profit................. 40,894 31,040 32,227 42,729
Operating expenses:
General and administration... 4,064 3,080 3,281 4,337
Sales and marketing.......... 7,213 5,501 6,478 8,217
-------- -------- -------- --------
Operating income............... 29,617 22,459 22,468 30,175
Interest expense............... (28,773) (21,611) (21,600) (28,762)
Interest income................ 132 134 68 101
-------- -------- -------- --------
Income before provision for
income taxes.................. 976 982 936 1,514
Provision for income taxes..... 834 727 709 1,055
-------- -------- -------- --------
Net income..................... $ 142 $ 255 $ 227 $ 459
======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (2)..................... $ 34,745 $ 26,040 $ 26,566 $ 35,603
EBITDA margin (3).............. 37% 37% 34% 35%
Depreciation and amortization.. 5,128 3,581 4,098 5,428
Capital expenditures........... 10,007 8,007 4,386 6,114
Cash interest expense.......... 20,070 15,084 15,073 20,059
Ratio of EBITDA to cash inter-
est expense................... 1.7x 1.7x 1.8x 1.8x
Ratio of earnings to fixed
charges (4)................... 1.0x 1.0x 1.0x 1.0x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997
------------------
<S> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash....................................................... $ 405
Working capital............................................ 9,438
Total assets............................................... 98,630
Total debt................................................. 272,711
Equity (net capital deficiency)............................ (196,040)
</TABLE>
- --------
(1) See "Unaudited Pro Forma Financial Data."
(2) "EBITDA" is defined herein as income before provision for income taxes,
depreciation, amortization and net interest expense. EBITDA is presented
because the Company believes its is frequently used by security analysts
in the evaluation of companies. However, EBITDA should not be considered
as an alternative to net income as a measure of operating results or to
cash flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(3) Represents EBITDA as a percentage of net sales.
(4) For purposes of computing this ratio, earnings consists of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense.
14
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are summary historical consolidated financial data of the
Company at the dates and for the periods indicated. The summary historical
consolidated statements of income data of the Company for the years ended
December 31, 1994, 1995 and 1996 and the summary historical consolidated
balance sheet data as of December 31, 1995 and 1996 were derived from the
historical consolidated financial statements of the Company that were audited
by McGladrey & Pullen, LLP, whose reports appear elsewhere in this Prospectus.
The summary historical consolidated financial data of the Company for the year
ended December 31, 1992 and for the nine month periods ended September 30, 1996
and 1997 are derived from unaudited consolidated financial statements of the
Company which, in the opinion of management, include all adjustments necessary
for a fair presentation. The summary historical consolidated financial data set
forth below should be read in conjunction with, and is qualified by reference
to, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Net sales.............. $25,759 $32,394 $44,086 $59,370 $67,515 $49,086 $55,421
Cost of goods sold..... 13,142 16,480 20,415 25,156 30,505 21,899 27,019
------- ------- ------- ------- ------- ------- -------
Gross profit........... 12,617 15,914 23,671 34,214 37,010 27,187 28,402
Operating expenses:
Compensation to CEO
(1)................... 9,414 11,513 412 418 1,055 836 811
General and administra-
tion ................. 690 1,136 1,385 1,789 1,929 1,377 1,625
Sales and marketing.... 2,672 3,074 3,542 5,293 5,989 4,503 5,338
Stock compensation and
related bonuses (2)... -- -- -- -- -- -- 5,283
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ (159) 191 18,332 26,714 28,037 20,471 15,345
Interest expense....... (57) (167) (181) (371) (9,518) (6,974) (7,427)
Interest income........ 21 10 13 42 102 71 56
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... (195) 34 18,164 26,385 18,621 13,568 7,974
Provision for (benefit
from) income taxes
(3)................... (18) 221 273 396 6,265 4,270 3,400
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ (177) $ (187) $17,891 $25,989 $12,356 $ 9,298 $ 4,574
======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA (4)............. $ 567 $ 1,047 $19,214 $27,768 $30,084 $21,966 $17,174
Adjusted EBITDA (5).... 9,981 12,560 19,626 28,186 31,139 22,802 23,268
Adjusted EBITDA margin
(6)................... 39% 39% 45% 47% 46% 46% 42%
Depreciation........... 726 856 882 1,054 2,047 1,495 1,829
Capital expenditures... 1,428 1,254 844 2,946 3,666 2,720 3,267
Ratio of earnings to
fixed charges (7)..... -- 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x
BALANCE SHEET DATA (END
OF PERIOD):
Cash................... $ 175 $ 1,592 $ 3,686 $ 472 $ 169 $ 1,856 $ 942
Working capital (defi-
cit).................. 1,170 (74) (96) (2,264) (3,514) (884) (5,892)
Total assets........... 6,164 9,097 12,015 13,081 27,503 26,930 31,686
Total debt............. 1,434 3,446 1,316 1,982 94,101 96,157 87,410
Equity (net capital de-
ficiency) (8)......... 2,993 2,806 2,806 2,500 (72,674) (75,732) (65,177)
</TABLE>
See Notes to Summary Historical Consolidated Financial Data.
15
<PAGE>
NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(1) Represents compensation paid to the Company's former CEO, who also was the
sole shareholder since the Company's inception through the Initial
Recapitalization (as defined) and whose employment terminated on October
28, 1997.
(2) Represents stock compensation and related bonuses under the Company's 1996
Stock Option Plan.
(3) Prior to February 1996, the Company elected to be taxed as an "S"
corporation and paid income taxes at a reduced rate. On a pro forma basis,
income tax expense would have been higher by the following amounts: 1994--
$7,175; 1995--$10,425; 1996--$1,295 and September 30, 1996--$1,295.
(4) "EBITDA" is defined herein as income before income taxes, plus
depreciation, amortization and net interest expense. EBITDA is presented
because the Company believes it is frequently used by security analysts in
the evaluation of companies. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of
income which are not expected to be incurred by the Company subsequent to
the Transactions. These items consist of the compensation paid to the
Company's former CEO whose employment terminated on October 28, 1997 and
stock compensation and related bonuses under the Company's 1996 Stock
Option Plan.
(6) Represents adjusted EBITDA as a percentage of net sales.
(7) For purposes of computing this ratio, earnings consists of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense. Earnings were not
sufficient to cover fixed charges by $195 for the year ended December 31,
1992.
(8) The net capital deficiency as of December 31, 1996 reflects the effects of
the Initial Recapitalization of the Company that took place in January of
1996 and which reduced stockholders' equity by $86.2 million.
16
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Exchange Discount Notes offered hereby. This Prospectus
contains certain forward looking statements within the meaning of Section 27A
of the Securities Act. Actual results could differ materially from those
projected in the forward looking statements as a result of certain factors and
uncertainties set forth below and elsewhere in this Prospectus.
SUBSTANTIAL LEVERAGE; STOCKHOLDER'S DEFICIT
As a result of the Transactions, the Initial Offerings and the NTI
Acquisition, the Company is highly leveraged. As of December 31, 1997, the
Company's indebtedness was approximately $272.2 million, of which $211.2
million was Senior Indebtedness, and there was approximately $30 million
available under the Senior Credit Facilities for future borrowings for general
corporate purposes and working capital needs. On a pro forma basis, after
giving effect to the Transactions, the Initial Offerings and the NTI
Acquisition, the Company's ratio of earnings to fixed charges for the fiscal
year ended December 31, 1996 and for the nine months ended September 30, 1997
would have been 1.0 to 1.0 in both periods. On the same pro forma basis, the
Company had a stockholder's deficit as of September 30, 1997 of approximately
$196.0 million. The Indenture restricts the ability of the Company to incur
additional indebtedness. However, subject to compliance with debt incurrence
tests and the other restrictions in the Senior Credit Facilities, the
Indenture and the Senior Subordinated Note Indenture, Details and its
subsidiaries may incur additional indebtedness in an unrestricted amount
(including additional Senior Indebtedness) from time to time to finance
acquisitions or capital expenditures or for other purposes. See "--
Restrictions Imposed by Terms of Indebtedness," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's high degree of leverage could have important consequences to
holders of the Discount Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures, research and development or acquisitions may be limited; (iii)
the Company's leveraged position and the covenants that will be contained in
the Indenture, the Senior Subordinated Note Indenture and the Senior Credit
Facilities could limit the Company's ability to compete, as well as its
ability to expand, including through acquisitions, and to make capital
improvements; (iv) the Company may be more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage; and
(v) the Company's ability to refinance the Discount Notes in order to pay the
principal of the Discount Notes at maturity or upon a Change of Control may be
adversely affected. See "Description of Other Indebtedness" and "Description
of Discount Notes."
The Company's ability to pay principal and interest on the Discount Notes
and to satisfy its other debt obligations will depend upon its future
operating performance, which will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under the Senior Credit Facilities or successor facilities. The Company
anticipates that its operating cash flow, together with borrowings under the
Senior Credit Facilities, will be sufficient to meet its operating expenses
and to service its debt requirements as they become due. If the Company is
unable to service its indebtedness, it will be forced to take actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness (which could include the Discount Notes), or
seeking additional equity capital. There is no assurance that any of these
remedies can be effected on satisfactory terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Other Indebtedness."
17
<PAGE>
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
Details 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 subsidiaries. Details Capital does not have, and may not in the
future have, any assets other than the common stock of Details. Details and
its subsidiaries are parties to the Senior Credit Facilities and the Senior
Subordinated Note Indenture, each of which imposes substantial restrictions on
Details' ability to pay dividends to Details Capital. Any payment of dividends
will be subject to the satisfaction of certain financial conditions set forth
in the Senior Credit Facilities and the Senior Subordinated Note Indenture.
The ability of Details and its subsidiaries to comply with such conditions in
the Senior Credit Facilities and the Senior Subordinated Note Indenture may be
affected by events that are beyond the control of Details Capital. If the
loans under the Senior Credit Facilities or the maturity of the Senior
Subordinated Notes were to be accelerated as a result of an event of default
thereunder, all such outstanding debt would be required to be paid in full
before Details or its subsidiaries would be permitted to distribute any assets
or cash to Details Capital. There can be no assurance that the assets of
Details Capital would be sufficient to repay all of such outstanding debt and
to meet its obligations under the Indenture. Future borrowings by Details can
be expected to contain restrictions or prohibitions on the payment of
dividends by Details and its subsidiaries to Details Capital. Applicable state
laws may also, under certain circumstances, impose significant restrictions on
the payment of dividends by Details to Details Capital and by subsidiaries of
Details to Details.
As a result of the holding company structure of Details Capital, the Holders
of the Discount Notes will be structurally subordinate to all creditors of
Details Capital's subsidiaries. In the event of insolvency, liquidation,
reorganization, dissolution or other winding-up of Details Capital's
subsidiaries, Details Capital will not receive any funds available to pay to
creditors of the subsidiaries. As of December 31, 1997, the aggregate amount
of Indebtedness of Details Capital's subsidiaries was approximately $211.2
million.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture and the Senior Subordinated Note Indenture will restrict,
among other things, Details Capital's and Details' 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. Other than to guarantee Bank
Indebtedness (as defined), the Indenture does not permit Details Capital to
incur any additional indebtedness senior to the Discount Notes. In addition,
the Senior Credit Facilities contain other and more restrictive covenants and
will prohibit Details Capital and its subsidiaries from prepaying other
indebtedness (including the Discount Notes and Senior Subordinated Notes).
However, subject to compliance with debt incurrence tests and the other
restrictions in the Senior Credit Facilities, the Indenture and the Senior
Subordinated Note Indenture, Details and its subsidiaries may incur additional
indebtedness in an unrestricted amount (including additional Senior
Indebtedness) from time to time to finance acquisitions or capital
expenditures or for other purposes. The Senior Credit Facilities require
Details to maintain specified financial ratios and satisfy certain financial
condition tests. Details' ability to meet those financial ratios and tests can
be affected by events beyond its control, and there can be no assurance that
Details will meet those tests. A breach of any of these covenants could result
in a default under the Senior Credit Facilities and/or the Senior Subordinated
Note Indenture and the Indenture. Upon the occurrence of an event of default
under the Senior Credit Facilities or the Senior Subordinated Notes Indenture,
the lenders could elect to declare all amounts outstanding under the Senior
Credit Facilities, together with accrued interest, and the holders of Senior
Subordinated Notes could elect to declare all amounts outstanding under the
Senior Subordinated Notes, together with accrued interest to be immediately
due and payable. If the Company were unable to repay the amounts under the
Senior Credit Facilities, the lenders could proceed against the collateral
granted to them to secure that indebtedness. If the Senior Indebtedness were
to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay in full that indebtedness and the other
indebtedness of the Company, including the Discount Notes. Substantially all
the assets of Details Capital and its subsidiaries are pledged as security
under
18
<PAGE>
the Senior Credit Facilities. See "Description of Other Indebtedness" and
"Description of Exchange Discount Notes--Certain Covenants."
LIMITATIONS ON ABILITY TO REPAY UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Discount Notes
may require the Company to repurchase all or a portion of such Holder's
Discount Notes at 101% of the Accreted Value of the Discount Notes, together
with accrued and unpaid interest, if any, to the date of repurchase. See
"Description of Exchange Discount Notes--Change of Control" for the definition
of "Change of Control." The occurrence of certain of the events that would
constitute a Change of Control would constitute a default under the Senior
Credit Facilities. Future Indebtedness of the Company and its subsidiaries may
also contain prohibitions of certain events that would constitute a Change of
Control. Moreover, the exercise by the Holders of their right to require the
Company to repurchase the Discount Notes could cause a default under such
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders of the Discount Notes upon a repurchase may
be limited by the Company's then existing financial resources. The Senior
Credit Facilities and the Senior Subordinated Notes restrict Details from
paying any dividends or making any other distributions to the Company. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The Discount Notes were issued at a discount from their principal amount at
maturity. Consequently, purchasers of the Discount Notes are required to
include amounts in gross income for federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. See "Certain
Federal Income Tax Consequences" for a more detailed discussion of the federal
income tax consequences to the purchasers of the Exchange Discount Notes
resulting from the purchase, ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Discount Notes upon the occurrence of an Event of Default, the Holders of the
Discount Notes may be entitled to recover only the amount which may be
declared due and payable pursuant to the Discount Notes Indenture, which will
be less than the principal amount at maturity of such Discount Notes. See
"Description of Exchange Discount Notes--Events of Default."
If a bankruptcy case is commenced by or against Details Capital under the
Bankruptcy Code (as defined herein), the claim of a Holder of Discount Notes
with respect to the principal amount thereof may be limited to an amount equal
to the sum of (i) the issue price of the Discount Notes as set forth on the
cover page hereof and (ii) that portion of the original issue discount (as
determined on the basis of such issue price) which is not deemed to constitute
"unmature interest" for purposes of the Bankruptcy Code. Any original issue
discount that was not amortized as of any such bankruptcy filing would
constitute "unmatured interest."
FRAUDULENT CONVEYANCE CONSIDERATIONS
If under applicable provisions of federal bankruptcy law and comparable
provisions of state and federal fraudulent conveyance laws it were found that
the Company had (a) incurred the indebtedness represented by the Discount
Notes with the intent of hindering, delaying or defrauding creditors or (b)
had received less than reasonably equivalent value or consideration for
incurring such indebtedness and (i) was insolvent or was rendered insolvent by
reason of such transactions, (ii) was engaged in a business or transaction for
which its remaining assets constituted unreasonably small capital to carry on
its business, or (iii) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, the obligations of
the Company on the Discount Notes could be subordinated to all other
indebtedness of the Company.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally,
19
<PAGE>
however, a debtor would be considered insolvent if the sum of all its
liabilities, including contingent liabilities were greater than the fair
saleable value of the debtor's assets at a fair valuation, or if the present
fair saleable value of the debtor's assets were less than the amount required
to repay its probable liabilities on its existing debts, including contingent
liabilities, as they become absolute and matured. There can be no assurance as
to what standard a court would apply in order to determine solvency.
Holdings believes (i) that it did not enter into the Initial Offering with
fraudulent intent, (ii) that circumstances constituting constructive fraud
will not have arisen with respect to Holdings as a result of, and after giving
effect to, the Initial Offering and (iii) that, accordingly, the property
transferred to Holdings as part of the Initial Offering and the obligations of
Details Capital, as successor in interest to Holdings with respect to the
Discount Notes would not be subject to such detrimental action. These beliefs
are based on Holdings' operating history and analysis of internal cash flow
projections and estimated values of assets and liabilities of Holdings at the
time of the offering of the Discount Notes. Since each of the components of
the question of whether the incurrence of the debt represented by the Discount
Notes constitutes a fraudulent conveyance is inherently fact-based and fact-
specific, there can be no assurance that a court passing on such questions
would agree with Holdings.
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
The market for the Company's products and services is characterized by
rapidly changing technology and continuing process development. The future
success of the Company's business will depend in large part upon its ability
to maintain and enhance its technological capabilities, develop and market
products and services that meet changing customer needs, and successfully
anticipate or respond to technological changes on a cost-effective and timely
basis. Research and development expenses are expected to increase as
manufacturers make demands for higher technology and smaller PCBs. In
addition, the PCB industry could in the future encounter competition from new
or revised technologies that render existing electronic interconnect
technology less competitive or obsolete or technologies that may reduce the
number of PCBs required in electronic components. There can be no assurance
that the Company will effectively respond to the technological requirements of
the changing market. To the extent the Company determines that new
technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and equipment
may require significant capital investment by the Company. There can be no
assurance that capital will be available for these purposes in the future or
that investments in new technologies will result in commercially viable
technological processes. The loss of revenue and earnings to the Company from
such a technological change or process development could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Technology, Development and Processes."
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
During the fiscal year ended December 31, 1996, sales to the Company's
largest customer, IBM, accounted for 15.9% of the Company's net revenues.
Sales to the Company's two largest customers accounted for approximately 24.6%
of the Company's net revenues and sales to the Company's ten largest customers
accounted for 51.8% of the Company's net revenues during the same period.
During the nine months ended September 30, 1997, sales to the Company's
largest customer, Motorola, accounted for 10.9% of the Company's net revenues.
Sales to the Company's two largest customers accounted for approximately 20.4%
of the Company's net revenues during the nine months ended September 30, 1997
and sales to the Company's ten largest customers accounted for 48.4% of the
Company's net revenues during the same period. There can be no assurance that
the Company will not depend upon a relatively small number of customers for a
significant percentage of its net revenues in the future. There can be no
assurance that present or future customers will not terminate their
manufacturing arrangements with the Company or significantly change, reduce or
delay the amount of manufacturing services ordered from the Company. Any such
termination of a manufacturing relationship or change, reduction or delay in
orders could have an adverse effect on the Company's
20
<PAGE>
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Markets and Customers."
DEPENDENCE ON ELECTRONIC INDUSTRY
The electronics industry, which encompasses the Company's principal
customers, is characterized by intense competition, relatively short product
life-cycles and significant fluctuations in product demand. In addition, the
electronics industry is generally subject to rapid technological change and
product obsolescence. Furthermore, the electronics industry is subject to
economic cycles and has in the past experienced, and is likely in the future
to experience, recessionary periods. A recession or any other event leading to
excess capacity or a downturn in the electronics industry would likely have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "The Industry--Technical Overview" and
"Business--Markets and Customers."
ABILITY TO IMPLEMENT THE COMPANY'S OPERATING AND ACQUISITION STRATEGY
No assurances can be given that the Company or its management team will be
able to implement successfully the operating strategy described herein,
including the ability to identify, negotiate and consummate future
acquisitions on terms management considers favorable.
The Company may from time to time pursue the acquisitions of other
companies, assets or product lines that complement or expand its existing
business. Acquisitions involve a number of risks that could adversely affect
the Company's operating results, including the diversion of management's
attention, the costs of assimilating the operations and personnel of the
acquired companies, and the potential loss of employees of the acquired
companies. No assurance can be given that any acquisition by the Company will
not materially and adversely affect the Company or that any such acquisition
will enhance the Company's business. The ability of the Company to implement
its operating strategy and to consummate future acquisitions may require
significant additional debt and/or equity capital, and no assurance can be
given as to whether, and on what terms, such additional debt and/or equity
capital will be available.
The Company's efforts to increase international sales may be adversely
affected by, among other things, changes in foreign import restrictions and
regulations, taxes, currency exchange rates, currency and monetary transfer
restrictions and regulations and economic and political changes in the foreign
nations to which the Company's products are exported. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's financial position or results of operations. See
"Business--Business Strategy" and "--Markets and Customers."
VARIABILITY OF ORDERS
The level and timing of orders placed by the Company's customers vary due to
a number of factors, including customer attempts to manage inventory, changes
in the customer's manufacturing strategies and variation in demand for
customer products due to, among other things, technological change, new
product introductions, product life-cycles, competitive conditions or general
economic conditions. Because the Company generally does not obtain long-term
production orders or advance commitments from its customers, it must attempt
to anticipate the future volume of orders based on discussions with its
customers. A substantial portion of sales in a given quarter may depend on
obtaining orders for products to be manufactured and shipped in the same
quarter in which those orders are received. The Company relies on its estimate
of anticipated future volumes when making commitments regarding the level of
business that it will seek and accept, the mix of products that it intends to
manufacture, the timing of
21
<PAGE>
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.
RISKS ASSOCIATED WITH A SINGLE MANUFACTURING FACILITY
The Company produces all of its quick-turn products and most of its other
products in its manufacturing facility located in Anaheim, California, other
than research and development and longer term manufacturing jobs. The
Company's manufacturing processes are highly complex and require sophisticated
and costly equipment. As a result, any prolonged disruption in the operations
of the Company's manufacturing facility, whether due to technical or labor
difficulties, destruction of or damage to this facility or other reasons,
including as a result of a natural disaster such as an earthquake, fire or
flood, could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Facilities."
ENVIRONMENTAL MATTERS
The Company's operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with
these environmental laws are major considerations for all PCB manufacturers
because metals and other hazardous materials are used in the manufacturing
process. In addition, because the Company is a generator of hazardous wastes,
the Company, along with any other person who arranges for the disposal of such
wastes, may be subject to potential financial exposure for costs associated
with an investigation and remediation of sites at which it has arranged for
the disposal of hazardous wastes, if such sites become contaminated. This is
true even if the Company fully complies with applicable environmental laws.
Although the Company believes that its facilities are currently in material
compliance with applicable environmental laws, and it monitors its operations
to avoid violations arising from human error or equipment failures, there can
be no assurances that violations will not occur. In the event of a violation
of environmental laws, the Company could be held liable for damages and for
the costs of remedial actions and could also be subject to revocation of its
effluent discharge permits. Any such revocations could require the Company to
cease or limit production at one or more of its facilities, thereby having a
material adverse effect on the Company's operations. Environmental laws could
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. See "Business--Environmental Matters."
22
<PAGE>
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition. The Company principally competes with independent and captive
manufacturers of complex and quick-turn PCBs. The Company's principal
competitors include other independent small private companies and integrated
subsidiaries of more broadly based volume producers, that also manufacture
multilayer PCBs and other electronic assemblies. Some of the Company's
principal competitors are less highly-leveraged than the Company and may have
greater financial and operating flexibility. Moreover, the Company may face
additional competitive pressures as a result of changes in technology.
Competition in the complex and quick-turn PCB industry has increased due to
the consolidation trend in the industry, which results in potentially better
capitalized and more effective competitors. The Company's basic technology is
generally not subject to significant proprietary protection, and companies
with significant resources or international operations may enter the market.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. See
"Business--Competition."
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on its
executive and other key management personnel. Although the Company has entered
into employment agreements with certain of its executive officers, there can
be no assurance that the Company will be able to retain its executive officers
and key personnel or attract additional qualified management in the future.
CONTROLLING STOCKHOLDERS
The Bain Capital Funds hold approximately 50.3% of the outstanding voting
stock of Holdings, the sole stockholder of Details Capital. In addition, the
Bain Capital Funds and all of Holdings' other stockholders have entered into a
stockholders agreement regarding, among other things, the voting of such
stock. By virtue of such stock ownership and these agreements, the Bain
Capital Funds have the power to control all matters submitted to stockholders
of the Company, 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. The interests of the Bain Capital Funds as equity holders may
differ from the interests of holders of the Exchange Discount Notes. See
"Certain Relationships and Related Transactions--Stockholders Agreement."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
There is currently no established market for the Exchange Discount Notes
and, although the Exchange Discount Notes are expected to be eligible for
trading in the PORTAL market, there can be no assurance as to the liquidity of
any markets that may develop for the Exchange Discount Notes, the ability of
Holders of the Exchange Discount Notes to sell their Exchange Discount Notes
or the price at which Holders would be able to sell their Exchange Discount
Notes. Future trading prices of the Exchange Discount Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. Details
Capital does not intend to apply for listing of the Exchange Discount Notes on
any securities exchange or on any automated dealer quotation system.
23
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange
Discount Notes.
Holdings used the net proceeds (after deduction of related fees and expenses)
from the Initial Offering of approximately $57.1 million, together with a
portion of the proceeds of the Note Offering, to repay the Holdings Facility,
plus accrued interest and related fees and expenses.
The proceeds of the Holdings Facility were used to finance, in part, the
Recapitalization and related fees and expenses. See "Summary--The
Transactions."
CAPITALIZATION
The following table sets forth (i) the historical capitalization of Holdings
at September 30, 1997, (ii) the capitalization of Holdings as adjusted to give
effect to the Transactions, (iii) the capitalization of Holdings as adjusted to
give effect to the Transactions and the Initial Offerings and application of
the net proceeds therefrom, as if such transactions had occurred on that date
(iv) the pro forma capitalization of Details Capital and (v) the capitalization
of Details Capital as adjusted to give effect to the NTI Acquisition. This
table should be read in conjunction with the Selected Historical Consolidated
Financial Data and Unaudited Pro Forma Financial Data and the audited
consolidated financial statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DETAILS
HOLDINGS CAPITAL
------------------------------------ ------------------------
AS ADJUSTED
FOR THE
AS ADJUSTED TRANSACTIONS AS ADJUSTED
FOR THE AND THE FOR THE NTI
ACTUAL TRANSACTIONS OFFERINGS PRO FORMA(5) ACQUISITION
--------- ------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash.......................................................... $ 942 $ 3,892 $ 4,992 $ 4,992 $ 405
Debt:
Senior Credit Facilities(1)(2).............................. -- 91,400 81,100 81,100 106,100
Existing Indebtedness....................................... 87,410 6,556 6,556 6,556 6,556
Senior Subordinated Facility(2)............................. -- 85,000 -- -- --
Senior Subordinated Notes................................... -- -- 100,000 100,000 100,000
Holdings Facility........................................... -- 51,580 -- -- --
Discount Notes.............................................. -- -- 60,055 60,055 60,055
--------- --------- --------- -------- --------
Total debt................................................ 87,410 234,536 247,711 247,711 272,711
Temporary equity(3)........................................... 83,350 -- -- -- --
Total stockholder's equity (deficit)(4)....................... (148,527) (196,222) (206,240) -- --
Contributed capital (deficit)(5).............................. -- -- -- (206,240) (196,040)
--------- --------- --------- -------- --------
Total capitalization.......................................... $ 23,175 $ 42,206 $ 46,463 $ 46,463 $ 77,076
- --------------------------------------------------
========= ========= ========= ======== ========
</TABLE>
- --------
(1) The Company's $30 million Revolving Credit Facility was undrawn at December
31, 1997.
(2) Concurrently with the Initial Offering, Details conducted the Note
Offering, the proceeds of which were used to repay the Senior Subordinated
Facility, a portion of the Holdings Facility and a portion of the Senior
Credit Facilities.
(3) Temporary equity represents the fair value at September 30, 1997 of the
Company stock and warrants subject to certain puts at the option of the
holders thereof which were issued in 1996 in connection with the Initial
Recapitalization and exercised in connection with the Transactions.
(4) As a result of the Initial Recapitalization and subsequent increases in
temporary equity, Holdings had a stockholder's deficit. As a result of the
Recapitalization, Holdings' total stockholders' deficit increased by $47.7
million. In the Recapitalization, the Bain Capital Funds, an affiliate of
CMC and the Other Investors received common stock representing 62.0% of
Holdings for an aggregate consideration of $62.4 million. Existing Owners
and management retained 10.5% and 17.1% of Holdings, respectively, which,
based on the price of the stock received by the Bain Capital Funds, an
affiliate of CMC and the Other Investors, had a value of $26.6 million. The
total value of the common stock purchased and retained in the
Recapitalization was $89.0 million.
(5) Subsequent to the Transactions and the Initial Offerings, Holdings
incorporated Details Capital Corp. as a wholly owned subsidiary and
contributed substantially all of its assets, subject to certain
liabilities, including the Discount Notes, to Details Capital.
24
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet as of September
30, 1997 gives effect to the Transactions, the Initial Offerings and the NTI
Acquisition as if they had occurred on such date.
The following Unaudited Pro Forma Consolidated Statements of Income for the
year ended December 31, 1996, the nine months ended September 30, 1996 and
1997 and the last twelve months ended September 30, 1997 give effect to the
Transactions, the Initial Offerings and the NTI Acquisition as if they had
occurred on January 1, 1996. See "The Transactions." The Unaudited Pro Forma
Consolidated Statements of Income reflect the adjustment for the elimination
of the $5,283 charge recorded for stock options vested under the Company's
1996 Stock Option Plan. The Unaudited Pro Forma Consolidated Statements of
Income do not purport to represent what the Company's results of operations
would have been if the Transactions, the Initial Offerings and the NTI
Acquisition had occurred as of the dates indicated or what such results will
be for any future periods. The unaudited pro forma financial data are based on
the historical consolidated financial statements of the Company and the
assumptions and adjustments described in the accompanying notes.
The unaudited pro forma balance sheet also includes the following non-
recurring charges related to the Transactions: (i) approximately $9.2 million
from the write-off of deferred financing fees; (ii) approximately $1.2 million
from the early extinguishment of the Company's long term debt; (iii)
approximately $1.2 million related to the buyout of the CEO's employment
contract; (iv) approximately $30.6 million of stock compensation and related
bonuses under the Company's 1996 Stock Option Plan; (v) approximately $3.4
million related to warrants issued in connection with the Holdings Facility,
which was subsequently retired; and (vi) approximately $2.1 million related to
the prepayment premium on the retirement of the Holdings Facility. Such
charges aggregate $47.7 million and result in a net charge to earnings of
$30.4 million (net of tax benefit of $17.3 million, assuming an estimated 41%
tax rate).
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
HOLDINGS
----------------------------------------------------------------------
<CAPTION>
DETAILS
CAPITAL
---------------
SEPTEMBER 30, SEPTEMBER 30,
1997 TRANSACTIONS 1997
HISTORICAL ADJUSTMENTS PRO FORMA OFFERINGS PRO FORMA
------------- ------------ --------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 942 $ 3,130 (a) $ 3,892 $ 1,100 (h) $ 4,992
(180)(b)
Trade receivables, net.............. 10,148 -- 10,148 -- 10,148
Inventories......................... 2,414 -- 2,414 -- 2,414
Other............................... 1,047 -- 1,047 -- 1,047
--------- -------- --------- -------- ---------
Total current assets................ 14,551 2,950 17,501 1,100 18,601
Property and equipment, net.......... 14,931 -- 14,931 -- 14,931
Other assets......................... 662 -- 662 -- 662
Deferred tax assets.................. -- 8,333 (a) 11,957 3,157 (i) 15,114
1,596 (d)
2,028 (e)
Debt issue costs, net................ 1,542 11,600 (b) 11,600 6,600 (h) 10,500
(1,542)(d) (7,700)(i)
--------- -------- --------- -------- ---------
Total assets......................... $ 31,686 $ 24,965 $ 56,651 $ 3,157 $ 59,808
========= ======== ========= ======== =========
LIABILITIES AND EQUITY
Current liabilities:
Current portion long-term debt...... $ 10,990 $ 10,000 (a) $ 365 $ -- $ 365
1,200 (d)
3,400 (f)
(25,225)(b)
Accounts payable.................... 3,505 -- 3,505 -- 3,505
Accrued expenses.................... 2,989 -- 2,989 -- 2,989
Accrued bonuses .................... 2,959 (593)(a) 2,366 -- 2,366
--------- -------- --------- -------- ---------
Total current liabilities........... 20,443 (11,218) 9,225 -- 9,225
Other long-term liabilities.......... -- 9,477 (c)(f) 9,477 -- 9,477
Long-term debt....................... 76,420 (70,229)(b) 6,191 -- 6,191
Senior Credit Facilities............. -- 91,400 (b) 91,400 (10,300)(h) 81,100
Senior Subordinated Facility......... -- 85,000 (b) 85,000 (85,000)(h) --
Senior Subordinated Notes............ -- -- -- 100,000 (h) 100,000
Holdings Facility.................... -- 51,580 (b) 51,580 (51,580)(h) --
Discount Notes....................... -- -- -- 60,055 (h) 60,055
Temporary equity..................... 83,350 (83,350)(f) -- -- --
Stockholders' equity (deficit):
Common stock........................ 5,301 (5,301)(f) -- -- --
Convertible preferred stock......... 13,532 (13,532)(f) -- -- --
Class A Common, Class L Common...... -- 60,895 (b) 67,325 -- 67,325
5,867 (b)
563 (g)
Additional paid in capital.......... 2,922 14,048 (a) 8,367 -- 8,367
(16,970)(f)
4,947 (e)
3,420 (b)
Receivables from stockholders....... -- (563)(g) (563) -- (563)
Retained earnings (deficit)......... (170,282) (11,992)(a) (271,351) (4,543)(i) (281,369)
(83,862)(f) (2,055)(h)
(2,296)(d) (3,420)(j)
(2,919)(e)
--------- -------- --------- -------- ---------
Total stockholders' equity
(deficit).......................... (148,527) (47,695) (196,222) (10,018) (206,240)
Contributed capital (deficit)....... -- -- -- -- --
--------- -------- --------- -------- ---------
Total liabilities and equity......... $ 31,686 $ 24,965 $ 56,651 $ 3,157 $ 59,808
- --------------------------------------------------
========= ======== ========= ======== =========
SEPTEMBER 30,
1997
PRO FORMA(1)(2)
---------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................ $ 4,992
Trade receivables, net.............. 10,148
Inventories......................... 2,414
Other............................... 1,047
---------------
Total current assets................ 18,601
Property and equipment, net.......... 14,931
Other assets......................... 662
Deferred tax assets.................. 15,114
Debt issue costs, net................ 10,500
---------------
Total assets......................... $ 59,808
===============
LIABILITIES AND EQUITY
Current liabilities:
Current portion long-term debt...... $ 365
Accounts payable.................... 3,505
Accrued expenses.................... 2,989
Accrued bonuses .................... 2,366
---------------
Total current liabilities........... 9,225
Other long-term liabilities.......... 9,477
Long-term debt....................... 6,191
Senior Credit Facilities............. 81,100
Senior Subordinated Facility......... --
Senior Subordinated Notes............ 100,000
Holdings Facility.................... --
Discount Notes....................... 60,055
Temporary equity..................... --
Stockholders' equity (deficit):
Common stock........................ --
Convertible preferred stock......... --
Class A Common, Class L Common...... --
Additional paid in capital.......... --
Receivables from stockholders....... --
Retained earnings (deficit)......... --
---------------
Total stockholders' equity
(deficit).......................... --
Contributed capital (deficit)....... (206,240)
---------------
Total liabilities and equity......... $ 59,808
- --------------------------------------------------
===============
</TABLE>
- --------
(1) Subsequent to the Transactions and the Initial Offerings, Holdings
incorporated Details Capital Corp. as a wholly owned subsidiary and
contributed substantially all of its assets, subject to certain
liabilities, including the Discount Notes, to Details Capital.
(2) The unaudited pro forma consolidated balance sheet continues on page 26.
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DETAILS CAPITAL NTI COMBINED
SEPTEMBER 30, HISTORICAL SEPTEMBER 30,
1997 SEPTEMBER 29, ACQUISITION 1997
PRO FORMA(1) 1997 COMBINED ADJUSTMENTS PRO FORMA
--------------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................... $ 4,992 $ 1,409 $ 6,401 $(5,996)(k) $ 405
Trade receivables, net. 10,148 4,667 14,815 -- 14,815
Inventories............ 2,414 2,172 4,586 200 (l) 4,786
Other.................. 1,047 541 1,588 -- 1,588
--------- ------- --------- ------- ---------
Total current assets.. 18,601 8,789 27,390 (5,796) 21,594
Property and equipment,
net.................... 14,931 9,184 24,115 -- 24,115
Other assets............ 662 28 690 -- 690
Deferred tax assets..... 15,114 175 15,289 -- 15,289
Debt issue costs, net... 10,500 -- 10,500 -- 10,500
Goodwill................ -- -- -- 26,442 (l) 26,442
--------- ------- --------- ------- ---------
Total assets............ $ 59,808 $18,176 $ 77,984 $20,646 $ 98,630
========= ======= ========= ======= =========
LIABILITIES AND EQUITY
Current liabilities:
Current portion long-
term debt............. $ 365 $ 2,960 $ 3,325 $(2,960)(k) $ 365
Accounts payable....... 3,505 2,056 5,561 -- 5,561
Accrued expenses....... 2,989 875 3,864 -- 3,864
Accrued bonuses........ 2,366 -- 2,366 -- 2,366
--------- ------- --------- ------- ---------
Total current
liabilities.......... 9,225 5,891 15,116 (2,960) 12,156
Deferred tax liability.. -- 691 691 -- 691
Other long-term
liabilities............ 9,477 6,529 16,006 (6,529)(k) 9,477
Long-term capital
leases................. 6,191 -- 6,191 -- 6,191
Senior Credit
Facilities............. 81,100 -- 81,100 25,000 (k) 106,100
Senior Subordinated
Notes.................. 100,000 -- 100,000 -- 100,000
Holdings Facility....... 60,055 -- 60,055 -- 60,055
Discount Notes.......... -- -- -- -- --
Temporary equity........ -- -- -- -- --
Stockholders' equity
(deficit):
Common stock.......... -- -- -- -- --
Convertible preferred
stock................ -- -- -- -- --
Class A Common, Class
L Common............. -- -- -- -- --
Additional paid in
capital.............. -- -- -- -- --
Receivables from
stockholders......... -- -- -- -- --
Retained earnings
(deficit)............ -- -- -- -- --
--------- ------- --------- ------- ---------
Total stockholders'
equity (deficit)... -- -- -- -- --
Contributed capital
(deficit)/NTI equity. (206,240) 5,065 (201,175) (5,065)(m) (196,040)
10,200 (k)
--------- ------- --------- ------- ---------
Total liabilities and
equity................ $ 59,808 $18,176 $ 77,984 $20,646 $ 98,630
========= ======= ========= ======= =========
</TABLE>
- --------
(1) Continued from unaudited pro forma consolidated balanced sheet on page 25.
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(a) Reflects: (i) the compensation expense of $13,840 (recorded net of the
estimated tax benefit of $5,675 assuming a 41% effective tax rate) related
to the accelerated vesting of 1,437 options that were outstanding under
the Company's variable stock plan at an exercise price of approximately
$2,179 per share and an estimated fair market value of the Company of
approximately $11,810 per share(I); (ii) the exercise of these options
immediately prior to the Recapitalization, resulting in cash proceeds to
the Company of $3,130 and an increase in additional paid in capital of
$16,970; (iii) the compensation expense attributable to the bonuses
payable to cover employee taxes on these options of $11,768 (recorded net
of the estimated tax benefit of $4,825 assuming a 41% effective tax rate);
and (iv) the increase in the Company's short-term debt in connection with
paying $10,000 of these bonuses prior to the Recapitalization. The net pro
forma adjustment recorded has been calculated as the total amount required
to be recorded less the amount already recorded in the Company's September
30, 1997 historical financial statements, summarized as follows:
<TABLE>
<CAPTION>
TOTAL CALCULATED RECORDED AS OF NET PRO FORMA
ADJUSTMENT SEPTEMBER 30, 1997 ADJUSTMENT
---------------- ------------------ -------------
DEBIT (CREDIT)
<S> <C> <C> <C>
Cash...................... 3,130 -- 3,130
Deferred tax asset........ 10,500 2,167 8,333
Retained earnings......... 15,108 3,116 11,992
Additional paid-in capital
("APIC")................. (16,970) (2,922) (14,048)
Accrued bonuses........... (1,768) (2,361) 593
Short-term debt........... (10,000) -- (10,000)
</TABLE>
(I) The estimated fair market value per share of approximately $11,810 was
determined based upon the aggregate merger consideration paid in
connection with the Recapitalization divided by the total number of
shares of common stock and common stock equivalents outstanding
immediately prior to the Recapitalization (equal to $11,308 per share
and hereafter defined as "Per Share Merger Consideration") plus the
total deferred purchase obligation (see footnote (c)) divided by the
total number of shares of common stock and common stock equivalents
outstanding immediately prior to the Recapitalization (equal to $502
per share).
(b) Reflects the incurrence of debt relating to the Senior Credit Facilities,
the Senior Subordinated Facility, the Holdings Facility and the uses of
cash for the purposes of effecting the Recapitalization.
<TABLE>
<S> <C>
SOURCES OF CASH:
Cash............................................................. $ 180
Senior Credit Facilities......................................... 91,400
Senior Subordinated Facility..................................... 85,000
Holdings Facility(I)............................................. 55,000
Class L Common and Class A Common (net of fees and expenses of
$1,500)(II)..................................................... 60,895
Common stock and common stock equivalents(III)................... 26,605
--------
Total Sources.................................................. $319,080
========
USES OF CASH:
Payment of deferred financing fees............................... 11,600
Payment of existing indebtedness(IV)............................. 96,604
Continuing equity interest(III).................................. 26,605
Redemption of stock and distribution to shareholders(V).......... 184,271
--------
Total Uses..................................................... $319,080
========
</TABLE>
28
<PAGE>
(I) A portion of the proceeds received from the Holdings Facility of
$55,000 was allocated to the estimated fair market value of the Class A
Common and Class L Common warrants of $3,420.
(II) Reflects the issuance of approximately 154,234 shares of Class L
Common and 1,247,896 shares of Class A Common at an estimated fair
market value per share of approximately $364.09 and $5.00,
respectively. The per share fair market value of the Class A Common
and Class L Common was determined based upon the per share issuance
price paid by Bain Capital and other outside investors in connection
with the Recapitalization (hereafter defined as the "Class L and A
Common Issuance Price").
(III) As part of the Recapitalization certain common stock and common stock
options were exchanged at their carryover basis of $5,867 and $4,689,
respectively, for Class L Common and Class A Common and options to
purchase Class L Common and Class A Common. This exchange can be
summarized as follows:
<TABLE>
<CAPTION>
FAIR MARKET TOTAL FAIR MARKET
SHARES VALUE PER SHARE VALUE
------- --------------- -----------------
<S> <C> <C> <C>
CONSIDERATION GIVEN
Common stock(1)................ 1,938 $11,308(1) $21,916
Common stock options(2)........ 514 9,128(2) 4,689
-------
Total fair market value...... $26,605
=======
CONSIDERATION RECEIVED
Class L Common(3).............. 54,175 $ 364(3) $19,725
Class A Common(3).............. 438,325 5(3) 2,191
Class L Common options(4)...... 14,357 294(4) 4,220
Class A Common options(4)...... 116,158 4(4) 469
-------
Total fair market value...... $26,605
=======
</TABLE>
(1) The estimated fair market value of common stock is determined based
upon the Per Share Merger Consideration.
(2) The estimated fair market value of common stock options is
determined based upon the Per Share Merger Consideration less the
option exercise price of $2,179.
(3) The estimated fair market value of Class L Common and Class A
Common is determined based upon the Class L and A Common Issuance
Price.
(4) The estimated fair market value of options to acquire Class L
Common and Class A Common was determined based upon the Class L and
A Common Issuance Price less the exercise price of the Class L
Common and Class A Common of $70.15 and $.96, respectively.
(IV) Includes $15,000 payment on the Company's existing subordinated debt
which has a carrying value at September 30, 1997 of $13,850, the
difference has been recorded as a non-recurring charge of $1,150 (see
Note (d) below).
(V) In connection with the Recapitalization, the Company redeemed
approximately 16,296 shares of common stock for approximately $11,308
per share. The value ascribed to each share redeemed was determined
based upon the Per Share Merger Consideration.
(c) Represents a deferred purchase price obligation, contingent upon the
Company's ability to utilize the deferred tax benefit recorded in
connection with the exercise of options prior to the Recapitalization (See
Note (a)). Management believes that it is probable that the Company will
utilize these tax benefits in the near future.
(d) Represents the balance sheet impact for the following non-recurring
charges related to the Transactions.
<TABLE>
<S> <C>
Write-off of deferred financing fees................................. $1,542
Early extinguishment of long term debt............................... 1,150
Buy out of CEO's employment contract................................. 1,200
------
3,892
Net deferred tax benefit (assuming 41% effective rate)........... (1,596)
------
Net charge to equity............................................. $2,296
======
</TABLE>
29
<PAGE>
(e) Reflects compensation expense of approximately $4,947 (recorded net of the
estimated tax benefit of $2,028 assuming a 41% effective tax rate) related
to the vesting of 514 options with an exercise price of approximately
$2,179 per share and an estimated fair market value per share of
approximately $11,810 (see note (a) for discussion of fair market value of
options). Additionally, reflects the exchange of these 514 options for the
following: (i) approximately 14,357 options to acquire Class L Common
(estimated fair market value per share of $293.94); (ii) approximately
116,158 options to acquire Class A Common (estimated fair market value per
share of $4.04) and (iii) the right to receive a pro rata portion of the
deferred purchase obligation (see note (d)) of up to $258.
(f) Represents the net change in retained earnings (deficit) as a result of
the redemption and subsequent retirement of existing common and common
stock equivalents and preferred stock in conjunction with the
Recapitalization.
<TABLE>
<S> <C>
Redemption of stock and distribution to shareholders (see note (b)
above)........................................................... $(184,271)
Estimated fees and expenses of Recapitalization................... (3,400)
Deferred purchase obligation...................................... (9,477)
Retire common stock and APIC(I)................................... 16,404
Retire 6,601 shares of convertible preferred stock................ 13,532
Retire temporary equity........................................... 83,350
---------
$ (83,862)
=========
</TABLE>
(I) Represents 2,758 shares of common stock with a carrying value of $5,301
and 1,437 shares of common stock issued as a result of options that
were exercised prior to the Recapitalization (carrying value of
$16,970, as discussed in Note (a) above), less 1,938 shares of common
stock converted into Class L Common and Class A Common at their
historical carrying value ($5,867) (see note (b)(III)).
(g) Represents the Company's issuance of 112,508 shares of restricted Class A
Common (valued at $5 per share which equals the Common Class L and A
Issuance Price) to management in exchange for a recourse note.
(h) Reflects the incurrence of debt related to the Initial Offerings and the
use of proceeds therefrom to retire the existing Senior Subordinated
Facility, the Holdings Facility and a portion of the Senior Credit
Facilities.
<TABLE>
<S> <C>
SOURCES OF CASH:
Discount Notes.................................................... $ 60,055
Senior Subordinated Notes......................................... 100,000
--------
$160,055
========
USES OF CASH:
Payment of Holdings Facility...................................... $ 55,000
Payment of Senior Subordinated Facility........................... 85,000
Payment of Senior Credit Facilities............................... 10,300
Payment of deferred financing fees................................ 6,600
Payment of premium on Holdings Facility........................... 2,055
Cash(I)........................................................... 1,100
--------
$160,055
========
</TABLE>
(I) A portion of the cash proceeds from the Senior Subordinated Notes was
used to repay the accrued interest on the Holdings Facility and the
Senior Subordinated Facility.
30
<PAGE>
(i) Reflects the write-off of deferred financing fees of $7,700 in conjunction
with the retirement of the Holdings Facility and the Senior Subordinated
Facility. The charge to equity for the write-off of deferred financing
fees of $4,543 is net of a tax benefit of $3,157 (assuming estimated 41%
effective tax rate).
(j) Reflects the non-recurring charge for the write off of the discount
recorded on the Holdings Facility which was subsequently retired in
conjunction with the Initial Offering.
(k) Reflects the draw down of debt and the issuance of common stock and the
uses therefrom to finance the NTI Acquisition as if the NTI Acquisition
had occurred on September 30, 1997 (actual purchase price at December 22,
1997 was approximately $38.5 million, including the assumption of
approximately $7.4 million of debt (net of cash), before fees and
expenses):
<TABLE>
<S> <C>
SOURCES
Cash.............................................................. $ 5,996
Senior Credit Facility............................................ 25,000
Equity Contribution............................................... 10,200
-------
Total........................................................... $41,196
=======
USES
Purchase price consideration...................................... $31,164
Pay down of NTI debt.............................................. 9,489
Fees and expenses................................................. 543
-------
Total........................................................... $41,196
=======
</TABLE>
(l) Reflects the preliminary allocation of the estimated total acquisition
cost incurred in connection with the purchase of NTI to the estimated fair
value of tangible and intangible assets acquired and liabilities assumed
as if the NTI Acquisition occurred on September 30, 1997. The preliminary
allocation of the total acquisition cost represents management's best
estimate based upon available information. The final cost allocation will
be based upon appraisals and other studies, which are not yet completed.
The preliminary allocation is as follows:
<TABLE>
<S> <C>
PURCHASE PRICE
Purchase price consideration...................................... $31,164
Fees and expenses................................................. 543
-------
Total........................................................... $31,707
=======
ALLOCATED AS FOLLOWS
Historical book value of NTI...................................... $ 5,065
Estimated step-up of inventory.................................... 200
Goodwill.......................................................... 26,442
-------
Total........................................................... $31,707
=======
</TABLE>
(m) Represents the elimination of NTI's historical net equity balances in
connection with purchase accounting.
31
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NTI
STATEMENT OF PRO FORMA
HISTORICAL OPERATIONS ADJUSTMENTS PRO FORMA
TWELVE MONTHS TWELVE MONTHS -------------------------- TWELVE MONTHS
ENDED ENDED TRANSACTIONS ENDED
SEPTEMBER 30, SEPTEMBER 29, AND NTI SEPTEMBER 30,
1997 1997(A) COMBINED OFFERINGS ACQUISITION 1997
------------- ------------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $73,850 $29,191 $103,041 $ -- $ -- $103,041
Cost of goods sold...... 35,625 24,687 60,312 -- -- 60,312
------- ------- -------- ------- ------- --------
Gross profit............ 38,225 4,504 42,729 -- -- 42,729
Operating expenses:
Compensation to CEO.... 1,030 -- 1,030 (1,030)(b) -- --
General and
administration........ 2,177 1,102 3,279 -- 1,058(e) 4,337
Sales and marketing.... 6,824 1,393 8,217 -- -- 8,217
Stock compensation and
related bonuses....... 5,283 -- 5,283 (5,283)(g) -- --
------- ------- -------- ------- ------- --------
Operating income........ 22,911 2,009 24,920 6,313 (1,058) 30,175
Interest expense........ (9,971) (769) (10,740) (16,716)(c) (1,306)(f) (28,762)
Other income............ 87 14 101 -- -- 101
------- ------- -------- ------- ------- --------
Income before income
taxes.................. 13,027 1,254 14,281 (10,403) (2,364) 1,514
Provision for (benefit
from) income taxes..... 5,395 368 5,763 (4,319)(d) (389)(d) 1,055
------- ------- -------- ------- ------- --------
Net income (loss)....... $ 7,632 $ 886 $ 8,518 $(6,084) $(1,975) $ 459
======= ======= ======== ======= ======= ========
OTHER DATA:
EBITDA (h).............. $25,292 $ 3,998 $ 29,290 $ 6,313 $ -- $ 35,603
EBITDA margin........... 34% 14% 28% -- -- 35%
Depreciation and
amortization........... 2,381 1,989 4,370 -- 1,058 5,428
Capital expenditures.... 4,213 1,901 6,114 -- -- 6,114
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
32
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------------
NTI
STATEMENT OF
HISTORICAL OPERATIONS PRO FORMA
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, APRIL 1, TRANSACTIONS NTI DECEMBER 31,
1996 1997 COMBINED AND OFFERINGS ACQUISITION 1996
------------- ------------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $67,515 $26,985 $94,500 $ -- $ -- $94,500
Cost of goods sold...... 30,505 23,101 53,606 -- -- 53,606
------- ------- ------- -------- ------- -------
Gross profit............ 37,010 3,884 40,894 -- -- 40,894
Operating expenses:
Compensation to CEO.... 1,055 -- 1,055 (1,055)(b) -- --
General and
administration........ 1,929 1,077 3,006 -- 1,058(e) 4,064
Sales and marketing.... 5,989 1,224 7,213 -- -- 7,213
------- ------- ------- -------- ------- -------
Operating income........ 28,037 1,583 29,620 1,055 (1,058) 29,617
Interest expense........ (9,518) (618) (10,136) (17,180)(c) (1,457)(f) (28,773)
Other income............ 102 30 132 -- -- 132
------- ------- ------- -------- ------- -------
Income before income
taxes.................. 18,621 995 19,616 (16,125) (2,515) 976
Provision for (benefit
from) income taxes..... 6,265 240 6,505 (5,242)(d) (429)(d) 834
------- ------- ------- -------- ------- -------
Net income.............. $12,356 $ 755 $13,111 $(10,883) $(2,086) $ 142
======= ======= ======= ======== ======= =======
OTHER DATA:
EBITDA (h).............. $30,084 $ 3,606 $33,690 $ 1,055 $ -- $34,745
EBITDA margin........... 45% 13% 36% -- -- 37%
Depreciation and
amortization........... 2,047 2,023 4,070 -- 1,058 5,128
Capital expenditures.... 3,666 6,341 10,007 -- -- 10,007
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
33
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------------
NTI
STATEMENT OF
HISTORICAL OPERATIONS PRO FORMA
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, TRANSACTIONS SEPTEMBER 30,
1996 1996 COMBINED AND OFFERINGS ACQUISITION 1996
------------- ------------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $49,086 $21,961 $71,047 $ -- $ -- $71,047
Cost of goods sold...... 21,899 18,108 40,007 -- -- 40,007
------- ------- ------- -------- ------- -------
Gross profit............ 27,187 3,853 31,040 -- -- 31,040
Operating expenses:
Compensation to CEO.... 836 -- 836 (836)(b) -- --
General and
administration........ 1,377 910 2,287 -- 793(e) 3,080
Sales and marketing.... 4,503 998 5,501 -- -- 5,501
------- ------- ------- -------- ------- -------
Operating income........ 20,471 1,945 22,416 836 (793) 22,459
Interest expense........ (6,974) (376) (7,350) (13,081)(c) (1,180)(f) (21,611)
Other income............ 71 63 134 -- -- 134
------- ------- ------- -------- ------- -------
Income before provision
for income taxes....... 13,568 1,632 15,200 (12,245) (1,973) 982
Provision for (benefit
from) income
taxes.................. 4,270 512 4,782 (3,728)(d) (327)(d) 727
------- ------- ------- -------- ------- -------
Net income.............. $ 9,298 $ 1,120 $10,418 $ (8,517) $(1,646) $ 255
======= ======= ======= ======== ======= =======
OTHER DATA:
EBITDA (h).............. $21,966 $ 3,238 $25,204 $ 836 $ -- $26,040
EBITDA margin........... 45% 15% 35% -- -- 37%
Depreciation and
amortization........... 1,495 1,293 2,788 -- 793 3,581
Capital expenditures.... 2,720 5,287 8,007 -- -- 8,007
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
34
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
--------------------------
NTI
STATEMENT OF
HISTORICAL OPERATIONS PRO FORMA
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 29, TRANSACTIONS NTI SEPTEMBER 30,
1997 1997 COMBINED AND OFFERINGS ACQUISITION 1997
------------- ------------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $55,421 $23,436 $78,857 $ -- $ -- $ 78,857
Cost of goods sold...... 27,019 19,611 46,630 -- -- 46,630
------- ------- ------- ------- ------- --------
Gross profit............ 28,402 3,825 32,227 -- -- 32,227
Operating expenses:
Compensation to CEO.... 811 -- 811 (811)(b) -- --
General and
administration........ 1,625 863 2,488 -- 793(e) 3,281
Sales and marketing.... 5,338 1,140 6,478 -- -- 6,478
Stock compensation and
related bonuses....... 5,283 -- 5,283 (5,283)(g) -- --
------- ------- ------- ------- ------- --------
Operating income........ 15,345 1,822 17,167 6,094 (793) 22,468
Interest expense........ (7,427) (598) (8,025) (12,617)(c) (958)(f) (21,600)
Other income............ 56 12 68 -- -- 68
------- ------- ------- ------- ------- --------
Income before income
taxes.................. 7,974 1,236 9,210 (6,523) (1,751) 936
Provision for (benefit
from) income taxes..... 3,400 366 3,766 (2,805)(d) (252)(d) 709
------- ------- ------- ------- ------- --------
Net income.............. $ 4,574 $ 870 $ 5,444 $(3,718) $(1,499) $ 227
======= ======= ======= ======= ======= ========
OTHER DATA:
EBITDA (h).............. $17,174 $ 3,298 $20,472 $ 6,094 $ -- $ 26,566
EBITDA margin........... 31% 14% 26% -- -- 34%
Depreciation and
amortization........... 1,829 1,476 3,305 -- 793 4,098
Capital expenditures.... 3,267 1,119 4,386 -- -- 4,386
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(a) Information for the latest twelve months ended April 1, 1997 represents
the summation of the pro forma year ended December 31, 1996 and pro forma
six months ended September 29, 1997 information, less the pro forma six
months ended September 30, 1996.
(b) Reflects cost savings as a result of the cancellation of the employment
agreement with the Company's CEO as a direct result of the
Recapitalization. The CEO's employment was terminated on October 28, 1997.
(c) The increase to pro forma interest expense as a result of the
Recapitalization is as follows:
<TABLE>
<CAPTION>
LATEST
TWELVE MONTHS YEAR ENDED NINE MONTHS NINE MONTHS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1996 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Elimination of Details
Capital historical
interest expense and
fees................... $(9,971) $(9,518) $ (6,974) $(7,427)
------- ------- -------- -------
Senior Credit Facilities
(assuming LIBOR at 5.8%)
Term Loan A-LIBOR plus
2.50%................. 2,581 2,581 1,936 1,936
Term Loan B-LIBOR plus
2.75%................. 4,289 4,289 3,217 3,217
Senior Subordinated
Notes.................. 10,000 10,000 7,500 7,500
Other bank fees and
unused commitment fee
on the Revolving Credit
Facility............... 150 150 113 113
Capital leases.......... 764 775 612 601
Other................... 200 200 150 150
------- ------- -------- -------
Cash interest
expense............ 17,984 17,995 13,528 13,517
Noncash interest on
Discount Notes
and related fees
(using an effective
interest rate of
13.3%)................ 7,616 7,616 5,712 5,712
Amortization of
deferred financing
fees ($7,500 over
average 6.9 years).... 1,087 1,087 815 815
------- ------- -------- -------
8,703 8,703 6,527 6,527
Total interest from
recapitalization
debt requirements.. 26,687 26,698 20,055 20,044
------- ------- -------- -------
Net increase in
interest......... $16,716 $17,180 $ 13,081 $12,617
======= ======= ======== =======
</TABLE>
An increase or decrease in the assumed weighted average interest rate on
the Senior Credit Facilities of 0.125% would change pro forma interest
expense by $102, $102, $77, and $77 for the latest twelve months ended
September 30, 1997, for the year ended December 31, 1996, and the nine
months ended September 30, 1996 and 1997, respectively.
(d) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (i) the Company's historical tax provision
using historical amounts; (ii) the direct tax effects of the pro forma
transactions and offerings adjustments described herein at an estimated
41% effective tax rate; and (iii) the direct tax effects of the pro forma
NTI Acquisition adjustments described herein at an estimated 41% effective
tax rate plus the tax effect of the non-deductibility of the NTI goodwill
for income tax purposes.
36
<PAGE>
(e) Represents the adjustment to reflect ongoing goodwill amortization
resulting from the NTI acquisition. The acquisition will result in
goodwill of approximately $26,442, which is to be amortized over a twenty-
five year period.
(f) The increase to pro forma interest expense as a result of the Company's
draw down on its acquisition line under the Senior Credit Facility in
connection with the NTI acquisition is as follows:
<TABLE>
<CAPTION>
LATEST
TWELVE MONTHS YEAR ENDED NINE MONTHS NINE MONTHS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1996 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Elimination of NTI
historical interest
expense................ $ (769) $ (618) $ (376) $ (598)
Senior Credit Facility
Acquisition Facility--
5.8% LIBOR plus 2.5%... 2,075 2,075 1,556 1,556
------ ------ ------ ------
Net increase in
interest............... $1,306 $1,457 $1,180 $ 958
====== ====== ====== ======
</TABLE>
An increase or decrease in the assumed weighted average interest rate on
the Acquisition Facility of 0.125% would change pro forma interest expense
by $31, $31, $23 and $23 for the latest twelve months ended September 30,
1997, for the year ended December 31, 1996, and the nine months ended
September 30, 1996 and 1997, respectively.
(g) Reflects the elimination of the charge recorded for stock options vested
under the Company's 1996 Stock Option Plan. In conjunction with the
Recapitalization, all remaining options under the 1996 Stock Option Plan
were exchanged for options to purchase Class A Common and Class L Common.
All options to purchase Class A Common and Class L Common under the
Company's Stock Option Plans qualify for fixed plan accounting treatment.
Under fixed plan accounting, changes in the fair value of the Company's
common stock relative to the exercise price of the underlying options will
not result in additional charges (or credits) to the Company's statement
of income.
(h) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation, amortization and net interest expense.
37
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company at the dates and for the periods indicated. The selected historical
consolidated statements of income data of the Company for each of the three
years ended December 31, 1996 and the selected historical consolidated balance
sheet data as of December 31, 1995 and 1996 were derived from the historical
consolidated financial statements of the Company that were audited by
McGladrey & Pullen, LLP, whose report appears elsewhere in this Prospectus.
The selected historical consolidated financial data of the Company for the
year ended December 31, 1992 and the nine month periods ended September 30,
1996 and 1997 are derived from unaudited consolidated financial statements of
the Company which, in the opinion of management, include all adjustments
necessary for a fair presentation. The selected historical consolidated
financial data set forth below should be read in conjunction with, and is
qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited consolidated financial
statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Net sales.............. $25,759 $32,394 $ 44,086 $ 59,370 $ 67,515 $ 49,086 $ 55,421
Cost of goods sold..... 13,142 16,480 20,415 25,156 30,505 21,899 27,019
------- ------- -------- -------- -------- -------- ---------
Gross profit........... 12,617 15,914 23,671 34,214 37,010 27,187 28,402
Operating expenses:
Compensation to CEO
(1)................... 9,414 11,513 412 418 1,055 836 811
General and administra-
tion.................. 690 1,136 1,385 1,789 1,929 1,377 1,625
Sales and marketing.... 2,672 3,074 3,542 5,293 5,989 4,503 5,338
Stock compensation and
related bonuses (2)... -- -- -- -- -- -- 5,283
------- ------- -------- -------- -------- -------- ---------
Operating income
(loss)................ (159) 191 18,332 26,714 28,037 20,471 15,345
Interest expense....... (57) (167) (181) (371) (9,518) (6,974) (7,427)
Interest income........ 21 10 13 42 102 71 56
------- ------- -------- -------- -------- -------- ---------
Income (loss) before
income taxes.......... (195) 34 18,164 26,385 18,621 13,568 7,974
Provision for (benefit
from) income taxes
(3)................... (18) 221 273 396 6,265 4,270 3,400
------- ------- -------- -------- -------- -------- ---------
Net income (loss)...... $ (177) $ (187) $ 17,891 $ 25,989 $ 12,356 $ 9,298 4,574
======= ======= ======== ======== ======== ======== =========
OTHER FINANCIAL DATA:
EBITDA (4)............. $ 567 $ 1,047 $ 19,214 $ 27,768 $ 30,084 $ 21,966 $ 17,174
Adjusted EBITDA (5).... 9,981 12,560 19,626 28,186 31,139 22,802 23,268
Depreciation........... 726 856 882 1,054 2,047 1,495 1,829
Cash provided by oper-
ating activities...... 298 395 18,094 26,141 12,158 10,882 11,506
Cash flow (used in) in-
vesting activities.... (1,273) (1,254) (844) (2,946) (3,577) (2,712) (3,267)
Cash provided by (used
in) financing
activities............ 786 2,277 (15,156) (26,409) (8,885) (6,786) (7,466)
Cash dividends on
Common Stock.......... -- -- 13,026 27,076 6,618 6,618 --
Ratio of earnings to
fixed charges (6)..... -- 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x
BALANCE SHEET DATA (END
OF PERIOD):
Working capital........ $ 1,170 $ (74) $ (96) $ (2,264) $ (3,514) $ (884) $ (5,892)
Total assets........... 6,164 9,097 12,015 13,081 27,503 26,930 31,686
Total debt............. 1,434 3,446 1,316 1,982 94,101 96,157 87,410
Equity (net capital de-
ficiency) (7).......... 2,993 2,806 2,806 2,500 (72,674) (75,732) (65,177)
</TABLE>
- --------
(1) Represents compensation paid to the Company's former CEO, who also was the
sole shareholder since the Company's inception through the Initial
Recapitalization and whose employment terminated on October 28, 1997.
(2) Represents stock compensation and related bonuses under the Company's 1996
Stock Option Plan.
(3) Prior to February 1996, the Company elected to be taxed as an "S"
corporation and paid income taxes at a reduced rate. On a pro forma basis,
income tax expense would have been higher by the following amounts: 1994-
$7,175; 1995-$10,425; 1996-$1,295 and September 30, 1996-$1,295.
(4) "EBITDA" is defined herein as income before income taxes, depreciation,
amortization and net interest expense. EBITDA is presented because the
Company believes it is frequently used by security analysts in the
evaluation of companies. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items
of income which are not expected to be incurred by the Company subsequent
to the Transactions. These items consist of the compensation paid to the
Company's former CEO whose employment terminated on October 28, 1997 and
stock compensation and related bonuses under the Company's 1996 Stock
Option Plan.
(6) For purposes of computing this ratio, earnings consists of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and the estimated interest portion of rent expense. Earnings were not
sufficient to cover fixed charges by $195 for the year ended December 31,
1992.
(7) The net capital deficiency as of December 31, 1996 reflects the Initial
Recapitalization of the Company that took place in January of 1996.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations covers periods before completion of the Transactions. In
connection with the Transactions, the Company entered into financing
arrangements and altered its capital structure. Accordingly, the results of
operations for periods subsequent to the consummation of the Transactions will
not necessarily be comparable to prior periods. See "The Transactions,"
"Capitalization," "Description of Other Indebtedness," "Selected Historical
Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial
Data," and the audited and unaudited consolidated financial statements and
notes thereto included elsewhere in this Prospectus.
OVERVIEW
The Company believes, based on industry data, that it is one of the largest
domestic manufacturers and marketers of PCBs for the quick-turn segment of the
PCB industry. The Company produces PCBs for over 300 customers across a wide
range of end-use markets including the telecommunications, computer, contract
manufacturing, industrial instrumentation and consumer electronics industries.
For the nine months ended September 30, 1997, approximately 70% of the
Company's sales were quick-turn PCBs. The Company's net sales of PCB panels,
which consist of multiple individual printed circuit boards, have grown at a
compound annual growth rate of 25% from $25.8 million in fiscal year ended
December 31, 1992 to $73.9 million in the twelve months ended September 30,
1997.
SIGNIFICANT TRANSACTIONS
The Company was established in 1978 by James Swenson. In 1992, the Company
installed new management, headed by Bruce McMaster, and began to focus
primarily on quick-turn products. In late January 1996, CMC and its affiliates
acquired approximately 40% of the outstanding stock of the Company in a
recapitalization (the "Initial Recapitalization"). On October 4, 1997,
Holdings and its stockholders entered into the Recapitalization Agreement
pursuant to which the Merger was consummated on October 28, 1997. See "The
Transactions." The Company incurred a non-recurring charge of approximately
$47.7 million (net of estimated income tax benefits of $17.3 million) as a
result of the following events in connection with the Transactions: (i) the
write-off of deferred financing fees; (ii) the early extinguishment of the
Company's long-term debt; (iii) the buyout of the CEO's employment contract;
and (iv) the compensation expense attributable to the accelerated vesting of
the outstanding options under the Company's variable stock plan in conjunction
with the Recapitalization. Because the Merger has been accounted for as a
recapitalization, the historical cost basis of the Company's assets and
liabilities was not affected.
RESULTS OF OPERATIONS
The following table sets forth certain condensed historical financial data
for the Company expressed as a percentage of net sales for the periods set
forth below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............. 46.3 42.4 45.2 44.6 48.8
------- ------- ------- -------- --------
Gross profit.................... 53.7 57.6 54.8 55.4 51.2
Operating expenses:
Stock compensation and related
bonuses...................... 0 0 0 0 9.5
Other operating expenses...... 12.1 12.6 13.3 13.7 14.0
------- ------- ------- -------- --------
Operating income................ 41.6 45.0 41.5 41.7 27.7
Net interest expense............ (0.4) (0.5) (13.9) (14.1) (13.3)
------- ------- ------- -------- --------
Income before income taxes...... 41.2 44.5 27.6 27.6 14.4
Income tax expense.............. (0.6) (0.7) (9.3) (8.7) (6.1)
------- ------- ------- -------- --------
Net income...................... 40.6 43.8 18.3 18.9 8.3
======= ======= ======= ======== ========
</TABLE>
39
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net Sales. Net sales for the nine months ended September 30, 1997, increased
$6.3 million or 12.9% to $55.4 million from $49.1 million for the nine months
ended September 30, 1996. The increase was largely due to growth in the volume
of units shipped primarily attributable to increased demand from
telecommunications customers. During the nine months ended September 30, 1997,
the Company's largest customer accounted for 10.9% of net sales. During the
nine months ended September 30, 1996, the Company's largest customer accounted
for 17.5% of net sales.
Gross Profit. Gross profit for the nine months ended September 30, 1997,
increased $1.2 million to $28.4 million from $27.2 million for the nine months
ended September 30, 1996. As a percentage of net sales, gross profit decreased
4.2% from 55.4% for the nine months ended September 30, 1996, to 51.2% for the
nine months ended September 30, 1997. The decrease in gross profit as a
percentage of sales was primarily attributable to increases in engineering,
manufacturing and systems personnel needed to support continued growth in
manufacturing capacity.
Stock Compensation. During the nine months ended September 30, 1997, stock
compensation and related bonuses increased $5.3 million from the nine months
ended September 30, 1996, due primarily to non-cash expense for the vesting of
employee stock options granted in 1996.
Other Operating Expenses. Other operating expenses increased $1.1 million or
15.8% to $7.8 million for the nine months ended September 30, 1997, as
compared to $6.7 million for the nine months ended September 30, 1996. As a
percentage of net sales, other operating expenses increased to 14.0% for the
nine months ended September 30, 1997, as compared to 13.7% for the nine months
ended September 30, 1996. The increase was due to additional sales and
marketing expenses attributable to increased sales coupled with the start-up
costs associated with the January 1997 opening of the Company's sales office
in London. The Company anticipates operating expenses will continue to
increase in proportion to revenue as the Company expands.
Net Interest Expense. Net interest expense for the nine months ended
September 30, 1997, increased $469,000 to $7.4 million from $6.9 million for
the nine months ended September 30, 1996. The increase in interest expense is
primarily due to the nine months ended September 30, 1996 containing only 8
months of interest from the Initial Recapitalization which occurred in late
January 1996. In connection with the Initial Recapitalization, the Company
incurred approximately $95.0 million in bank indebtedness. If the Initial
Recapitalization would have been entered into on January 1, 1996, interest
expense for the nine months ended September 30, 1996, would have been higher
by approximately $770,000 for a total of $7.6 million. At September 30, 1997,
the Company's total debt is approximately $87.4 million resulting in a
corresponding decrease in interest expense for the nine months ended September
30, 1997. On a pro forma basis, after giving effect to the Transactions, the
Initial Offerings and the NTI Acquisition, the Company anticipates that
interest expense will increase to approximately $2.4 million per month
beginning in the fourth quarter of 1997.
Income Tax Expense. Income tax expense for the nine months ended September
30, 1997, was $3.4 million or 42.6% of income before income taxes. Income tax
expense for the nine months ended September 30, 1996, was $4.3 million or
31.5% of income before income taxes. Prior to the Initial Recapitalization,
the Company was taxed as an "S" corporation for income tax purposes. As an "S"
corporation, the Company paid reduced income taxes and all income was passed
through to the stockholder of the Company. On a pro forma basis, the Company's
effective tax rate would have been 41% had the "S" corporation election not
been in effect. The Company anticipates a combined tax rate of approximately
41% in the future under the current federal and state income tax rate
structure.
Net Income. For the reasons discussed above, net income for the nine months
ended September 30, 1997, decreased $4.7 million to $4.6 million from $9.3
million for the nine months ended September 30, 1996.
40
<PAGE>
1996 COMPARED TO 1995
Net Sales. Net sales increased $8.1 million or 13.7% to $67.5 million in
1996 from $59.4 million in 1995. The increase was due primarily to a change in
the product sales mix resulting in an increase in average panel price
partially offset by a decrease in total panels shipped. The overall increase
in average price per panel was a result of the Company's increased emphasis on
prototype and premium products. During 1996, the Company had sales to two
customers totaling $16.6 million or 24.6% of net sales. During 1995, the
Company had sales to these two customers totaling $16.4 million or 27.7% of
net sales.
Gross Profit. Gross profit increased $2.8 million to $37.0 million in 1996
from $34.2 million for 1995. As a percentage of net sales, gross profit
decreased 2.8% to 54.8% in 1996 from 57.6% in 1995. The decrease in gross
profit as a percentage of sales was primarily the result of an increase in the
Company's investment in engineering, manufacturing and systems personnel to
support continued growth in manufacturing capacity, combined with increased
manufacturing costs incurred on more complex, high density PCBs.
Other Operating Expenses. Other operating expenses increased $1.5 million or
19.6% to $9.0 million in 1996 from $7.5 million in 1995. As a percentage of
net sales, other operating expenses increased to 13.3% in 1996 from 12.6% in
1995. Of these totals, compensation to the CEO increased $637,000 to $1.1
million in 1996 from $418,000 in 1995. This increase was due to a new
employment contract signed in January 1996 in connection with the Initial
Recapitalization. In connection with the Recapitalization, the Company
negotiated a termination of the CEO's current contract and anticipates an
elimination of annual compensation expense to this individual of $1.1 million
beginning in November 1997.
Net Interest Expense. Net interest expense increased $9.1 million to $9.4
million from $329,000 in 1995. The increase in interest expense is primarily
due to the debt incurred of approximately $95.0 million and $6.6 million in
capital lease transactions in connection with the Initial Recapitalization.
Prior to 1996, the Company had incurred only nominal amounts of debt for the
purchase of equipment.
Income Tax Expense. Income tax expense was $6.3 million or 33.6% of income
before income taxes in 1996. Income tax expense was $396,000 or 1.5% of income
before income taxes in 1995. The income tax rates were lower than the
statutory income tax rate since the Company changed from an "S" corporation to
a "C" corporation in late January 1996. On a pro forma basis, the income tax
rate of the Company if it were taxable as a "C" corporation for all of 1996
would have been 41%.
Net Income. For the reasons discussed above, net income decreased $13.6
million to $12.4 million in 1996 from $26.0 million in 1995.
1995 COMPARED TO 1994
Net Sales. Net sales increased $15.3 million or 34.7% to $59.4 million in
1995 from $44.1 million in 1994. The increase was due primarily to a change in
the product sales mix resulting in an increase in the average panel price
combined with an increase in total panels shipped. The overall increase
in average price per panel was a result of the Company's increased emphasis on
prototype and premium products. The increase in panels shipped is the result
of the Company's focus on obtaining larger quantity orders for quick-turn PCB
business as well as increases in prototype and premium units produced.
Increased capacity utilization experienced at standard lead-time PCB
production houses also resulted in extended lead times for production orders
and less capacity available for quick-turn services, and as a result, the
Company experienced increased orders to fill this shortage of quick-turn
capacity. During 1995, two customers accounted for $16.4 million or 27.7% of
net sales. During 1994, two customers accounted for sales of $17.3 million or
39.3% of net sales.
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Gross Profit. Gross profit increased $10.5 million to $34.2 million in 1995
from $23.7 million for 1994. As a percentage of net sales, gross profit
increased 3.9% to 57.6% in 1995 from 53.7% in 1994. The increase in gross
profit was primarily attributable to the increase in prototype and premium
units produced and sold in 1995 as compared to 1994 and a decrease in
manufacturing expenses.
Other Operating Expenses. Other operating expenses increased $2.2 million or
40.5% to $7.5 million in 1995 from $5.3 million in 1994. As a percentage of
net sales, other operating expenses increased 0.5% to 12.6% in 1995 from 12.1%
in 1994. The increase was due to a $1.7 million increase in sales and
marketing expense due to higher variable costs directly attributable to
increased sales. In addition, general and administrative expenses increased by
$404,000 as a result of an increase in fixed costs associated with the
administration of a larger organization.
Net Interest Expense. Net interest expense increased $161,000 to $329,000 in
1995 from $168,000 in 1994 due to an increase in debt outstanding used in the
purchase of production equipment.
Income Tax Expenses. Income tax expense was $396,000 or 1.5% of income
before income taxes in 1995. Income tax expense was $273,000 or 1.5% of income
before income taxes in 1994. The income tax rates were lower than the
statutory income tax rate since the Company was an "S" corporation for income
tax purposes.
Net Income. For the reasons discussed above, net income increased $8.1
million to $26.0 million in 1995 from $17.9 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash provided by operations
and borrowings under various debt instruments. The Company's principal uses of
cash have been to finance capital expenditures and meet debt service
requirements. The Company anticipates that it will also use cash in the future
to finance possible acquisitions.
Net cash provided by operating activities was $11.5 million and $10.9
million for the nine months ended September 30, 1997 and 1996, respectively.
Net cash provided by operating activities was $12.2 million, $26.1 million and
$18.1 million for the fiscal years ended 1996, 1995 and 1994, respectively.
Fluctuations in net cash provided by operating activities is primarily
attributable to increases and decreases in the Company's net income before
non-cash charges.
Financing activities in 1996 primarily consisted of distributions to
shareholders and shareholder transactions and increased debt requirements in
connection with the Initial Recapitalization. Net cash used in financing
activities was $15.2 million, $26.4 million and $8.9 million for the fiscal
years ended December 31, 1994, 1995 and 1996, respectively. Financing
activities in 1994 and 1995 primarily consisted of distributions to
shareholders.
The Company's capital expenditures were $0.8 million, $2.9 million, $3.7
million and $3.3 million in 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively. The Company anticipates these expenditures
will increase to approximately $4 million for the full year 1997 and $6
million for 1998.
Prior to January 1996, the Company was wholly-owned by James Swenson. In
January 1996, the Company declared a dividend of $2.7 million payable to James
Swenson. On January 31, 1996, the Company redeemed 8,162 shares of its common
stock held by James Swenson for $105 million. This represented approximately
60% of the then outstanding stock of the Company. The Company funded this
redemption through the issuance of $95 million of debt and the sale of 6,671
shares of convertible preferred stock and 2,509 shares of common stock. Total
proceeds from the sale of stock were $20 million.
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As of October 28, 1997, after giving effect to the Transactions, the Company
incurred new indebtedness aggregating $241.5 million. As a result of the
Transactions, the Company has significantly increased cash requirements for
debt service relating to the Senior Subordinated Notes and Senior Credit
Facilities. On December 22, 1997, the Company incurred additional debt of $25
million under the Term Loan Facilities in connection with the NTI Acquisition.
As of December 31, 1997, the Company had borrowings of approximately $272.2
million and up to $30 million available for borrowing under the Revolving
Credit Facility. The Company's estimated minimum principal payment obligations
under the Senior Credit Facilities are $3.5 million and $7.0 million for
fiscal 1998 and fiscal 1999, respectively. This compares to $11.0 million and
$12.5 million, which would have been required under its previous facilities.
Concurrently with the Initial Offering, Details conducted the Note Offering, a
portion of the proceeds of which it used to repay the Holdings Facility.
Concurrently with the Exchange Offer, Details is conducting an exchange
offer for the Senior Subordinated Notes. The Senior Subordinated Notes and the
Senior Subordinated Notes exchanged therefor are both herein referred to as
the "Senior Subordinated Notes." The Senior Subordinated Notes will mature in
2005. Interest on the Senior Subordinated Notes will be payable semi-annually
in cash. The Company's ability to incur additional indebtedness is limited
under the Indenture, the Senior Subordinated Note Indenture and the Senior
Credit Facilities. See "Description of Exchange Discount Notes--Certain
Covenants."
Details 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 subsidiaries. Details Capital does not have, and may not in the
future have, any assets other than the common stock of Details (which is
pledged to secure the obligations of Details under the Senior Credit
Facilities). Details and its subsidiaries are parties to the Senior Credit
Facilities and the Senior Subordinated Note Indenture, each of which imposes
substantial restrictions on Details' ability to pay dividends to Details
Capital. See "Risk Factors--Limitation on Access to Cash Flow of Subsidiaries;
Holding Company Structure."
Based upon the current level of operations, management believes that cash
generated from operations, available cash and amounts available under the
Senior Credit Facilities, will be adequate to meet its debt service
requirements, capital expenditures and working capital needs for the
foreseeable future, although no assurance can be given in this regard.
Accordingly, there can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future borrowings will
be available under the Senior Credit Facilities to enable the Company to
service its indebtedness, including the Discount Notes and the Senior
Subordinated Notes, or make anticipated capital expenditures. The Company's
future operating performance and ability to service or refinance the Discount
Notes and the Senior Subordinated Notes and to extend or refinance the Senior
Credit Facilities will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control.
IMPACT OF INFLATION
The Company believes that its results of operations are not dependent upon
moderate changes in the inflation rate. However, severe increases in inflation
could affect the global and United States economy and could have an impact on
the Company's profitability.
COMPUTER SYSTEMS AND YEAR 2000
The Company is currently developing a plan to insure that its systems and
software infrastructure are Year 2000 compliant. The scheduled implementation
of all phases of the plan is February 1998. Given the relatively small size of
the Company's systems and the predominately new hardware, software and
operating systems, management does not anticipate any significant delays in
becoming Year 2000 compliant. However, the Company is unable to control
whether its customers' and suppliers'
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systems are Year 2000 compliant. To the extent that customers would be unable
to order product or pay invoices or suppliers would be unable to manufacture
and ship product, it could affect the Company's operations. However,
management does not believe that Year 2000 changes will have a material impact
on the operating results or financial condition of the Company.
CHANGES IN ACCOUNTING PRINCIPLES
FASB has also issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information." Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for the Company's year
ending December 31, 1998. The Company has not determined if the effect of the
adoption of this Statement would require the Company to report industry
segments.
RECENT DEVELOPMENTS
On December 22, 1997, Details acquired all of the outstanding shares of
common stock of NTI for approximately $38.5 million. The purchase price
includes the assumption of approximately $7.4 million of NTI's debt without
giving effect to the final purchase price adjustment. The acquisition was
funded in part through the issuance of additional equity interests in Holdings
in the aggregate amount of $10.2 million to certain existing investors in
Holdings as well as three new investors, including an existing investor in
NTI. The remainder of the purchase price was funded with cash from Holdings
and a $25 million term loan borrowing under the Details' Term Loan Facilities.
NTI manufactures complex PCBs of OEMs in the electronics industry and
focuses primarily on pre-production market opportunities with lead times of 10
to 20 days. NTI currently manufactures all of its products at two leased
facilities located in Colorado Springs, Colorado occupying 84,000 square feet
(which also include its executive offices). NTI is operated as a wholly-owned
subsidiary of the Company and is currently headed by James S. Marcelli. Mr.
Marcelli, who has run NTI since 1991, is now a Vice President of the Company
and President of NTI. As of September 30, 1997, NTI employed approximately 325
employees, all of whom are non-union employees.
The NTI Acquisition has been accounted for under the purchase method of
accounting. As a result, the total acquisition cost has been allocated to the
estimated fair value of tangible and intangible assets acquired and
liabilities assumed. Based upon management's preliminary estimate of the fair
value of the assets acquired and liabilities assumed, the Company has recorded
approximately $26 million in goodwill, which will be amortized over a period
of twenty-five years.
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THE INDUSTRY
TECHNICAL OVERVIEW
PCBs serve as the foundation of almost all electronic products, providing
the circuitry and mounting surfaces necessary to interconnect discrete
electronic components, including integrated circuits, capacitors and
resistors. PCBs consist of a pattern of electrical circuitry etched from
copper and laminated to a board made of insulating material, thereby providing
electrical interconnection between the components mounted onto it. PCBs can be
designed as single-sided, double-sided, or multi-layer boards, are
characterized as rigid or flexible depending on their end-use and are designed
to customer specification using computer aided design ("CAD") software. Multi-
layer PCBs consist of stacked boards separated by bonding sheets and pressed
to form a solid board. Electrical connections between the layers are made
using standard plated through-holes (drilled and plated through the whole
board), or by vias (plated holes between two or more layers). To meet
increasing demand among OEMs and contract manufacturers, PCB manufacturers
have developed more complex multi-layer designs with surface mount and other
attachment technologies, narrower widths and separations of copper traces,
advanced materials (such as Teflon), and small diameters of vias and through-
holes to connect internal circuitry. Changes in the industry are predominantly
evolutionary rather than revolutionary and many of the production processes
and technologies used today were first developed more than 10 years ago.
MARKET SEGMENTATION AND GROWTH
As electronic products have become smaller and more complex, the manufacture
of PCBs has required increasingly sophisticated engineering and manufacturing
expertise. These advanced manufacturing processes and technology requirements
have caused OEMs to rely increasingly on independent or merchant manufacturers
and to reduce dependence on their own internal captive facilities. It is
estimated that in 1996 independent or merchant manufacturers served 87% of the
domestic PCB market, an increase from 71% in 1992.
The worldwide PCB market, including both captive and merchant PCB
production, generated approximately $30.4 billion of revenue in 1996. The U.S.
accounted for approximately 27% of the worldwide market, or $8.3 billion. As
described above, approximately 87% of the domestic market, or $7.2 billion was
supplied by merchant (i.e., non-captive) fabricators. The merchant market is
divided between quick-turn and long-lead manufacturers. Of the $7.2 billion of
domestic merchant production, quick-turn PCBs accounted for 21% or
approximately $1.5 billion. Quick-turn PCBs, which are defined as printed
circuit boards manufactured within 10 days (and as little as 24 hours) in
prototype and pre-production quantities, are used in the design, test and
launch phases of new electronic products. The quick-turn market is
characterized by higher margins, faster growth and greater customer diversity
than the long-lead PCB market. Since 1992, the quick-turn segment has
experienced rapid growth, increasing at a 24% CAGR, twice the rate for the
overall domestic PCB industry. Long-lead PCBs, defined as those with delivery
lead times in excess of ten days (and customarily 3-5 weeks), typically have
larger order sizes and are utilized in both the ramp-to-production and full
production phases of electronic product development. The following table
describes the domestic PCB market.
DOMESTIC PCB MARKET SIZE
<TABLE>
<CAPTION>
SHIPMENT VALUE IN BILLIONS OF DOLLARS
-----------------------------------------
1992 1993 1994 1995 1996 CAGR
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Quick-Turn......................... $ 0.6 $ 0.8 $ 1.0 $ 1.2 $ 1.5 24%
Long-Lead.......................... 3.1 3.6 4.2 4.9 5.7 16%
------ ------ ------ ------ ------ -----
Total Merchant................... 3.7 4.4 5.2 6.1 7.2 18%
Captive............................ 1.5 1.5 1.5 1.4 1.1 (8%)
------ ------ ------ ------ ------ -----
Total PCB Market................. $ 5.2 $ 5.9 $ 6.7 $ 7.5 $ 8.3 12%
</TABLE>
45
<PAGE>
The customary evolution of an electronic product results in several phases
of PCB procurement: prototype, pre-production and production. Initially, in
the design and development stage, customers order small lot sizes (1-25
boards) and demand quick-turn delivery ("prototype boards"); in the test-
marketing and product introduction stages, they order low to medium quantities
(up to 5,000 boards) which may or may not require quick-turn delivery ("pre-
production boards"); and in the product roll-out stage, they tend to order
large volumes with lead times in excess of three weeks ("production boards").
Prototype and pre-production boards, the segments in which the Company
competes, command escalating pricing premiums the shorter the lead time and
the greater the board complexity. PCB complexity is determined by layer count,
the use of exotic substrates and materials, the fineness of line spaces and
traces, the incorporation of buried resistors and capacitors, the use of
microvias and numerous other features. By focusing on either time criticality,
board complexity, or both, a PCB fabricator can realize significant pricing
premiums and commensurately higher profitability per PCB than that attainable
in the production segment of the market.
END-USE MARKETS
PCBs are customized for specific electronic applications and are sold to
OEMs and contract manufacturers in volumes that range from smaller quantities
for prototypes and pre-production orders to larger quantities for volume
production. PCBs are used in various end-use markets which include
(i) telecommunications products such as cellular phones, pagers and switching
and transmission equipment; (ii) computers and peripherals such as notebook
and desktop computers, high-end workstations, network servers, modems and
printers; (iii) automotive systems such as ABS traction control, airbag and
electric-powered engines and engine transmission control; (iv) industrial
applications such as optical code-readers and test equipment; and (v) basic
home appliances such as microwave ovens and remote controls.
TRENDS
The PCB industry is characterized by the following trends:
Increasing Complexity of Electronic Products. The increasing complexity of
electronic products has driven technological advancements in PCBs. As this
trend continues, fabricators face increasingly more difficult demands on the
manufacturing process. For example, modern compact and portable designs
feature advanced materials, high layer counts, narrower line widths and spaces
and smaller vias to connect internal circuitry. As a result, manufacturers
must remain at the forefront of both design and manufacturing technologies in
order to be competitive in the prototype and pre-production segments.
Accelerating Product Lifecycles. Rapid advances in technology and increasing
competitive pressures are shortening product lifecycles and forcing electronic
OEMs to develop and bring new products to market faster. This has resulted in
OEMs viewing "speed to market" as a key competitive advantage causing them to
partner with suppliers that can consistently deliver highly reliable product
under demanding time constraints. This trend is a key driver of growth in the
quick-turn market.
Consolidating Industry. The domestic PCB industry is highly fragmented with
approximately 600 active fabricators. Although the industry has experienced
significant consolidation in the last four years, declining 37% from the
approximately 950 manufacturers in 1992, the top eight manufacturers still
only account for approximately 25% of industry sales in 1996. Consolidation in
the industry is driven by (i) growing demand by electronic OEMs for both
increasingly complex PCBs and shortened delivery cycles which mandates
sophisticated design, engineering and manufacturing capabilities; (ii) ongoing
outsourcing by electronic OEMs; and (iii) increasing desire by OEMs to use
fewer suppliers.
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BUSINESS
GENERAL
The Company believes, based on industry data, that it is one of the largest
manufacturers and marketers of complex printed circuit boards for the time
critical or "quick-turn" segment of the domestic PCB industry. Printed circuit
boards are the basic platforms used to interconnect microprocessors,
integrated circuits, and other components essential to the functioning of
virtually all electronic products. Quick-turn PCBs, which are defined as
printed circuit boards manufactured within 10 days (and as little as 24 hours)
in prototype and pre-production quantities, are used in the design, test and
launch phases of new electronic products. The quick-turn market is
characterized by higher margins, faster growth and greater customer diversity
than the long-lead market. Approximately 70% of the Company's year-to-date
sales are quick-turn PCBs. Complex PCBs are those employing difficult to
manufacture specifications such as high layer counts, dense circuitry designs,
and exotic materials. Such boards command escalating pricing premiums the
greater the complexity. The Company's advanced engineering capability enables
it to produce boards with up to 40 layers employing leading edge fabrication
technologies. The Company supplies over 300 customers in a wide range of end-
use markets including the telecommunications, computer, contract
manufacturing, industrial instrumentation, and consumer electronics
industries. On a pro forma basis for the twelve months ended September 30,
1997, the Company's net sales and EBITDA would have been $103.0 million and
$35.6 million, respectively.
Since the installation of a new management team in 1992, the Company has
successfully increased its sales and profitability and diversified its
customer base by strategically focusing on the quick-turn PCB market. As a
result of this strategic shift, the Company has grown net sales at a CAGR of
25% from $25.8 million in the fiscal year ended December 31, 1992 to $73.9
million for the twelve months ended September 30, 1997. In the same time
frame, the Company (excluding NTI) has grown pro forma EBITDA at a 27% CAGR
from $10.0 million to $31.6 million. As a result of the Recapitalization,
management owns stock and options for approximately 27.5% of the fully-diluted
capital stock of Holdings. Such equity ownership represents a significant
economic commitment to, and participation in, the Company.
COMPETITIVE STRENGTHS
The Company believes that it has several competitive advantages in the PCB
industry, including:
Quick-Turn Market Leader. Based on industry data, the Company believes that
it is one of the largest manufacturers of quick-turn PCBs in the United
States, with approximately 70% of its year-to-date sales derived from quick-
turn products. The Company routinely completes complex orders (up to 12
layers) in less than 24 hours and believes that its engineering expertise and
ability to produce highly complex PCBs are competitive strengths in the quick-
turn market.
Leading Technological Capabilities. The Company believes that its ability to
engineer advanced PCB materials and utilize advanced technologies is a
competitive strength in the quick-turn market. Customers utilize the
technological expertise of Details' 66 front-end engineers throughout the
product development effort to achieve an integrated cost-effective
manufacturing effort. The Company has the ability to produce boards with up to
40 layers, and approximately 40% of its sales year-to-date included boards
with layer counts of 8 or more.
Diverse and Loyal Customer Base. The Company believes that it has one of the
broadest customer bases in the industry, with more than 300 customers serving
a wide range of end-use markets. Year-to-date, the Company's largest customer
accounted for less than 11% of revenue. In addition, the Company has been
successful at retaining customers. For example, the Company has
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<PAGE>
maintained a relationship with its top three year-to-date customers--Motorola,
Intel and IBM--since at least 1993. Details believes that its ability to
rapidly respond to changes in demand for new or modified board designs with
consistent high quality is a major factor in its success at creating customer
partnerships. The Company's customer list includes leading manufacturers of
telecommunications equipment, such as Motorola and Qualcomm; computer
workstations and servers, such as IBM and Silicon Graphics; semi-conductor
fabrication such as Intel; industrial products, such as Caterpillar and Delco;
computer assemblers, such as Dell and Compaq; and contract manufacturing firms
such as SCI and Jabil.
Experienced Management Team with Significant Equity Ownership. The Company's
President, Bruce McMaster, has a total of 16 years of experience in the PCB
industry. Mr. McMaster, together with the other members of his senior
management team--Lee Muse (Vice President of Sales and Marketing), Joseph
Gisch (Chief Financial Officer), Terry Wright (Vice President of Engineering),
Michael Moisan (Vice President of Operations), and James S. Marcelli (Vice
President--Details)--have over 70 years of industry experience and
approximately 30 years with the Company. Since 1992, management has
successfully developed and implemented manufacturing and marketing strategies
which have resulted in a compound annual growth rate in net sales of 25% from
the fiscal year ended December 31, 1992 to the twelve months ended September
30, 1997. As a result of the Recapitalization, management owns stock and
options for approximately 27.5% of the fully-diluted capital stock of
Holdings. Such equity ownership represents a significant economic commitment
to, and participation in, the Company.
BUSINESS STRATEGY
The Company's goal is to maintain its growth rate in sales and profitability
by leveraging its quick-turnaround capability, its market leading technology,
and its large customer base to increase its penetration of value-added market
segments. In order to accomplish its goal, the Company intends to:
Increase Technical Leadership in Quick-Turn Segment. The Company intends to
extend its leadership in the quick-turn segment by continuing to provide
consistent, rapid delivery through leading-edge processes and technology.
Currently, the Company is capable of delivering 12- layer boards in as little
as 24 hours and had a less than 1% product return rate for the nine months
ended September 30, 1997. Such performance is largely due to the technology
and processes employed by the Company coupled with its engineering expertise
and customized design and development services. The Company intends to
maintain its focus on improving quality and delivery times by incorporating
emerging technologies and by continuously improving its manufacturing
processes.
Cross-Sell Pre-Production to Quick-Turn Customers. The Company believes
there are substantial opportunities to leverage its strong customer relations
in the quick-turn segment by cross-selling 10 to 20 day pre-production volume
to its existing customers utilizing the additional production capacity
obtained through the recent NTI Acquisition. See "Recent Developments." The
Company recognizes OEMs' desire to continue to use the same supplier through
several stages of the product development process and thereby reduce the
number of suppliers used. Through the acquisition of NTI, the Company intends
to expand its services to the longer lead 10 to 20 day pre-production phase of
product development in addition to servicing the quick-turn prototype phase,
which the Company believes can thereby enhance the efficiency of its
customers' production process. Specifically, the Company believes that by
servicing a larger portion of its customers' production needs, it can: (i)
reduce customers' tooling costs, (ii) eliminate supplier switching risk, and
(iii) shorten its customers' "time-to-market." In furtherance of this
initiative, the Company continues to make investments in capital equipment,
engineering capability and systems infrastructure.
Achieve International Presence. The Company believes there are substantial
opportunities to satisfy international demand for time-critical, complex PCBs.
Year-to-date, approximately 94% of the
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Company's revenues were generated domestically despite the fact that the U.S.
accounts for only 27% of the worldwide market. In particular, the Company has
established a sales office in the United Kingdom to service existing European
customers' needs and to broaden the Company's European presence. The Company
is currently developing a manufacturers' representative arrangement in
Singapore as an entry into the Asian market.
Pursue Selective Acquisitions. The Company is currently pursuing selective
acquisitions to complement its organic growth. Due to the high degree of
fragmentation in the PCB industry, the Company believes substantial
consolidation opportunities exist. Consequently, the Company is actively
seeking acquisitions which will: (i) increase its 10 to 20 day pre-production
capacity, (ii) expand its international geographic coverage, (iii) strengthen
its position in existing markets, (iv) provide significant profit improvement
opportunities through the application of the Company's superior operating
capabilities, and (v) enhance its technology base. In furtherance of this
strategy, on December 22, 1997, the Company acquired all of the outstanding
shares of common stock of NTI. See "Recent Developments."
PRODUCTS AND SERVICES
The majority of the Company's business consists of building printed circuit
boards for sophisticated electronics products on a quick-turn delivery basis
and involves working closely with its customers from the initial design stage
through product development and launch. The Company's product offering
includes boards using super-fine line spaces and traces, buried resistors and
capacitors, microvias and a wide range of substrates and materials. All of the
Company's products are manufactured to customer order. The Company's PCBs are
utilized in cellular phones, telecommunications equipment, computer networking
equipment, medical devices, sophisticated industrial equipment and other high
growth electronic applications. In addition to direct sales to OEMs, the
Company sells to contract manufacturers and is a turnkey supplier in the event
of product shortages.
The Company provides design and engineering assistance in the early stages
of product development to ensure that both mechanical and electrical
considerations are integrated into a cost-effective manufacturing solution. In
doing so, the Company often recommends design changes to its customers to
reduce manufacturing costs and lead times or to increase manufacturing yields
and the quality of the finished product. This cooperative approach enables the
Company to gain valuable insight into the future technology requirements of
its customers and to obtain opportunities for subsequent prototype and pre-
production business.
MANUFACTURING
The production of complex printed circuit boards is an extensive and
sequential process. A variety of manufacturing operations are utilized,
including: (i) graphic operations such as photoprinting, screen printing, and
phototool generation; (ii) chemical operations such as copper deposition,
electroplating and etching; (iii) mechanical operations such as lamination,
drilling and routing; and (iv) electronic operations such as computer-aided
manufacturing ("CAM"), automated optical inspection, and electrical testing.
Management believes that the highly specialized equipment it uses is among the
most advanced in the industry.
Details utilizes a number of advanced processes and technologies, including
direct chip attached, multichip module-laminate, ball grid array, chip on
board, tape automated bonding, flip chip, and high density interface. Details
also maintains the capability to produce less sophisticated plate-through-hole
circuit ("PTH") boards. The Company's engineering operations consist of 100
engineering professionals (including 66 front-end) dedicated to improving the
design and functionality of its customers' products. The Company utilizes
state-of-the-art equipment to implement advanced technologies such as high
density interface (microvias), blind and buried vias, buried capacitors and
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<PAGE>
resistors, electroless gold (wire bond), and controlled and differential
impedance to meet customer specifications. The Company is qualified under
various industry standards for the manufacture of PCBs. Such qualifications
include Bellcore compliance for telecommunications products and UL
(Underwriters Laboratories) approval for electronics. In addition, all of the
Company's facilities are ISO- 9002 certified. These certifications require
that the Company meet certain standards related to management, production
design, production and quality control, among others.
The Company seeks to maximize the use of its manufacturing capacity. This
requires efficient management of time-critical production schedules. In
addition, the Company opportunistically augments its quick-turn capacity with
pre-production and longer-lead orders. The majority of engineering and
manufacturing takes place at the Company's facilities in Anaheim, California
and the NTI facilities in Colorado Springs, Colorado. Research and development
and longer term manufacturing jobs are carried out in a nearby facility in
Placentia, California.
TECHNOLOGY, DEVELOPMENT AND PROCESSES
The Company maintains a strong commitment to research and development,
focusing its efforts on enhancing existing capabilities as well as developing
new technologies. The Company's staff of over 100 experienced engineers,
chemists and laboratory technicians works in conjunction with the Company's
sales staff to identify specific needs and develop innovative, high
performance solutions to customer issues. This method of product development
allows customers to augment their own internal development teams while
providing Details with the opportunity to gain an in-depth understanding of
its customers' businesses, thereby enabling it to better anticipate and serve
their future needs.
The market for the Company's products and services is characterized by
rapidly changing technology and continuing process development. The future
success of the Company's business will depend in large part upon its ability
to maintain and enhance its technological capabilities, develop and market
products and services that meet changing customer needs, and successfully
anticipate or respond to technological changes on a cost-effective and timely
basis. See "Risk Factors--Technological Change and Process Development."
SALES AND MARKETING
Marketing Strategy. The Company's marketing strategy focuses on developing
close working relationships with its customers early in the design phase and
throughout the lifecycle of the product. Accordingly, the Company's senior
management personnel and engineering staff advise customers with respect to
applicable technology, manufacturability of designs, and cost implications
through on-line computer technical support, conference calls, and customer
visits. Details has focused its marketing efforts on developing long-term
relationships with key customers in high growth segments of the electronics
industry.
Sales Force. The Company markets its products and manufacturing services
through an expansive network consisting of 12 top representative organizations
with 60 manufacturers' representatives across the country complemented by a
direct sales force of 16 individuals. Approximately 87% of the Company's net
sales in the fiscal year ended December 31, 1996 were generated through
manufacturers' representatives and 13% through its direct sales force. For
many of these representatives, Details is their largest revenue source and
their exclusive prototype supplier. The Company's representative network
covers the entire United States and has recently expanded to Europe and Asia.
The Company's marketing methodology of introducing its capabilities and
providing technical support to customers requires extensive interaction with
its customers. Consequently, the Company augments the manufacturer's
representatives network's sales efforts by providing extensive marketing,
engineering and technical support. The Company utilizes fully trained sales
representatives and its own engineering force to provide customer service
during all aspects of pre-production and prototype board fabrication.
50
<PAGE>
MARKETS AND CUSTOMERS
The Company believes that it has one of the broadest customer bases in the
industry, with more than 300 customers consisting primarily of leading OEMs
and contract manufacturers in a wide range of end-use markets. The Company's
customers principally consist of telecommunications, industrial and business
computers companies, as well as medical, semiconductor equipment and
manufacturers. During the nine months ended September 30, 1997, sales to the
Company's largest customer, Motorola, accounted for 10.9% of the Company's net
revenues. Sales to the Company's two largest customers accounted for 20.4% of
the Company's net revenues during the nine months ended September 30, 1997 and
sales to its ten largest customers accounted for approximately 48.4% during
the same period. The Company's customer list includes leading manufacturers of
telecommunications equipment, such as Motorola and Qualcomm; computer
workstations and servers, such as IBM and Silicon Graphics; semiconductor
fabrication such as Intel; industrial products, such as Caterpillar and Delco;
computer assemblers, such as Dell and Compaq; and contract manufacturing firms
such as SCI and Jabil. The Company has been successful at retaining customers.
For example, the Company has maintained a relationship with its top three
year-to-date customers--Motorola, Intel and IBM--since at least 1993. The
Company's active customer base (defined as customers who have placed orders
within the month) has increased from an average of 122 in 1994 to the current
average of 149 customers per month. The Company believes that its ability to
rapidly respond to changes in demand for new or modified board designs with
consistent high quality is a major factor in building customer partnerships.
The following table shows, for the periods indicated, the Company's sales
and the percentage of its sales in each of the principal end-user markets it
serves for the fiscal years ended December 31, 1994 through 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER
31,
-------------------------------
MARKETS 1994 1995 1996
------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Telecommunications..................... $12.0 27% $21.5 36% $20.7 30%
Computer............................... 13.2 30 18.1 30 24.9 37
Automotive and Industrial.............. 3.6 8 2.2 4 2.7 4
Turnkey................................ 3.8 9 11.1 19 6.6 10
Governmental Aerospace................. 1.4 3 3.0 5 3.0 4
Other.................................. 10.2 23 3.9 6 10.2 15
----- --- ----- --- ----- ---
Total (1)............................ $44.2 100% $59.8 100% $68.1 100%
===== === ===== === ===== ===
</TABLE>
- --------
(1)Sales include shipping charges and sales taxes not reflected in the
Company's financial statements as net sales.
The Company's core strategy is focused on serving the domestic quick-turn
PCB market. It has broad national coverage and services customers in all
regions of the country. The Company is also expanding internationally, and has
recently opened an office in London, England staffed with three individuals.
In addition, the Company is currently developing a manufacturers'
representative arrangement in Singapore as an entry into the Asian market. The
Company has no current plans for international expansion beyond its sales
office in London, England and its manufacturers' representative arrangement in
Singapore.
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
51
<PAGE>
advances in the raw materials it purchases. Although the Company prefers
certain suppliers for some raw materials, multiple sources exist for all
materials. Adequate amounts of all raw materials have been available in the
past and the Company believes this will continue in the foreseeable future.
The primary raw materials used by the Company in its manufacturing process
are core materials (copperclad layers of fiberglass of varying thickness
impregnated with bonding materials), chemical solutions (copper, gold, etc.)
for plating operations, photographic film, carbide drill bits, and other
supplies such as copper anodes which are used in plating operations.
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition. Details principally competes with independent and captive
manufacturers of complex and quick-turn PCBs. The Company's principal
competitors include other independent, small private companies and integrated
subsidiaries of more broadly based volume producers. Some of the Company's
principal competitors are less highly-leveraged than the Company and may have
greater financial and operating flexibility. Moreover, the Company may face
additional competitive pressures as a result of changes in technology.
Competition in the complex and quick-turn PCB industry has increased due to
the consolidation trend in the industry, which results in potentially better
capitalized and more effective competitors. The Company's basic technology is
generally not subject to significant proprietary protection, and companies
with significant resources or international operations may enter the market.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. See "Risk
Factors--Competition."
FACILITIES
Details conducts its operations within 14 adjacent buildings, located in
Anaheim, California, totalling 73,000 square feet. Existing leases have a
remaining term of 8 years with an option to renew for 10 years or to purchase
at fair market value upon expiration. These lease arrangements have been
entered into with the Swenson Family Trust, which is controlled by the
Company's founder and former shareholder, James I. Swenson and his wife. Most
operations, including management, marketing, manufacturing, testing and
shipping, are housed in this building complex. The Company also leases a 5,000
square foot facility located in Placentia, California approximately one mile
from the main facility complex, which is used for research and development and
longer-lead time production volumes. The Company believes that its facilities
are adequate to support its current operations. See "Certain Relationships and
Related Transactions." On December 22, 1997, the Company acquired NTI which
has two leased facilities in Colorado Springs, Colorado occupying 84,000
square feet, and leases a storage facility in Colorado Springs. See "Recent
Developments."
EMPLOYEES
As of January 15, 1998, the Company has approximately 767 employees
(including NTI employees), none of whom are represented by unions. The Company
has not experienced any labor problems resulting in a work stoppage and
believes it has good relations with its employees.
ENVIRONMENTAL MATTERS
The Company utilizes various chemicals in its plating operations (copper
sulfate, sulfuric acid, nitric acid, hydrochloric acid, and ammonia agents)
which are carefully monitored to assure compliance with EPA requirements.
Other chemicals are used in the laminate processes, but are usually
52
<PAGE>
impregnated in raw materials and do not create toxic exposures. Proper waste
disposal and environmental regulations are major considerations for PCB
manufacturers because of the metals and chemicals used in the manufacturing
process.
Although the Company believes that its facilities are currently in material
compliance with applicable environmental laws, and it monitors its operations
to avoid violations arising from human error or equipment failures, there can
be no assurance that violations will not occur. In the event of a violation of
environmental laws, the Company could be held liable for damages and for the
costs of remedial actions and could also be subject to revocation of its
affluent discharge permits. Any such revocations could require the Company to
cease or limit production at one or more of its facilities, thereby having a
material adverse effect on the Company's operations. Environmental laws could
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. See "Risk Factors--Environmental Matters."
LEGAL PROCEEDINGS
The Company is a party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these
legal actions will not have a material adverse effect on the Company's
financial position or results of operations.
53
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Directors
and executive officers of Details, Details Capital and Holdings following the
Recapitalization and the incorporation of Details and Details Capital,
including their respective ages, as of February 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bruce D. McMaster................ 36 President and Director of Holdings,
Details Capital and Details
Joseph P. Gisch.................. 41 Chief Financial Officer of Holdings,
Details Capital and Details
Lee W. Muse, Jr. ................ 41 Vice President--Sales and Marketing of
Holdings, Details Capital and
Details
Terry L. Wright.................. 38 Vice President--Engineering of Holdings,
Details Capital and Details
Michael P. Moisan................ 43 Vice President--Operations of Holdings,
Details Capital and Details
James S. Marcelli................ 50 Vice President of Details
Edward W. Conard................. 41 Director of Holdings, Details Capital and
Details
Stephen M. Zide.................. 37 Vice President and Director of Holdings,
Details Capital and Details
Prescott Ashe.................... 30 Director of Holdings, Details Capital and
Details
Christopher Behrens.............. 36 Director of Holdings, Details Capital and
Details
</TABLE>
Bruce D. McMaster joined Details in 1985 and has served as President since
1991 and as a Director since the Recapitalization. Prior to joining the
Company, Mr. McMaster was employed by Multiplex, Inc., a PCB manufacturer,
where he was Production Supervisor for its factory.
Joseph P. Gisch has served as Chief Financial Officer since 1995. From 1986
to 1995, Mr. Gisch was a partner at the accounting firm of McGladrey & Pullen,
LLP where he was responsible for the audit, accounting and information systems
for a variety of manufacturing clients. Mr. Gisch was responsible for general
accounting and income tax matters for Details. Mr. Gisch has not been
responsible for any audit services for Details since 1991.
Lee W. Muse, Jr. joined Details in 1989 and has served as Vice President,
Sales and Marketing since 1992. Prior to 1989, Mr. Muse was employed by Metro-
Circuits, Inc., a PCB manufacturer, where he served as both the East and West
Coast Regional Sales Manager.
Terry L. Wright joined Details in 1991 and has served as Vice President,
Engineering since 1995. Prior to 1991, Mr. Wright was employed as a general
manager at the circuit board manufacturer, Applied Circuit Solutions, Inc.
Michael P. Moisan has been Vice President, Operations since 1996. Prior to
joining Details in October 1996, Mr. Moisan was employed by Circuit-Wise,
Inc., a PCB manufacturer, as Director of Technology & Engineering. From 1987
to 1995 Mr. Moisan was employed by AMP-AKZO, Inc., a PCB manufacturer, most
recently as Director of Operations.
James S. Marcelli joined Details and has been Vice President of Details
since 1997 and has been President of NTI since 1991.
54
<PAGE>
Edward W. Conard has served as a Director since the Recapitalization. He has
been a Managing Director of Bain Capital, Inc. since March 1993. From 1990 to
1992, Mr. Conard was a director of Wasserstein Perella, an investment banking
firm that specializes in mergers and acquisitions. Previously, he was a Vice
President at Bain & Company, where he headed the firm's operations practice
area. Mr. Conard also serves as a director of Waters Corporation.
Stephen M. Zide has served as Vice President and a Director since the
Recapitalization. Mr. Zide has been an Associate at Bain Capital, Inc. since
August 1997. Previously, he was a partner at the law firm of Kirkland & Ellis
from 1992 to 1995.
Prescott Ashe has served as a Director since the Recapitalization. Mr. Ashe
has been an Associate at Bain Capital, Inc. since December 1992. Previously,
he worked as an analyst at Bain Capital, Inc. and as a consultant at Bain &
Company.
Christopher Behrens has served as a Director since the Recapitalization. He
has been a Principal of Chase Capital Partners since 1994. Prior to joining
Chase Capital Partners ("CCP"), Mr. Behrens was a Vice President in the
Merchant Banking Group of The Chase Manhattan Bank ("Chase") from 1990 to
1994. Mr. Behrens is also a director of Portola Packaging and The Pantry in
addition to numerous private companies.
At present, all Directors are elected and serve until a successor is duly
elected and qualified or until the earlier of his death, resignation or
removal. All members of the Board of Directors of Holdings set forth herein
were elected by class vote pursuant to Holdings' Articles of Incorporation.
There are no family relationships between any of the Directors or executive
officers of Holdings, Details Capital or Details. Executive officers of
Holdings, Details Capital and Details are elected by and serve at the
discretion of their respective boards of directors.
55
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
the fiscal year ended December 31, 1996 of Mr. Swenson, the former CEO of
Holdings, and the four other most highly compensated executive officers of
Holdings (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS (2) COMPENSATION ($)
- ----------------- ---------- --------- ------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
James I. Swenson(3)..... $611,538 $400,000 -- -- $10,397(4)
Chief Executive Officer
Bruce D. McMaster....... 331,250 300,000 -- 781 --
President
Joseph P. Gisch......... 246,693 50,286 -- 111 --
Chief Financial Officer
Lee W. Muse, Jr. ....... 254,807 300,000 -- 649 --
Vice President, Sales
Terry L. Wright......... 127,502 75,000 -- 162 --
Vice President,
Engineering
</TABLE>
- --------
(1) The perquisites and other benefits paid to each Named Executive Officer
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus received by each Named Executive Officer.
(2) The options represent options to purchase shares of common stock of
Holdings in 1996, prior to the Recapitalization.
(3) Mr. Swenson resigned effective October 28, 1997 in connection with the
Recapitalization and received approximately $1.2 million in connection
with the termination of his employment agreement.
(4) Reflects certain life insurance benefits paid by Holdings on behalf of Mr.
Swenson.
56
<PAGE>
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase common stock of Holdings made to the Named Executive Officers during
the fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
-------------------------------------- ---------------------
NUMBER OF % OF TOTAL EXERCISE
OPTIONS OPTIONS TO PRICE EXPIRATION
NAME GRANTED (1)(2)(3) EMPLOYEES ($/SHARE) DATE 5% ($) 10% ($)
- ---- ----------------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James I. Swenson........ -- -- -- -- -- --
Bruce D. McMaster....... 781 41.3% $2,179 2006 $1,070,248 $2,712,231
Joseph P. Gisch......... 111 5.9 2,179 2006 152,110 385,477
Lee W. Muse, Jr. ....... 649 34.4 2,179 2006 889,364 2,253,828
Terry L. Wright......... 162 8.6 2,179 2006 221,999 562,589
</TABLE>
- --------
(1) The options represent options to purchase shares of common stock of
Holdings in 1996, prior to the Recapitalization.
(2) Prior to the Recapitalization, upon the exercise of any options and,
following the Recapitalization, upon the exercise of options to acquire
shares of Class L Common (as defined), the Company must pay to the
optionee a bonus in an aggregate amount sufficient to enable the optionee
to satisfy his federal and state income tax liability attributable to such
exercise and bonus (subject to certain limitations).
(3) In connection with the Recapitalization: (i) unvested options to purchase
328.6 shares of common stock held by the Named Executive Officers became
vested and converted into options to purchase approximately 74,279 shares
of Class A Common (as defined) at an exercise price of $0.9639 per share
and options to purchase approximately 9,181 shares of Class L Common at an
exercise price of $70.1858 per share; (ii) of the remaining options to
purchase 1,374.4 shares of common stock, approximately 1,203.7 were
exercised and converted into the right to receive cash and approximately
170.7 were exercised and converted into approximately 38,583 shares of
Class A Common Stock, without par value ("Class A Common"), and 4,769
shares of Class L Common Stock, without par value ("Class L Common");
(iii) the Named Executive Officers received a bonus payment of $10 million
in the aggregate from the Company; and (iv) the Named Executive Officers
employed by the Company after the Recapitalization received an aggregate
bonus of approximately $2.4 million, which amount is payable on the third
anniversary of the Recapitalization whether or not such Named Executive
Officer is still employed by the Company.
(4) In the nine months ended September 30, 1997, the Company recorded a non-
cash charge against earnings of approximately $2.9 million in connection
with stock compensation and related bonuses under the 1996 Stock Option
Plan. The Company estimates that an additional non-cash charge of
approximately $15.9 million will be incurred in the fourth quarter of 1997
in connection with the Recapitalization and the 1996 Stock Option Plan.
EMPLOYMENT AGREEMENTS
Mr. McMaster is currently employed as President of the Company pursuant to
an agreement dated September 1, 1995, as amended, effective until October 28,
2000. Under this agreement, Mr. McMaster is entitled to receive an annual
salary of $375,000 in 1997, $425,000 in 1998 and $450,000 in 1999. In
addition, Mr. McMaster is eligible for an annual bonus based upon the
achievement of EBITDA targets and received an award, pursuant to the
agreement, of 4,747.0099 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
57
<PAGE>
the agreement. In addition, Mr. McMaster will be entitled to receive an
additional bonus of $1,088,558.35 in consideration of prior services which
will be payable on the third anniversary of the Recapitalization whether or
not he is still employed by the Company.
Mr. Gisch is currently employed as Chief Financial Officer of the Company
pursuant to an agreement dated September 19, 1995, as amended, effective until
October 28, 2000. Under this agreement, Mr. Gisch is entitled to receive an
annual salary of $252,000 in 1997, $265,000 in 1998 and $275,000 in 1999. In
addition, Mr. Gisch is eligible for an annual bonus based upon the achievement
of EBITDA targets and received an award, pursuant to the agreement, of
676.7889 shares of Class A Common on the Recapitalization closing date. Mr.
Gisch's employment agreement contains customary confidentiality provisions. In
addition, Mr. Gisch will be entitled to receive an additional bonus of
$155,197.52 in consideration of prior services which will be payable on the
third anniversary of the Recapitalization whether or not he is still employed
by the Company.
Mr. Muse is currently employed as Vice President--Sales and Marketing of the
Company pursuant to an agreement dated September 1, 1995, as amended,
effective until October 28, 2000. Under this agreement, Mr. Muse is entitled
to receive an annual salary of $300,000 in 1997, $350,000 in 1998 and $375,000
in 1999. In addition, Mr. Muse is eligible for an annual bonus based upon the
achievement of EBITDA targets and received an award, pursuant to the
agreement, of 3,950.0435 shares of Class A Common on the Recapitalization
closing date. Mr. Muse's employment agreement contains customary
confidentiality provisions and a non-compete clause effective for the duration
of the term of the agreement. In addition, Mr. Muse will be entitled to
receive an additional bonus of $905,802.38 in consideration of prior services
which will be payable on the third anniversary of the Recapitalization whether
or not he is still employed by the Company.
Mr. Wright is currently employed as Vice President--Engineering of the
Company pursuant to an agreement dated September 1, 1995, as amended,
effective until October 28, 2000. Under this agreement, Mr. Wright is entitled
to receive an annual salary of $140,000 in 1997, $155,000 in 1998 and $170,000
in 1999. In addition, Mr. Wright is eligible for an annual bonus based upon
the achievement of EBITDA targets and received an award, pursuant to the
agreement, of 993.0454 shares of Class A Common on the Recapitalization
closing date. Mr. Wright's employment agreement contains customary
confidentiality provisions and a non-compete clause effective for the duration
of the term of the agreement. In addition, Mr. Wright will be entitled to
receive an additional bonus of $227,719.73 in consideration of prior services
which will be payable on the third anniversary of the Recapitalization whether
or not he is still employed by the Company.
COMPENSATION OF DIRECTORS
During 1996 and 1997 until the closing date of the Recapitalization, outside
Directors of Holdings received $2,500 per meeting attended for serving on the
Board of Directors of Holdings and were reimbursed for their out-of-pocket
expenses incurred in connection with attending board meetings. Details,
Details Capital and Holdings currently pay no compensation to their
independent directors, and pay no additional remuneration to their employees
or to executives of Details, Details Capital or Holdings for serving as
directors.
STOCK OPTION PLANS AND RELATED TRANSACTIONS
Prior to the Recapitalization, the Company had two stock option plans, (i)
the 1996 Performance Stock Option Plan (the "1996 Stock Option Plan") under
which the Board was authorized to sell or
58
<PAGE>
otherwise issue options to acquire up to 1,809 shares of the Company's common
stock in such quantity, at such price, on such terms and subject to such
conditions as established by the Board, and (ii) the 1996 Employee Stock
Option Plan (the "1996 Employee Plan") under which the Board was authorized to
sell or otherwise issue options to acquire up to 260 shares of the Company's
common stock in such quantity, at such price, on such terms and subject to
such conditions as established by the Board. Under the 1996 Stock Option Plan,
the Board had granted options to acquire 1,703 shares of the Company's common
stock and, under the 1996 Employee Plan, the Board had granted options to
acquire 247 shares of the Company's common stock, in each case, at an exercise
price of $2,179 per share.
In connection with the Recapitalization, the Board accelerated the vesting
of all of the unvested options as of the closing date of the Recapitalization
and (i) of the 1,703 options granted under the 1996 Stock Option Plan, 1,374.4
were exercised and the remaining 328.6 continue outstanding, and (ii) of the
247 options granted under the 1996 Employee Plan, 64.2 were canceled and
redeemed and 182.8 continue outstanding. In accordance with the provisions of
the respective plans, upon the effectiveness of the amendment of the Company's
Articles of Incorporation in connection with the Recapitalization, the holder
of each outstanding option became entitled to purchase 226.0362 shares of
Class A Common at an exercise price of $0.9639 per share and 27.9371 shares of
Class L Common at an exercise price of $70.1858 per share. Shortly after the
Recapitalization, each of the Named Executive Officers elected to exercise his
remaining options to acquire shares of Class A Common under the 1996 Stock
Option Plan. The Company loaned to each Named Executive Officer sufficient
funds to satisfy the exercise price of such options. Immediately after the
Recapitalization, the Board of Directors adopted, and the stockholders
approved, the 1997 Details, Inc. Equity Incentive Plan (the "1997 Stock Option
Plan" and, together with the 1996 Stock Option Plan and the 1996 Employee
Plan, collectively, the "Stock Option Plans") which authorizes the granting of
stock options and the sale of Class A Common to current or future employees,
directors, consultants or advisors of Holdings or its subsidiaries. The Board
is authorized to sell or otherwise issue Class A Common at any time prior to
the termination of the 1997 Stock Option Plan in such quantity, at such price,
on such terms and subject to such conditions as established by the Board up to
an aggregate of 235,000 shares of Class A Common, subject to adjustment upon
the occurrence of certain events to prevent any dilution or expansion of the
rights of participants that might otherwise result from the occurrence of such
events. Currently there are approximately 10,021 shares of Class A Common
available for grant under the 1997 Stock Option Plan. Pursuant to the
Recapitalization Agreement, the Named Executive Officers (i) received
approximately $89.1 million, subject to adjustment, in cash in exchange for
shares and options of Holdings held by such Named Executive Officers that were
repurchased in the Recapitalization, (ii) received options with a net
realizable value of $3 million, and (iii) retained common stock of Holdings
with a value of approximately $11.3 million.
Options to purchase an aggregate of 112,489.4228 shares of Class A Common at
an exercise price of $61.17 per share were granted and 112,489.4228 shares of
Class A Common restricted stock were made available at $5 per share to the
Named Executive Officers under the 1997 Stock Option Plan in connection with
the Recapitalization. The restricted stock and options vest in equal monthly
increments over a four year period from the date of grant or issue, subject to
earlier vesting upon certain events, including all of such shares vesting
immediately on a sale of the Company. The aggregate exercise price of the
options granted under the 1997 Stock Option Plan in connection with the
Recapitalization is approximately $6.9 million. Subsequent to the
Recapitalization, the Named Executive Officers purchased an aggregate of
112,489.4228 shares of Class A Common restricted stock at a price of $5 per
share and exercised options to purchase an aggregate of 74,278.5902 shares of
Class A Common with an exercise price of $0.9639 per share. The Company loaned
to each such Named Executive Officer, pursuant to an interest bearing note,
sufficient funds to pay the purchase price and the exercise price with respect
to such shares and options. Mr. McMaster, Mr. Gisch, Mr. Muse and Mr. Wright
received loans of approximately $285,885, $46,856, $224,137 and
59
<PAGE>
$77,164 for the purchase of restricted shares of Class A Common and the
exercise of options to purchase shares of Class A Common. The Company has
agreed to permit the Named Executive Officers to repay their respective loan
obligations with proceeds received as deferred purchase price in connection
with the Recapitalization.
The following table summarizes the shares of capital stock and options that
were acquired by the Named Executive Officers under the 1997 Stock Option Plan
in connection with the Recapitalization:
<TABLE>
<CAPTION>
NO. OF
OPTIONS TO PURCHASE
NO. OF RESTRICTED SHARES SHARES OF
OF CLASS A COMMON AGGREGATE CLASS A COMMON
NAME PURCHASED(1) PURCHASE PRICE(2) GRANTED
- ---- ------------------------ ----------------- -------------------
<S> <C> <C> <C>
James I. Swenson........ -- $ -- --
Bruce D. McMaster....... 50,620.2402 253,101 50,620.2402
Joseph P Gisch.......... 8,436.7067 42,184 8,436.7067
Lee W. Muse, Jr. ....... 39,371.2980 196,856 39,371.2980
Terry L. Wright......... 14,061.1778 70,306 14,061.1778
</TABLE>
- --------
(1) The Company has the right to repurchase the restricted shares of Class A
Common held by a Named Executive Officer for the original purchase price
in the event that the Named Executive Officer ceases to be employed by the
Company.
(2) The Company loaned the aggregate purchase price to each Named Executive
Officer pursuant to an interest bearing note.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
All of Details Capital's issued and outstanding capital stock is owned by
Holdings. As of February 1, 1998, the outstanding equity securities of
Holdings consisted of 2,081,753.1 shares of Class A Common and 233,593.7
shares of Class L Common. The Class A Common consists of six separate classes
(A-1 through A-6), which have different rights with respect to the election of
directors. All of the shares of Class A Common entitle the holder to one vote
per share on all matters to be voted upon by the stockholders of Holdings
except for Class A-6, which is nonvoting. The Class L Common is identical to
the Class A Common except that the Class L Common is nonvoting and is entitled
to a preference over the Class A Common with respect to any distribution by
Holdings to holders of its capital stock equal to the original cost of such
share ($364.0909) plus an amount which accrues on a daily basis at a rate of
12% per annum, compounded quarterly. The Class L Common is convertible into
Class A Common upon a vote of a majority of the holders of the outstanding
Class L Common at any time.
The following table sets forth certain information as of February 1, 1998
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 of such stockholders has sole voting and investment power as to
the shares shown unless otherwise noted. Beneficial ownership of the
securities listed in the table has been determined in accordance with the
applicable rules and regulations promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------------
CLASS A COMMON STOCK CLASS L COMMON STOCK
---------------------- --------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
NAME AND ADDRESS OF SHARES OF CLASS OF SHARES OF CLASS
---------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Capital Funds (1)............. 1,065,497.2 50.0% 131,690.7 53.1%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Chase Manhattan Capital, L.P.(2)... 386,912.0 18.1 47,820.6 19.3
380 Madison Avenue
12th Floor
New York, New York 10017
DIRECTORS AND EXECUTIVE OFFICERS:
James I. Swenson(3)................ -- -- -- --
Bruce D. McMaster(4)............... 204,589.1 9.6 18,741.7 7.6
Joseph P. Gisch(5)................. 29,382.7 1.4 2,554.9 1.0
Lee W. Muse(6)..................... 146,329.0 6.9 12,963.5 5.3
Terry L. Wright(7)................. 38,790.3 1.8 3,016.6 1.2
Christopher Behrens(8)............. 386,912.0 18.1 47,820.6 19.3
Edward Conard(9)................... 1,065,497.2 50.0 131,690.7 53.1
Stephen M. Zide(10)................ 230,595.8 10.8 28,493.1 11.5
Prescott Ashe(10).................. 230,595.8 10.8 28,493.1 11.5
All Directors and executive offi-
cers as a group (10 persons)(11).. 463,114.5 21.7 41,602.5 16.8
</TABLE>
- --------
(1) Includes shares of Class A Common and Class L Common held by Bain Capital
Fund V, L.P., ("Fund V"); Bain Capital Fund V-B, L.P. ("Fund V-B"); BCIP
Associates ("BCIP"); and BCIP Trust
61
<PAGE>
Associates, L.P. ("BCIP Trust" and collectively with Fund V, Fund V-B and
BCIP, the "Bain Capital Funds").
(2) CMC is the managing member of DI Investors, L.L.C. and owns a majority of
the interests therein. Accordingly, CMC may be deemed to beneficially own
shares owned by DI Investors, L.L.C. CMC disclaims beneficial ownership
of any such shares in which it does not have a pecuniary interest.
(3) Mr. Swenson's employment with Holdings and the Company terminated on
October 28, 1997.
(4) The shares of Class A Common included in the table include 48,205.1
shares, which, upon purchase, are subject to vesting. The shares of Class
L Common included in the table include 4,203.8 shares that can be
acquired upon the exercise of outstanding options.
(5) The shares of Class A Common included in the table include 8,034.2
shares, which are subject to vesting. The shares of Class L Common
included in the table include 599.3 shares that can be acquired upon the
exercise of outstanding options.
(6) The shares of Class A Common included in the table include 37,492.8
shares, which are subject to vesting. The shares of Class L Common
included in the table include 3,498.0 shares that can be acquired upon
the exercise of outstanding options.
(7) The shares of Class A Common included in the table include 13,390.3
shares, which are subject to vesting. The shares of Class L Common
included in the table include 879.4 shares that can be acquired upon the
exercise of outstanding options.
(8) Mr. Behrens is a Principal of CCP, the general partner of CMC and,
accordingly, may be deemed to beneficially own shares owned by CMC. Mr.
Behrens disclaims beneficial ownership of any such shares in which he
does not have a pecuniary interest. The address of Mr. Behrens is c/o
Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New
York 10017.
(9) Mr. Conard is Managing Director of Bain Capital, Inc. and a limited
partner of Bain Capital Partners V, L.P., the sole general partner of
Fund V and Fund V-B. Accordingly, Mr. Conard may be deemed to
beneficially own shares owned by Fund V and Fund V-B. Mr. Conard is a
general partner of BCIP and BCIP Trust and, accordingly, may be deemed to
beneficially own shares owned by such funds. Mr. Conard disclaims
beneficial ownership of any such shares in which he does not have a
pecuniary interest. The address of Mr. Conard is c/o Bain Capital, Inc.,
Two Copley Place, Boston, Massachusetts 02116.
(10) The shares of Class A Common and Class L Common included in the table
represent shares held by BCIP. Messrs. Zide and Ashe are each Associates
of Bain Capital, Inc. and are partners of BCIP and limited partners of
BCIP Trust and, accordingly, may be deemed to beneficially own shares
owned by such funds. Each such person disclaims beneficial ownership of
any such shares in which he does not have a pecuniary interest. The
address of each such person is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116.
(11) Excludes shares deemed to be beneficially owned by Messrs. Conard, Zide,
Ashe and Behrens.
62
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summary of the Recapitalization Agreement, the Stockholders
Agreement and the Management Agreement is a description of the material
provisions of these agreements, each of which is filed as an exhibit to this
Registration Statement of which this Prospectus forms a part.
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contains customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the
conduct of the business prior to the Recapitalization closing date and various
closing conditions, including the obtaining of financing and the continued
accuracy of representations and warranties. In addition, the Company has
agreed to pay to the equity holders immediately prior to the Recapitalization
amounts received as a result of tax benefits realized in connection with the
Recapitalization.
Subject to certain limitations set forth therein, the Recapitalization
Agreement contains indemnification provisions binding on the Company after the
Recapitalization closing date. Specifically, the Company has agreed to
indemnify each stockholder party to the Recapitalization Agreement against any
and all liabilities resulting from (i) any misrepresentation or breach of
warranty made by DIA in the Recapitalization Agreement and (ii) any breach or
default in performance by the Company of any covenant or agreement contained
in the Recapitalization Agreement, after the Recapitalization.
Subject to certain limitations set forth therein, the equity holders
immediately prior to the Recapitalization have agreed to indemnify the Company
and its officers, directors, employees and agents on a pro rata basis against
any and all liabilities resulting from (i) any misrepresentation or breach of
warranty by such stockholders in the Recapitalization Agreement and (ii) any
breach or default in performance by the Company, prior to the Effective Time,
of such covenant or agreement (as described in the Recapitalization
Agreement).
STOCKHOLDERS AGREEMENT
In connection with the Recapitalization, the Bain Capital Funds, Company
management, CMC and all of the other stockholders and optionholders of
Holdings entered into a stockholders agreement (the "Stockholders Agreement"),
that, among other things, provides for tag-along rights, drag-along rights,
registration rights, restrictions on the transfer of shares held by parties to
the Stockholders Agreement and certain preemptive rights for certain
stockholders including the Bain Capital Funds, management and CMC. The
Stockholders Agreement also provides that the parties thereto will vote their
shares in the same manner as the Bain Capital Funds in connection with certain
transactions and that the Bain Capital Funds will be entitled to fix the
number of directors of Holdings. Pursuant to Holdings' charter, the Bain
Capital Funds will be entitled to designate a sufficient number of directors
to maintain a majority of the board of directors of Holdings and each of
management and CMC will be entitled to designate one director.
MANAGEMENT AGREEMENT
Pursuant to a management agreement among Bain Capital Partners V, L.P.
("Bain"), Holdings and 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
63
<PAGE>
for any acquisition, recapitalization or refinancing transaction (including
assumed debt). In connection with the Recapitalization, Bain received a
transaction fee of approximately $3.1 million. In connection with the NTI
Acquisition, Bain received a transaction fee of approximately $380,000. The
Management Agreement continues in full force and effect, unless and until
terminated by mutual consent of the parties, or until terminated as a result
of a breach of the Management Agreement. The Management Agreement includes
customary indemnification provisions in favor of Bain.
CERTAIN INTERESTS OF THE FORMER CEO
The Company leases the buildings and certain equipment located at its
Anaheim, California facility pursuant to lease arrangements entered into with
the Swensen Family Trust, a trust controlled by the Company's founder and
former shareholder, James I. Swensen, and his wife. Under the terms of these
leases, the Company pays approximately $104,000 per month in 1997 as base rent
subject to applicable adjustment based upon changes in the consumer price
index. The leases have a remaining term of 8 years with an option to renew for
an additional 10 years or to purchase the property at fair market value upon
expiration. See "Business--Facilities."
64
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR CREDIT FACILITIES
Details has entered into an agreement with various banks and financial
institutions, including Chase, an affiliate of the Initial Purchaser, as a
bank lender and as agent for the bank lenders party thereto, providing for the
Senior Credit Facilities, which currently consists of (i) the Tranche A
Facility of up to approximately $31.1 million in term loans; (ii) the
acquisition facility (the "Acquisition Facility") of up to $25.0 million which
was borrowed in connection with the NTI Acquisition; (iii) the Tranche B
Facility of up to $50.0 million in term loans; and (iv) the Revolving Credit
Facility of up to $30.0 million in revolving credit loans, letters of credit
and swing line loans.
The Senior Credit Facilities are (i) jointly and severally guaranteed by
Holdings and Details Capital and (ii) secured by all of the stock of Details
and certain stock of Details' subsidiaries. Future domestic subsidiaries of
Details will guarantee the Senior Credit Facilities and secure that guarantee
with their tangible and intangible assets.
The Senior Credit Facilities require Details to meet certain financial
tests, including without limitation: (i) a maximum debt to equity ratio that
is established at 6.25 to 1.0 for the period through December 30, 1998 and
diminishes each year to a ratio of 2.75 to 1.0 through December 31, 2003 and
thereafter; (ii) a minimum interest to EBITDA ratio that is established at
1.60 to 1.0 for the period through December 30, 1998, after which it increases
each year to a ratio of 2.75 to 1.0 for the period through December 31, 2002
and is maintained at 2.0 to 1.0 for the period through December 31, 2003 and
thereafter; (iii) a minimum fixed charges to EBITDA ratio of 1.05 to 1.0; and
(iv) a minimum EBITDA that is established at $30.0 million for fiscal 1997 and
increases each year to $45.0 million for fiscal 2002 and thereafter. In
addition, the Senior Credit Facilities contain certain negative covenants
limiting, among other things, additional debt, additional liens, transactions
with affiliates, mergers and consolidations, liquidations and dissolutions,
sales of assets, dividends, capital expenditures, investments, loans and
advances, prepayments and modifications of debt instruments and other matters
customarily restricted in such agreements. Pursuant to the terms of the Senior
Credit Facilities, the Company is required to compute financial ratios and
certify as to other covenants on a quarterly basis. The Senior Credit
Facilities contain customary events of default, including without limitation,
payment defaults, breaches of representations and warranties, covenant
defaults, certain events of bankruptcy and insolvency, failure of any guaranty
or security document supporting the Senior Credit Facilities to be in full
force and effect, change of control of Holdings and change of ownership of the
stock of Details.
The Tranche A Facility and any borrowings pursuant to the Acquisition
Facility mature in quarterly installments from September 1998 until October
2003. The Tranche B Facility matures in minimal quarterly installments from
September 1998 until December 2003 at which time the remaining outstanding
loans under the Tranche B Facility become repayable in three equal quarterly
installments with a final payment in October 2004. The Revolving Credit
Facility terminates in October 2003.
Details' borrowings under the Senior Credit Facilities bear interest at a
floating rate and may be maintained as ABR Loans (as defined in the Senior
Credit Facilities) or, beginning 60 days after the closing date of the Senior
Credit Facilities (or earlier upon syndication) at Details' option, as
Eurodollar Loans. ABR Loans bear interest at the ABR (defined as the higher of
(x) the applicable prime lending rate of Chase and (y) the Federal Reserve
reported overnight funds rate plus 1/2 of 1%) plus the Applicable Margin (as
defined in the Senior Credit Facilities). Eurodollar Loans shall bear interest
at the Eurodollar Rate (as defined in the Senior Credit Facilities) plus the
Applicable Margin.
The Applicable Margin shall be (a) with respect to the Revolving Credit
Facility, the Acquisition Facility and the Tranche A Facility, (i) 1 1/2%, in
the case of ABR Loans and (ii) 2 1/2%, in the case of Eurodollar Loans and (b)
with respect to the Tranche B Facility, (i) 1 3/4% in the case of ABR Loans
65
<PAGE>
and (ii) 2 3/4%, in the case of Eurodollar Loans. The Applicable Margin with
respect to the Revolving Credit Facility and the Tranche A Facility is subject
to reduction after four fiscal quarters following the closing of the Senior
Credit Facilities in accordance with an agreed upon pricing grid.
Details is required to pay to the lenders under the Senior Credit Facilities
a commitment fee equal to 1/2 of 1% per annum, payable in arrears on a
quarterly basis, on the average unused portion of the Revolving Credit
Facilities during such quarter (provided that such commitment fee decreases to
3/8 of 1% per annum if during any quarterly payment period certain financial
ratios relating to interest coverage and leverage are attained). Details is
required to pay to the lenders a letter of credit fee with respect to each
letter of credit outstanding equal to a floating rate of interest equal to the
Applicable Margin on Eurodollar Loans times the average daily stated amount of
such letter of credit as well as a fronting fee of 1/4 of 1% on such average
daily stated amount.
The Senior Credit Facilities prescribe that certain amounts must be used to
prepay the Term Loan Facilities and reduce commitments under the Revolving
Credit Facility including (a) 100% of the net proceeds of any sale or issuance
of equity or any incurrence of indebtedness after the closing date by Details
or any of its subsidiaries, except for proceeds of the Senior Subordinated
Notes and the Discount Notes to the extent applied to repay the Senior
Subordinated Facility or the Holdings Facility and subject to certain other
exceptions including the retention of equity proceeds under certain
circumstances including for use in acquisitions or the making of capital
expenditures, (b) 100% of the net proceeds of any sale or other disposition by
Details or any of its subsidiaries of any assets (including casualties or
condemnations), except for the sale of inventory or obsolete or worn-out
property in the ordinary course of business and subject to exceptions for
certain reinvestments and (c) 75% of Excess Cash Flow (as defined in the
Senior Credit Facilities) for each fiscal year of Details commencing with the
fiscal year ending December 31, 1998, provided, that the foregoing percentage
will be reduced to 50% upon satisfaction of certain financial ratios.
In general, mandatory prepayments described above will be applied, first to
prepay the Term Loan Facilities (pro rata among the Tranche A Facility and the
Tranche B Facility) and second, to permanently reduce commitments under the
Revolving Credit Facility (with extensions of credit thereunder being prepaid
to the extent the aggregate amount thereof exceeds the Revolving Credit
Facility commitments as so reduced). Prepayments, optional or mandatory of the
Term Loan Facilities will be applied pro rata to the Tranche A Facility and
the Tranche B Facility, and ratably to the respective installments thereof.
Notwithstanding the foregoing, as long as any Tranche A term loans are
outstanding, each holder of Tranche B term loans has the right to refuse all
or any portion of such prepayment allocable to it, and the amount so refused
will be applied to prepay the Tranche A term loans. Any prepayments of the
Term Loan Facilities may not be reborrowed. Details repaid approximately $10.3
million of the Term Loan Facilities with a portion of the proceeds from the
Note Offering.
SENIOR SUBORDINATED NOTES
Concurrently with the Exchange Offer, Details is conducting an exchange
offer for the Senior Subordinated Notes. The exchanged Senior Subordinated
Notes will have the same terms as the original Senior Subordinated Notes
described herein.
The Senior Subordinated Notes were issued in an aggregate principal amount
of $100,000,000 and will mature on November 15, 2005. The Senior Subordinated
Notes were issued under an indenture dated as of November 18, 1997 (the
"Senior Subordinated Note Indenture") between Details, as issuer, and State
Street Bank and Trust Company, as trustee, and are senior subordinated
unsecured obligations of Details. Cash interest on the Senior Subordinated
Notes will accrue at the rate of 10% per annum and will be payable semi-
annually in arrears on each May 15 and November 15 of each year, commencing
May 15, 1998 to the holders of record on the immediately preceding May 1 and
November 1, respectively.
66
<PAGE>
On or after November 15, 2001, the Senior Subordinated Notes may be redeemed
at the option of Details, in whole at any time or in part from time to time,
at a redemption price equal to the applicable percentage of the principal
amount thereof set forth below, plus accrued and unpaid interest, if any, to
the redemption date, if redeemed during the twelve-month period commencing on
November 15 in the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001........................................................... 105.000%
2002........................................................... 103.333%
2003........................................................... 101.667%
2004 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to November 15, 2000,
Details may use the net proceeds of one or more Equity Offerings (as defined
therein) to redeem up to 40% of the Senior Subordinated Notes at a redemption
price equal to 110% of the principal amount thereof plus accrued and unpaid
interest, if any, to the redemption date; provided, however, that after any
such redemption the aggregate principal amount of the Senior Subordinated
Notes outstanding must equal at least 60% of the aggregate principal amount of
the Senior Subordinated Notes originally issued.
At any time on or prior to November 15, 2001, the Senior Subordinated Notes
may also be redeemed as a whole at the option of Details upon the occurrence
of a Change of Control, upon not less than 30 nor more than 60 days prior
notice (but in no event more than 90 days after the occurrence of such Change
of Control) mailed by first-class mail to each holder's registered address, at
a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined therein) as of, and accrued and unpaid
interest, if any, to, the date of redemption.
In the event of a Change of Control (as defined in the Senior Subordinated
Note Indenture), each holder of Senior Subordinated Notes has the right to
require the repurchase of such holder's Senior Subordinated Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the purchase date.
The Senior Subordinated Note Indenture contains covenants that, among other
things, limit the ability of Details to enter into certain mergers or
consolidations, incur certain liens, incur additional indebtedness, pay
dividends and make certain other Restricted Payments (as defined therein) and
engage in certain transactions with affiliates. Under certain circumstances
Details will be required to make an offer to purchase Senior Subordinated
Notes at a price equal to 100% of the principal amount thereof, plus accrued
interest to the date of purchase with the proceeds of certain Asset
Dispositions (as defined therein). The Senior Subordinated Note Indenture
contains certain customary events of default which will include the failure to
pay interest and principal, the failure to comply with certain covenants in
the Senior Subordinated Notes or such Indenture, a default under certain
indebtedness, the imposition of certain final judgments or warrants of
attachment and certain events occurring under bankruptcy laws. See "Risk
Factors--Limitation on Access to Cash Flow of Subsidiaries; Holding Company
Structure."
67
<PAGE>
DESCRIPTION OF EXCHANGE DISCOUNT NOTES
GENERAL
The Exchange Discount Notes are to be issued under an indenture dated
November 18, 1997 between Holdings (the sole stockholder of Details Capital),
and State Street Bank and Trust Company, as trustee (the "Trustee"), as
amended and supplemented by the supplemental indenture (as so amended and
supplemented, the "Indenture") dated as of , 1998 between Details Capital
and the Trustee, a copy of which is available upon request to the Issuer. The
following is a description of the material provisions of the Indenture, which
is filed as an exhibit to the Exchange Offer Registration Statement of which
this Prospectus forms a part. For purposes of this summary the term "Issuer"
or "Details Capital" refers only to Details Capital Corp. and not to any of
its subsidiaries and the term "Details" refers to Details, Inc. and its
subsidiaries.
Principal of, premium, if any, and interest on the Exchange Discount Notes
will be payable, and the Exchange Discount Notes may be exchanged or
transferred, at the office or agency of the Issuer in the Borough of
Manhattan, The City of New York (which initially shall be the corporate trust
office of the Trustee in New York, New York), except that, at the option of
the Issuer, payment of interest may be made by check mailed to the address of
the Holders as such address appears in the Discount Note Register.
The Exchange Discount Notes will not be entitled to the benefit of any
mandatory sinking fund.
The Exchange Discount Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of
$1,000. No service charge will be made for any registration of transfer or
exchange of Exchange Discount Notes, but the Issuer may require payment of a
sum sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith. Initially, the Trustee will act as Paying
Agent and Registrar for the Exchange Discount Notes. The Exchange Discount
Notes may be presented for registration of transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Issuer may change any Paying Agent and Registrar without
notice to Holders of the Exchange Discount Notes.
The Exchange Discount Notes are expected to be eligible for trading in the
PORTAL market.
TERMS OF EXCHANGE DISCOUNT NOTES
The Exchange Discount Notes will be issued at a discount to their aggregate
principal amount at maturity to generate gross proceeds to the Issuer on the
Issue Date of approximately $60.1 million and will mature on November 15,
2007. The Exchange Discount Notes will accrete in value until November 15,
2002 at a rate per annum shown on the cover of this Prospectus, compounded
semi-annually, to an aggregate principal amount of $110.0 million, the
principal amount at maturity. Cash interest will not accrue on the Exchange
Discount Notes prior to November 15, 2002. Thereafter, interest will accrue at
the rate per annum shown on the cover of this Prospectus and will be payable
semi-annually in cash and in arrears to the Holders of record on each May 1 or
November 1 immediately preceding the interest payment date on May 15 and
November 15 of each year, commencing May 15, 2003. Cash interest on the
Exchange Discount Notes will accrue from the most recent interest payment date
to which interest has been paid or, if no interest has been paid, from
November 15, 2002. All references to the principal amount of the Exchange
Discount Notes herein are references to the principal amount at final
maturity.
The Exchange Discount Notes will be unsecured, senior obligations of the
Issuer and will rank pari passu in right of payment to all existing and future
indebtedness of the Issuer (including the guarantee by the Issuer of the
Senior Credit Agreement, which is secured by a pledge of the Capital Stock of
the Company). All the operations of the Issuer are conducted through its
Subsidiaries and therefore the
68
<PAGE>
Issuer is dependent upon the cash flow of its Subsidiaries to meet its
obligations, including its obligations on the Exchange Discount Notes. See
"Risk Factors--Limitation on Access to Cash Flow of Subsidiaries; Holding
Company Structure." The Senior Credit Agreement and the Senior Subordinated
Notes will restrict Details' ability to pay dividends or make other
distributions to the Issuer. The Exchange Discount Notes will be effectively
subordinated to all existing and future Indebtedness and liabilities of the
Issuer's subsidiaries (including trade credit, the Senior Subordinated Notes
and Indebtedness of Details and its Subsidiaries in respect of the Senior
Credit Agreement). Any right of the Issuer to receive assets of any of its
Subsidiaries upon such Subsidiary's liquidation or reorganization (and the
consequent right of Holders of the Exchange Discount Notes to participate in
those assets) will be effectively subordinated to the claims of that
Subsidiary's creditors.
OPTIONAL REDEMPTION
Except as set forth below, the Discount Notes will not be redeemable at the
option of the Issuer prior to November 15, 2002. On and after such date, the
Discount Notes will be redeemable, at the Issuer's option, in whole or in
part, at any time upon not less than 30 nor more than 60 days prior notice
mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date):
If redeemed during the 12-month period commencing on November 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2002.................................................... 106.250%
2003.................................................... 104.167%
2004.................................................... 102.083%
2005 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to November 15, 2000,
the Issuer may redeem in the aggregate up to 40% of the principal amount of
Discount Notes originally issued with the proceeds of one or more Equity
Offerings received by, or invested in, the Issuer so long as there is a Public
Market at the time of such redemption, at a redemption price (expressed as a
percentage of the Accreted Value thereof) of 112.5%; provided, however, that
at least 60% of the original principal amount of the Discount Notes must
remain outstanding after each such redemption .
At any time on or prior to November 15, 2002, the Discount Notes may also be
redeemed as a whole at the option of the Issuer upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each holder's registered address, at a
redemption price equal to 100% of the Accreted Value thereof plus the
Applicable Premium as of the date of redemption (the "Redemption Date").
"Applicable Premium" means, with respect to an Discount Note at any
Redemption Date, the greater of (i) 1.0% of the Accreted Value of such
Discount Note on such Redemption Date and (ii) the excess of (A) the present
value at such time of the redemption price of such Discount Note at November
15, 2002 (such redemption price being described under "--Optional Redemption")
computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (B) the Accreted Value of such Discount Note on such Redemption
Date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve
69
<PAGE>
Statistical Release H.15 (519) which has become publicly available at least
two business days prior to the Redemption Date (or, if such Statistical
Release is no longer published, any publicly available source or similar
market data)) most nearly equal to the period from the Redemption Date to
November 15, 2002; provided, however, that if the period from the Redemption
Date to November 15, 2002 is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Redemption Date to November 15, 2002 is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
Selection. In the case of any partial redemption, selection of the Discount
Notes for redemption will be made by the Trustee on a pro rata basis, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate, although no Discount Note of $1,000 in original
principal amount or less will be redeemed in part. If any Discount Note is to
be redeemed in part only, the notice of redemption relating to such Discount
Note shall state the portion of the principal amount thereof to be redeemed. A
new Discount Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Discount Note.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), unless the Issuer shall have exercised its right to redeem the
Discount Notes as described under "-- Optional Redemption," each Holder will
have the right to require the Issuer to repurchase all or any part of such
Holder's Discount Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date) or, in the case of
purchases of Discount Notes prior to November 15, 2002, at a purchase price
equal to 101% of the Accreted Value thereof as of the date of purchase:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the
total voting power of the Voting Stock of the Issuer (or its successor
by merger, consolidation or purchase of all or substantially all of its
assets) (for the purposes of this clause, such person shall be deemed
to beneficially own any Voting Stock of the Issuer held by a parent
corporation, if such person "beneficially owns" (as defined above),
directly or indirectly, more than 50% of the voting power of the Voting
Stock of such parent corporation); or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Issuer or Parent (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
shareholders of the Issuer or Parent was approved by a vote of at
least a majority of the directors of the Issuer then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved or is a
designee of the Permitted Holders or was nominated or elected by such
Permitted Holders or any of their designees) cease for any reason to
constitute a majority of the Board of Directors of the Issuer or
Parent then in office; or
(iii) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets
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of the Issuer and its Restricted Subsidiaries taken as a whole to any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) other than a Permitted Holder or Parent; or
(iv) the adoption by the stockholders of a plan for the liquidation or
dissolution of the Issuer or Parent.
Within 30 days following any Change of Control, unless the Issuer has mailed
a redemption notice with respect to all the outstanding Discount Notes in
connection with such Change of Control as described under "--Optional
Redemption," the Issuer shall mail a notice to each Holder with a copy to the
Trustee stating: (i) that a Change of Control has occurred and that such
Holder has the right to require the Issuer to purchase such Holder's Discount
Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on a record date to receive
interest on the relevant interest payment date) or, in the case of purchases
of Discount Notes prior to November 15, 2002, at a purchase price equal to
101% of the Accreted Value thereof as of the date of purchase; (ii) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (iii) the procedures determined by
the Issuer, consistent with the Indenture, that a Holder must follow in order
to have its Discount Notes purchased.
Details Capital will comply, to the extent applicable, with the requirements
of Section 14(e) and Rule 13e-4 of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Discount Notes
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of the Indenture, the Issuer will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the Indenture by virtue
thereof. Neither Details Capital nor the Trustee can waive the Holders' right
to have the Discount Notes redeemed at the Holders' election upon a Change of
Control.
The occurrence of a Change of Control also gives the holders of the Senior
Subordinated Notes the right to require Details to repurchase the Senior
Subordinated Notes. In addition, the occurrence of certain of the events that
would constitute a Change of Control would constitute a default under the
Senior Credit Agreement. Future Indebtedness of Details and its Subsidiaries
may also contain prohibitions of certain events that would constitute a Change
of Control or require such Indebtedness to be repurchased upon a Change of
Control. Moreover, the exercise by the Holders of their right to require the
Issuer to repurchase the Discount Notes could cause a default under such
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Issuer. The Senior Credit Agreement
and the Senior Subordinated Notes restrict Details from paying any dividends
or making any other distributions to the Issuer. If the Issuer is unable to
obtain dividends from Details sufficient to permit the repurchase of the
Discount Notes, the Issuer will likely not have the financial resources to
purchase Discount Notes. In any event, there can be no assurance that the
Subsidiaries of the Issuer will have the resources available to pay any such
dividend or make any such distribution. Finally, the Issuer's ability to pay
cash to the holders upon a repurchase may be limited by the Issuer's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
Consequently, if Details is not able to (i) prepay the Senior Credit Agreement
and any other Indebtedness containing similar restrictions or obtain requisite
consents, as described above, or (ii) to make a dividend payment to the Issuer
in an amount sufficient to permit the Issuer to repurchase the Discount Notes,
the Issuer will be unable to fulfill its repurchase obligations if holders of
Discount Notes exercise their repurchase rights following a Change of Control,
thereby resulting in a default under the Indenture.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving the Issuer by increasing
the capital required to effectuate such transactions. The definition of
"Change of Control" includes a disposition of all or substantially all of
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the property and assets of the Issuer and its Restricted Subsidiaries. With
respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which is the choice of law under the Indenture) and is
subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
property or assets of a Person, and therefore it may be unclear as to whether
a Change of Control has occurred and whether the Issuer is required to make an
offer to repurchase the Exchange Discount Notes as described above.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness by the Issuer. The Issuer shall not Incur any
Indebtedness, other than the Indebtedness represented by (i) the Discount
Notes, (ii) the Guarantee of the Bank Indebtedness, and (iii) Indebtedness of
the Issuer owing to and held by any Wholly-Owned Subsidiary if such
Indebtedness is subordinated in right of payment to the Discount Notes and the
proceeds thereof are not used to pay dividends to the Issuer's stockholders;
provided, however, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Issuer or a Wholly-Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by the
Issuer.
Limitation on Indebtedness by Details. (a) Details shall not, and shall not
permit any of its Restricted Subsidiaries to, Incur any Indebtedness;
provided, however, that Details and its Restricted Subsidiaries may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio for
Details and its Restricted Subsidiaries is at least (i) 2.00 to 1.00, if such
Indebtedness is Incurred on or prior to the second anniversary of the Issue
Date and (ii) 2.25 to 1.00, if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Details and its Restricted
Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred
pursuant to the Senior Credit Agreement; provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (i) does
not exceed $160 million at any time outstanding, less the aggregate principal
amount of all mandatory prepayments of principal thereof with the proceeds of
Asset Dispositions; (ii) the Subsidiary Guarantees and Guarantees of
Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness of Details
owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a
Restricted Subsidiary owing to and held by Details or any Wholly-Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-Owned
Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer
of any such Indebtedness (except to Details or a Wholly-Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof; (iv) Indebtedness represented by (x) the
Senior Subordinated Notes, (y) any Indebtedness (other than the Indebtedness
described in clauses (i), (ii) and (iii)) outstanding on the Issue Date and
(z) any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in this clause (iv) or clause (v) or Incurred pursuant to paragraph
(a) of the covenant described under "Limitation on Indebtedness by Details";
(v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the
date on which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by Details (other than Indebtedness Incurred to provide all or any
portion of the funds utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Subsidiary or was otherwise acquired by Details); provided, however, that at
the time such Restricted Subsidiary is acquired by Details, Details would have
been able to Incur $1.00 of additional
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Indebtedness under this covenant after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (v); (vi) Indebtedness under Currency
Agreements and Interest Rate Agreements; provided, however, that in the case
of Currency Agreements and Interest Rate Agreements, such Currency Agreements
and Interest Rate Agreements are entered into for bona fide hedging purposes
of Details or its Restricted Subsidiaries (as determined in good faith by the
Board of Directors or senior management of Details) and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of Details or its Restricted Subsidiaries Incurred without
violation of the Indenture or to business transactions of Details or its
Restricted Subsidiaries on customary terms entered into in the ordinary course
of business; (vii) Indebtedness of foreign Restricted Subsidiaries under
working capital facilities; provided that the aggregate principal amount of
such Indebtedness outstanding at any time does not exceed 5% of Consolidated
Tangible Assets; (viii) Indebtedness (including Capital Lease Obligations)
incurred by Details or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount outstanding not to
exceed the greater of (A) $5.0 million or (B) 5% of Consolidated Tangible
Assets at the time of any Incurrence thereof (including any Refinancing
Indebtedness with respect thereto); (ix) Indebtedness incurred by Details or
any of its Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims; (x)
Indebtedness arising from agreements of Details or a Restricted Subsidiary of
Details providing for indemnification, adjustment of purchase price, earn out
or other similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or a Restricted Subsidiary of
Details, provided that the maximum liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received by
Details and its Restricted Subsidiaries in connection with such disposition;
(xi) obligations in respect of performance and surety bonds and completion
guarantees provided by Details or any Restricted Subsidiary of Details in the
ordinary course of business; and (xii) Indebtedness (other than Indebtedness
described in clauses (i)--(xi)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness Incurred pursuant
to this clause (xii) and then outstanding, will not exceed the greater of (A)
$5.0 million or (B) 5% of Consolidated Tangible Assets.
Limitation on Restricted Payments. (a) The Issuer shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock except (A) dividends or distributions payable in its Capital
Stock (other than Disqualified Stock) and (B) dividends or distributions
payable to the Issuer or a Restricted Subsidiary of the Issuer (and if such
Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders
of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of the Issuer held by Persons
other than a Restricted Subsidiary of the Issuer or any Capital Stock of a
Restricted Subsidiary of the Issuer held by any Affiliate of the Issuer, other
than another Restricted Subsidiary (in either case, other than in exchange for
its Capital Stock (other than Disqualified Stock)), (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment)
in any Person (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment being
herein referred to in clauses (i) through (iv) as a "Restricted Payment"), if
at the time the Issuer or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); or (2) Details is not able to incur an additional $1.00 of
Indebtedness pursuant to the covenant described in "Limitation on Indebtedness
by Details";
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or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would exceed
the sum of: (A) 50% of the Consolidated Net Income (x) of the Issuer in the
case of any Restricted Payment made by the Issuer or (y) of Details and its
Restricted Subsidiaries in the case of any Restricted Payment made by Details
or any of its Restricted Subsidiaries accrued during the period (treated as
one accounting period) from but excluding the Issue Date to but excluding the
date of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); (B) the aggregate net
proceeds, including the fair market value of property other than cash
(determined in good faith by the Board of Directors as evidenced by a
certificate filed with the Trustee, except that in the event the value of any
non-cash consideration shall be $10 million or more, the value shall be as
determined in writing by an Independent Appraiser) received by the Issuer from
the issue or sale of its Capital Stock (other than Disqualified Stock) or
other capital contributions subsequent to the Issue Date (other than net
proceeds received from an issuance or sale of such Capital Stock to a
Subsidiary of the Issuer or an employee stock ownership plan or similar trust
to the extent such sale to an employee stock ownership plan or similar trust
is financed by loans from the Issuer or any Restricted Subsidiary unless such
loans have been repaid with cash on or prior to the date of determination);
(C) the amount by which Indebtedness of the Issuer is reduced on the Issuer's
balance sheet upon the conversion or exchange (other than by a Subsidiary of
the Issuer) subsequent to the Issue Date of any Indebtedness of the Issuer
convertible or exchangeable for Capital Stock of the Issuer (less the amount
of any cash, or other property, distributed by the Issuer upon such conversion
or exchange); and (D) the amount equal to the net reduction in Investments
made by the Issuer or any of its Restricted Subsidiaries in any Person
resulting from (i) repurchases or redemptions of such Investments by such
Person, proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of assets
(including by way of dividend or distribution) by such Person to the Issuer or
any Restricted Subsidiary of the Issuer or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by the
Issuer or any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was included in the calculation of the amount of Restricted Payments;
provided, however, that no amount shall be included under this clause (D) to
the extent it is already included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Issuer or any
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Issuer (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or similar trust to the extent such sale
to an employee stock ownership plan or similar trust is financed by loans from
the Issuer or any Restricted Subsidiary unless such loans have been repaid
with cash on or prior to the date of determination); provided, however, that
(A) such purchase or redemption shall be excluded in subsequent calculations
of the amount of Restricted Payments and (B) the aggregate net proceeds from
such sale shall be excluded from clause (3) (B) of paragraph (a); (ii) any
purchase or redemption of Subordinated Obligations of the Issuer made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Issuer; provided, however, that such purchase
or redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under "Limitation
on Sales of Assets and Subsidiary Stock" below; provided, however, that such
purchase or redemption shall be excluded in subsequent calculations of the
amount of Restricted Payments; (iv) dividends paid within 60 days after the
date of declaration if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend shall be
included in subsequent calculations of the amount of Restricted Payments; (v)
payments for the purpose of, and in amounts equal to, amounts required to
permit the Issuer to redeem or repurchase Capital Stock of the Issuer or the
Parent from existing or
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former employees or management of the Issuer or any Parent thereof or any
Subsidiary or their assigns, estates or heirs, in each case in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees; provided
that such redemption or repurchases pursuant to this clause shall not exceed
$5.0 million (and shall be increased by the amount of any proceeds to Details,
Parent or Issuer from (x) sales of Capital Stock of the Issuer to management
employees subsequent to the Issue Date and (y) any "key-man" life insurance
policies which are used to make such redemptions or repurchases) in the
aggregate; provided, however, that such payments shall be included in the
calculation of the amount of Restricted Payments; provided, further, that the
cancellation of Indebtedness owing to the Issuer, any Parent thereof or
Details from members of management in connection with a repurchase of Capital
Stock of the Issuer, Parent or Details will not be deemed to constitute a
Restricted Payment under the Indenture; (vi) after the Issue Date to make
loans or advances made after the Issue Date to employees or directors of the
Issuer, Parent or any Subsidiary the proceeds of which are used to purchase
Capital Stock of the Issuer or any Parent thereof, in an aggregate amount not
in excess of $1 million at any one time outstanding; provided, however, that
such payments shall be included in the calculation of the amount of Restricted
Payments; (vii) cash dividends to the Parent, if any, in amounts equal to (A)
the amounts required for the Issuer or the Parent to pay any Federal, state or
local income taxes to the extent that such income taxes are attributable to
the income of the Issuer and its Subsidiaries, (B) the amounts required for
the Issuer or the Parent to pay franchise taxes and other fees required to
maintain its legal existence, (C) an amount not to exceed $250,000 in any
fiscal year to permit the Issuer or the Parent to pay its corporate overhead
expenses incurred in the ordinary course of business, and to pay salaries or
other compensation of employees who perform services for both the Parent and
the Issuer, (D) so long as no Default or Event of Default shall have occurred
and be continuing, an amount not to exceed $100,000 in the aggregate, to
enable the Issuer or the Parent to make payments to holders of its Capital
Stock in lieu of issuance of fractional shares of its Capital Stock; provided,
however, that such payments shall not be included in the calculation of the
amount of Restricted Payments, and (E) the amounts required for Parent to make
indemnification payments under the Recapitalization Agreement; and
(viii) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price
hereof; provided, however, that such repurchases shall not be included in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Issuer will not, and will not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Issuer, (ii)
make any loans or advances to the Issuer or (iii) transfer any of its property
or assets to the Issuer, except (a) any encumbrance or restriction pursuant to
an agreement in effect at or entered into on the date of the Indenture
(including, without limitation, the Senior Credit Facility and the Senior
Subordinated Notes); (b) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by a Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Issuer (other than Indebtedness
Incurred to provide all or any portion of the funds utilized to consummate,
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Issuer) and outstanding on such date; (c) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (a) or (b) of this covenant or this clause (c) or contained in any
amendment to an agreement referred to in clause (a) or (b) of this covenant or
this clause (c); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such agreement or
amendment are no less favorable to the Holders of the Discount Notes than
encumbrances and restrictions contained in such agreements; (d) in the case of
clause (iii) above, any
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encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to
a lease, license or similar contract, or the assignment or transfer of any
such lease, license or other contract, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Issuer or any Restricted Subsidiary not otherwise
prohibited by the Indenture, (C) contained in mortgages, pledges or other
security agreements securing Indebtedness of a Restricted Subsidiary to the
extent such encumbrance or restrictions restrict the transfer of the property
subject to such mortgages, pledges or other security agreements or (D)
pursuant to customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of the Issuer or any
Restricted Subsidiary; (e) any restriction with respect to a Restricted
Subsidiary (or any of its property or assets) imposed pursuant to an agreement
entered into for the direct or indirect sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
(or the property or assets that are subject to such restriction) pending the
closing of such sale or disposition; (f) encumbrances or restrictions arising
or existing by reason of applicable law; (g) any restrictions pursuant to the
Indenture and the Senior Subordinated Notes; (h) restrictions imposed by any
agreement or instrument governing Capital Stock of any Person that is
acquired; and (i) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Issuer shall
not, and shall not permit any of its Restricted Subsidiaries to, make any
Asset Disposition unless (i) the Issuer or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors (including
as to the value of all non-cash consideration), of the shares and assets
subject to such Asset Disposition, (ii) at least 75% of the consideration
thereof received by the Issuer or such Restricted Subsidiary is in the form of
cash or Cash Equivalents and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Issuer (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent the Issuer
or any Restricted Subsidiary, as the case may be, elects (or is required by
the terms of any Senior Indebtedness), to prepay, repay or purchase Senior
Indebtedness or Indebtedness (other than any Preferred Stock) of a Wholly-
Owned Subsidiary (in each case other than Indebtedness owed to the Issuer or
an Affiliate of the Issuer) within 180 days from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (A), at the Issuer's election to the investment in
Additional Assets within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the
extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase Senior
Subordinated Notes and other pari passu debt obligations subject to a similar
covenant at par plus accrued and unpaid interest, if any, thereon; (D) fourth,
to make an offer to make an offer to purchase (an "Offer") the Discount Notes
at a price in cash equal to, prior to , 2002 100% of the Accreted Value
thereof on the purchase date and, thereafter, 100% of the Accreted Value
thereof plus accrued and unpaid interest to the purchase date; and (E) fifth,
to the extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B) (C) and (D) for other general corporate
purposes not prohibited by the Indenture; provided, however, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A) above, the Issuer or such Restricted Subsidiary shall retire
such Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, the Issuer and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance herewith except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant exceed $5 million. The Issuer shall not be required to make
an Offer for the Discount Notes pursuant to this covenant if the Net Available
Cash available therefor (after application of the proceeds as provided in
clauses (A), (B)) and (C) are less than $5 million for any particular Asset
Disposition
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(which lesser amounts shall be carried forward for purposes of determining
whether an Offer is required with respect to the Net Available Cash from any
subsequent Asset Disposition).
The Senior Credit Agreement and the Senior Subordinated Notes restrict
Details from paying any dividends or making any other distributions to the
Issuer. If the Issuer is unable to obtain dividends from Details sufficient to
permit the repurchase of the Discount Notes, the Issuer will likely not have
the financial resources to purchase Discount Notes. In any event, there can be
no assurance that the Subsidiaries of the Issuer will have the resources
available to pay any such dividend or make any such distribution.
(b) For the purposes of this covenant, the following will be deemed to be
cash: (x) the assumption by the transferee of Indebtedness of any Restricted
Subsidiary of the Issuer and the release of the Issuer or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition (in which case the Issuer shall, without further action, be
deemed to have applied such assumed Indebtedness in accordance with clause (A)
of the preceding paragraph), (y) securities received by the Issuer or any
Restricted Subsidiary of the Issuer from the transferee that are promptly
converted by the Issuer or such Restricted Subsidiary into cash and (z) any
Designated Noncash Consideration received by the Issuer or any of its
Restricted Subsidiaries in such Asset Disposition having an aggregate fair
market value, taken together with all other Designated Noncash Consideration
received pursuant to this clause (z) that is at that time outstanding, not to
exceed 10% of Consolidated Tangible Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value).
(c) In the event of an Asset Disposition that requires the purchase of
Discount Notes pursuant to clause (a)(iii)(C), the Issuer will be required to
purchase Discount Notes tendered pursuant to an offer by the Issuer for the
Discount Notes at a price in cash equal to, prior to November 15, 2002, 100%
of the Accreted Value thereof on the purchase date and, thereafter, 100% of
the Accreted Value thereof plus accrued and unpaid interest, if any, to the
purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of the Discount Notes tendered pursuant to the offer is less
than the Net Available Cash allotted to the purchase of the Discount Notes,
the Issuer will apply the remaining Net Available Cash in accordance with
clause (a)(iii)(E) above.
(d) The Issuer will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Discount Notes pursuant to
the Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuer will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) The Issuer will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or conduct any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate
of the Issuer (an "Affiliate Transaction") unless: (i) the terms of such
Affiliate Transaction are no less favorable to the Issuer or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time
of such transaction in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Issuer
and by a majority of the members of such Board having no personal stake in
such transaction, if any (and such majority or majorities, as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i)
above); and (iii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $15 million, the Issuer has received a written
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opinion from an independent investment banking firm of nationally recognized
standing that such Affiliate Transaction is not materially less favorable than
those that might reasonably have been obtained in a comparable transaction at
such time on an arms-length basis from a Person that is not an Affiliate.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or
the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors of the Issuer, (iii) the payment of
compensation and directors' fees and the performance of indemnification or
contribution obligations in the ordinary course of business, (iv) loans or
advances to employees in the ordinary course of business of the Issuer or any
of its Restricted Subsidiaries, (v) the execution, delivery and performance of
the Management Agreement, or (vi) any transaction between the Issuer and a
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.
SEC Reports. Notwithstanding that the Issuer may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Issuer will file with the
Commission, and provide, within 15 days after the Issuer is required to file
the same with the Commission, the Trustee and the holders of the Discount
Notes with the annual reports and the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) that are specified in Sections 13 and 15(d)
of the Exchange Act. In the event that the Issuer is not permitted to file
such reports, documents and information with the Commission pursuant to the
Exchange Act, the Issuer will nevertheless deliver such Exchange Act
information to the Trustee and the holders of the Discount Notes as if the
Issuer were subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act.
Merger and Consolidation. The Issuer shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia and the Successor
Company (if not the Issuer) shall expressly assume, by supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of the Issuer under the Discount Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been incurred by the Successor Company or such Restricted Subsidiary at the
time of such transaction), no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such transaction,
the Consolidated Net Worth of the Issuer or the Successor Company, as the case
may be, is not less than that of the Issuer immediately prior to the
transaction; and (iv) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under the Indenture and
thereafter the Issuer shall be released from all obligations and covenants
thereunder, but, in the case of a lease of all or substantially all its
assets, the Issuer will not be released from the obligation to pay the
principal of and interest on the Discount Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (i) the Issuer may
consolidate with or merge with or into, or convey or transfer all or
substantially all its assets, subject to all liabilities, including the
Discount Notes, to a Wholly-Owned Restricted Subsidiary of the Issuer in which
case, such Wholly-Owned Restricted Subsidiary will succeed to, and be
substituted for, and may exercise every right and
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power of, the Issuer under the Indenture and thereafter the Issuer shall be
released from all obligations and covenants thereunder, (ii) any Restricted
Subsidiary of Details may consolidate with, merge into or transfer all or part
of its properties and assets to the Issuer and (iii) the Issuer may merge with
an Affiliate incorporated solely for the purpose of reincorporating the Issuer
in another jurisdiction to realize tax or other benefits.
Limitation on the Sale or Issuance of Preferred Stock of Restricted
Subsidiaries. The Issuer shall not sell any shares of Preferred Stock of a
Restricted Subsidiary and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Preferred Stock to any
Person (other than to the Issuer or a Wholly-Owned Subsidiary).
Limitation on Lines of Business. The Issuer will not, and will not permit
any Restricted Subsidiary to, engage in any business other than a Related
Business.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Discount Note when due,
continued for 30 days, (ii) a default in the payment of principal of any
Discount Note when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise, (iii) the failure by the
Issuer to comply for 30 days after notice with any of its obligations under
the covenants described under "Change of Control" above or under covenants
described under "Certain Covenants" above (in each case, other than a failure
to purchase Discount Notes which shall constitute an Event of Default under
clause (ii) above), (iv) the failure by the Issuer to comply for 60 days after
notice with its other agreements contained in the Indenture, (v) Indebtedness
of the Issuer or any Restricted Subsidiary is not paid within any applicable
grace period after final maturity or is accelerated by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million (the "cross acceleration provision"), (vi)
certain events of bankruptcy, insolvency or reorganization of the Issuer or a
Significant Subsidiary (the "bankruptcy provisions") or (vii) any judgment or
decree for the payment of money in excess of $10 million is rendered against
the Issuer or a Significant Subsidiary and such judgment or decree shall
remain undischarged or unstayed for a period of 60 days after such judgment
becomes final and non-appealable (the "judgment default provision"). However,
a default under clauses (iii) and (iv) will not constitute an Event of Default
until the Trustee or the holders of 25% in principal amount of the outstanding
Discount Notes notify the Issuer of the default and the Issuer does not cure
such default within the time specified in clauses (iii) and (iv) hereof after
receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Discount Notes by
notice to the Issuer and the Trustee may declare the principal of (or if prior
to November 15, 2002, the Accreted Value of) and accrued and unpaid interest,
if any, on all the Discount Notes to be due and payable. Upon such a
declaration, such principal (or Accreted Value) and accrued and unpaid
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Issuer
occurs and is continuing, the principal of and accrued and unpaid interest on
all the Discount Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Discount Notes may rescind any such acceleration with respect to
the Discount Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal (or Accreted Value), premium, if any, or
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interest when due, no holder may pursue any remedy with respect to the
Indenture or the Discount Notes unless (i) such holder has previously given
the Trustee notice that an Event of Default is continuing, (ii) holders of at
least 25% in principal amount of the outstanding Discount Notes have requested
the Trustee to pursue the remedy, (iii) such holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Discount Notes
have not given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Discount Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to
taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of (or if prior to November 15, 2002, the Accreted Value
of), premium, if any, or interest on any Discount Note, the Trustee may
withhold notice if and so long as a committee of its Trust officers in good
faith determines that withholding notice is in the interests of the
Noteholders. In addition, the Issuer is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Issuer also is required to deliver to the Trustee, within
30 days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action the Issuer is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Discount Notes then
outstanding and any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of
the Discount Notes then outstanding. However, without the consent of each
holder of outstanding Discount Notes affected, no amendment may, among other
things, (i) reduce the amount of Discount Notes whose holders must consent to
an amendment, (ii) reduce the stated rate of or extend the stated time for
payment of interest on any Discount Note, (iii) reduce the principal of or
extend the Stated Maturity of any Discount Note, (iv) reduce the premium
payable upon the redemption or repurchase of any Discount Note or change the
time at which any Discount Note may be redeemed as described under "Optional
Redemption" above, (v) make any Discount Note payable in money other than that
stated in the Discount Note, (vi) impair the right of any holder to receive
payment of principal of and interest on such holder's Discount Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's Discount Notes or (vii) make any
change in the amendment provisions which require each holder's consent or in
the waiver provisions.
Without the consent of any holder, the Issuer and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of the Issuer under the Indenture, to
provide for uncertificated Discount Notes in addition to or in place of
certificated Discount Notes (provided that the uncertificated Discount Notes
are issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated Discount Notes are described in
Section 163(f) (2) (B) of the Code), to add Guarantees with respect to the
Discount Notes, to secure the Discount Notes, to add to the covenants of the
Issuer for the benefit of the holders or to surrender
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any right or power conferred upon the Issuer, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the Indenture becomes effective, the Issuer is required to mail to the
holders a notice briefly describing such amendment. However, the failure to
give such notice to all the holders, or any defect therein, will not impair or
affect the validity of the amendment.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Discount
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Discount Notes, to replace mutilated,
destroyed, lost or stolen Discount Notes and to maintain a registrar and
paying agent in respect of the Discount Notes. The Issuer at any time may
terminate its obligations under covenants described under "Certain Covenants"
(other than "Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries, and the judgment default provision described under "Events of
Default" above and the limitation contained in clause (iii) under "Certain
Covenants-- Merger and Consolidation" above ("covenant defeasance").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Discount Notes may not be accelerated
because of an Event of Default with respect thereto. If the Issuer exercises
its covenant defeasance option, payment of the Discount Notes may not be
accelerated because of an Event of Default specified in clause (iii), (v),
(vi) (with respect only to Significant Subsidiaries), or (vii) under "Events
of Default" above or because of the failure of the Issuer to comply with
clause (iii) under "Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the Discount Notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the
Trustee of an Opinion of Counsel to the effect that holders of the Exchange
Discount Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Issuer as Registrar and Paying Agent with regard to
the Discount Notes. The Trustee is also the Trustee under the indenture for
the Senior Subordinated Notes.
GOVERNING LAW
The Indenture provides that it and the Discount Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
"Accreted Value" means as of a date of determination prior to November 15,
2002, with respect to any Discount Note, the sum of (a) the initial offering
price of such Discount Note and (b) the portion of the excess of the principal
amount of such Discount Note over such initial offering price which shall have
been accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 12.5% per annum of the initial offering price of
such Discount Note, compounded semi-annually on each May 15 and November 15
from the Issue Date through the date of determination, computed on the basis
of a 360-day year of twelve 30-day months. The Accreted Value of any Discount
Note on or after November 15, 2002 shall be 100% of the principal amount
thereof.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Issuer or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Issuer or a Restricted Subsidiary of the Issuer; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of the Issuer; provided, however, that, in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Issuer or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Issuer or by
the Issuer or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the
sale of Cash Equivalents or Temporary Cash Investments in the ordinary course
of business, (iii) a disposition of inventory or a licensing of intellectual
property in the ordinary course of business, (iv) a disposition of obsolete or
worn out equipment or equipment that is no longer useful or to be used in the
conduct of the business of the Issuer and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (v)
transactions permitted under "Certain Covenants--Merger and Consolidation"
above, (vi) for purposes of "Limitation on Sales of Assets and Subsidiary
Stock" only, a disposition subject to "Limitation on Restricted Payments" and
(vii) the sale, discount or factoring, in each case without recourse, of
accounts receivable arising in the ordinary course of business.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
greater of (i) the interest rate implicit in such Sale/Leaseback Transaction
and (ii) the interest rate borne by the Senior Subordinated Notes, in each
case, compounded semi-annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable by Details under or in respect of
the Senior Credit Agreement and any related notes, collateral documents,
letters of credit and guarantees, including principal, premium, if any,
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for
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reorganization relating to Details whether or not a claim for post filing
interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof and refinancings thereof.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP, and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition thereof, having a
credit rating of "A" or better from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances
having maturities of not more than one year from the date of acquisition
thereof issued by any commercial bank the long-term debt of which is rated at
the time of acquisition thereof at least "A" or the equivalent thereof by
Standard & Poor's Rating Group, or "A" or the equivalent thereof by Moody's
Investors Service, Inc., and having capital and surplus in excess of $500
million; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (i), (ii) and
(iii) entered into with any bank meeting the qualifications specified in
clause (iii) above; (v) commercial paper rated at the time of acquisition
thereof at least "A-2" or the equivalent thereof by Standard & Poor's Rating
Group or "P-2" or the equivalent thereof by Moody's Investors Service, Inc.,
or carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of investments,
and in either case maturing within 270 days after the date of acquisition
thereof; and (vi) interests in any investment company which invests solely in
instruments of the type specified in clauses (i) through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means, with
respect to any Person, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the period of the most recent four consecutive
fiscal quarters ending prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters (in each
case, determined, for each fiscal quarter (or portion thereof) of the four
fiscal quarters ending prior to or including the Issue Date, on a pro forma
basis to give effect to the Transactions, the Initial Offerings and the
application of the proceeds thereof as if they had occurred at the beginning
of such four-quarter period (adjusted for any pro forma expense and cost
reductions and related adjustments that are directly attributable to the
Transactions and the Initial Offerings)); provided, however, that (1) If the
Issuer or any Restricted Subsidiary (x) has Incurred any Indebtedness since
the beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest
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Expense for such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period (except that in making such computation, the amount
of Indebtedness under any revolving credit facility outstanding on the date of
such calculation shall be computed based on (A) the average daily balance of
such Indebtedness during such four fiscal quarters or such shorter period for
which such facility was outstanding or (B) if such facility was created after
the end of such four fiscal quarters, the average daily balance of such
Indebtedness during the period from the date of creation of such facility to
the date of such calculation) and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such discharge had occurred on the first day of
such period, or (y) has repaid, repurchased, defeased or otherwise discharged
any Indebtedness since the beginning of the period that is no longer
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio involves a discharge of
Indebtedness (in each case other than Indebtedness incurred under any
revolving credit facility unless such Indebtedness has been permanently
repaid), Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such discharge
of such Indebtedness, including with the proceeds of such new Indebtedness, as
if such discharge had occurred on the first day of such period, (2) if since
the beginning of such period the Issuer or any Restricted Subsidiary shall
have made any Asset Disposition or if the transaction giving rise to the need
to calculate the Consolidated Coverage Ratio is an Asset Disposition, the
Consolidated EBITDA for such period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets which
are the subject of such Asset Disposition for such period or increased by an
amount equal to the Consolidated EBITDA (if negative) directly attributable
thereto for such period and Consolidated Interest Expense for such period
shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Issuer or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect
to the Issuer and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Issuer and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale), (3) if since the
beginning of such period the Issuer or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such period
(adjusted for any pro forma expense and cost reductions and related
adjustments calculated on a basis consistent with Regulation S-X under the
Act) and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Issuer or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Issuer or a
Restricted Subsidiary during such period, Consolidated EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition or Investment occurred on the
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible
financial or accounting officer of the Issuer. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
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"Consolidated EBITDA" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that
was paid in a prior period not included in the calculation) and less, to the
extent added in calculating Consolidated Net Income, non-cash items increasing
Consolidated Net Income (excluding such non-cash items to the extent they
represent an accrual for cash receipts to be received prior to the Stated
Maturity of the Discount Notes) for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
interest, depreciation and amortization of, a Restricted Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated
EBITDA of such Person only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Issuer and its Restricted Subsidiaries on a consolidated basis
determined in accordance with GAAP, plus, to the extent not included in such
interest expense, (i) interest expense attributable to Capitalized Lease
Obligations and the interest portion of rent expense associated with
Attributable Indebtedness in respect of the relevant lease giving rise
thereto, determined as if such lease were a capitalized lease in accordance
with GAAP, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) interest actually paid by the Issuer
or any such Subsidiary under any Guarantee of Indebtedness or other obligation
of any other Person, (vii) net costs associated with Hedging Obligations
(including amortization of fees), (viii) dividends in respect of all
Disqualified Stock of the Issuer and any Restricted Subsidiaries, in each
case, held by Persons other than the Issuer or a Wholly Owned Subsidiary and
(ix) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Issuer) in connection with
Indebtedness Incurred by such plan or trust to purchase Capital Stock of the
Issuer; provided, however, that there shall be excluded therefrom any such
interest expense of any Unrestricted Subsidiary to the extent the related
Indebtedness is not Guaranteed or paid by the Issuer or any Restricted
Subsidiary. For purposes of the foregoing, total interest expense shall be
determined after giving effect to any net payments made or received by the
Issuer and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect
to any Restricted Subsidiary of the Issuer that was not a Wholly-Owned
Subsidiary shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Issuer and its Restricted Subsidiaries on a consolidated basis determined
in accordance with GAAP; provided, however, that there shall not be included
in such Consolidated Net Income: (i) any net income (loss) of any Person if
such Person is not a Restricted Subsidiary, except that (A) subject to the
limitations contained in (iv) below, the Issuer's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Issuer or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause (iii)
below) and (B) the Issuer's equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income to the extent such loss has been
funded with cash from the Issuer or a Restricted Subsidiary; (ii) any net
income (loss) of any Person acquired by the Issuer or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net
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income of any Restricted Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Restricted Subsidiary, directly or indirectly,
to the Issuer, except that (A) subject to the limitations contained in (iv)
below the Issuer's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Issuer or another Restricted Subsidiary
as a dividend (subject, in the case of a dividend to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Issuer's
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income; (iv) any gain or loss
realized upon the sale or other disposition of any property, plant or
equipment of the Issuer or its consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of
in the ordinary course of business and any gain realized upon the sale or
other disposition of any Capital Stock of any Person; (v) any extraordinary
gain or loss, (vi) any non-cash compensation charge for employee stock options
or other stock awards, (vii) non-cash, non-recurring charges reducing
Consolidated Net Income (excluding any such non-cash charge to the extent it
represents an accrual of or reserve for cash charges in any future period or
amortization of prepaid cash expense that was paid in a prior period not
included in the calculation); (viii) non-cash, non-recurring items increasing
Consolidated Net Income (excluding such non-cash items to the extent they
represent an accrual for cash receipts to be received prior to the Stated
Maturity of the Discount Notes); and (ix) the cumulative effect of a change in
accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Issuer and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Issuer ending prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding Capital Stock of the Issuer plus (ii) paid-in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill, deferred financing costs and other intangibles
less accumulated amortization, shown on the balance sheet of the Company and
its Restricted Subsidiaries as of the most recent date for which such balance
sheet is available, determined on a consolidated basis in accordance with
GAAP.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Issuer or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated
Noncash Consideration pursuant to an Officers' Certificate executed by the
principal executive officer and the principal financial officer of the Issuer
or such Restricted Subsidiary, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
Such Officers' Certificate shall state the basis of such valuation, which
shall be as determined by an Independent Appraiser with respect to the receipt
in one or a series of related transactions of Designated Noncash Consideration
with a fair market value in excess of $10 million.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking
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fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock (excluding capital stock which is
convertible or exchangeable solely at the option of the Issuer or a Restricted
Subsidiary) or (iii) is redeemable at the option of the holder thereof, in
whole or in part, in each case on or prior to the Stated Maturity of the
Discount Notes, provided, that only the portion of Capital Stock which so
matures or is mandatorily redeemable, is so convertible or exchangeable or is
so redeemable at the option of the holder thereof prior to such Stated
Maturity shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering for cash by the Issuer of its common
stock, or options, warrants or rights with respect to its common stock.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holdings" means Details Holdings Corp. (formerly known as Details, Inc.), a
California corporation and any corporation which is the sole stockholder of
Holdings.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services (except trade payables), which purchase price is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services; (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such
Person; (vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (but
excluding, in each case, any accrued dividends); (vii) all Indebtedness of
other Persons secured by a Lien on any asset of such Person, whether or not
such
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Indebtedness is assumed by such Person; provided, however, that the amount of
such Indebtedness shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such Indebtedness of
such other Persons; (viii) all Indebtedness of other Persons to the extent
Guaranteed by such Person; and (ix) to the extent not otherwise included in
this definition, net obligations of such Person under Currency Agreements and
Interest Rate Agreements (the amount of any such obligations to be equal at
any time to the termination value of such agreement or arrangement giving rise
to such obligation that would be payable by such Person at such time). The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date.
"Independent Appraiser" means, with respect to any transaction or series of
related transactions, an independent, nationally recognized appraisal or
investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital
Stock, Indebtedness or other similar instruments issued by, such Person. For
purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment"
shall include the portion (proportionate to the Issuer's equity interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted Subsidiary of the
Issuer at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the issuer shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount
(if positive) equal to (x) the Issuer's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the Issuer's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time that such Subsidiary is so re-designated a
Restricted Subsidiary; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by the Board of
Directors of the Issuer. If the Issuer or any Restricted Subsidiary of the
Issuer sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Issuer such that, after giving effect to
any such sale or disposition, the Issuer no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted
Subsidiary, the Issuer shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Discount Notes are originally
issued.
"Issuer" means Details Capital Corp. a California corporation, or any
successor thereto which assumes the obligations under the Discount Notes
pursuant to the Indenture.
"Management Agreement" means the Management Agreement between Holdings,
Details and Bain Capital, Inc. (and its permitted successors and assigns
thereunder) as in effect on the Issue Date.
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"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring person of indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon such
assets, or which must by its terms, or in order to obtain a necessary consent
to such Asset Disposition, or by applicable law be repaid out of the proceeds
from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Issuer or any Restricted Subsidiary
after such Asset Disposition.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Issuer.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Issuer or the Trustee.
"Parent" means the parent corporation of the Issuer, if any, or any person
for which the Issuer or a Parent thereof is a direct or indirect Wholly-Owned
Subsidiary.
"Permitted Holders" means Bain Capital, Inc. and any Affiliate thereof or
any wholly-owned Subsidiary of Holdings (for purposes of the definition of a
"Change of Control").
"Permitted Investment" means an Investment by the Issuer or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Issuer or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) cash, Cash Equivalents and Temporary Cash Investments; (iv) receivables
owing to the Issuer or any Restricted Subsidiary created or acquired in the
ordinary course of business; (v) payroll, travel and similar advances made in
the ordinary course of business; (vi) loans or advances to employees and
officers made in the ordinary course of business; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Issuer or any Restricted Subsidiary or in
satisfaction of judgments; and (viii) Currency Agreements and Interest Rate
Agreements entered into in the ordinary course of the Issuer's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (ix) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers; (x) the
Subsidiary Guarantees and guarantees by Details of Indebtedness otherwise
permitted to be incurred by Restricted Subsidiaries of Details under the
Indenture for the Senior Subordinated Notes; (xi) Investments the payment for
which consists exclusively of Capital Stock (other than Disqualified Stock) of
the Issuer; provided that the fair market value of such Investments shall not
be counted under clause (3)(B) of paragraph (a) of "Limitation on Restricted
Payments"; (xii) Investments received by the Issuer of its Restricted
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Subsidiaries as consideration for asset dispositions, including Asset
Dispositions; provided in the case of an Asset Disposition, such Asset
Disposition is effected in compliance with the covenant described under
"Limitation on Sales of Assets and Subsidiary Stock;" and (xiii) other
Investments in an aggregate amount outstanding at any time not to exceed the
greater of (A) $7.5 million and (B) 5% of Total Consolidated Assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
A "Public Market" exists at any time with respect to the common stock of the
Issuer or if the common stock of the Issuer is then registered with the
Securities Exchange Commission pursuant to Section 12(b) or 12(g) of Exchange
Act and traded either on a national securities exchange or in the National
Association of Securities Dealers Automated Quotation System.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance", "refinances,"
and "refinanced" shall have a correlative meaning) any Indebtedness existing
on the date of the Indenture or Incurred in compliance with the Indenture
(including Indebtedness of the Issuer that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness, provided, however, that
(i) only with respect to Indebtedness described under subclause (y) of clause
(b)(iv) in the covenant "Limitation on Indebtedness by the Company", the
Refinancing Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness being
refinanced (other than indebtedness which is Senior Indebtedness referred to
in clause (iv) under such covenant) and (ii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding (plus fees and expenses, including
any premium and defeasance costs) of the Indebtedness being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses in which the Issuer and
its Restricted Subsidiaries are primarily engaged on the date of the
Indenture.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or a Subsidiary leases it
from such Person.
"Senior Credit Agreement" means (i) the senior secured Credit Agreement
entered into among Details, The Chase Manhattan Bank, as Administrative Agent,
and the lenders parties thereto from time to time, as the same may be amended,
supplemented or otherwise modified from time to time
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and any guarantees issued thereunder and (ii) any renewal, extension,
refunding, restructuring, replacement or refinancing thereof (whether with the
original Administrative Agent and lenders or another administrative agent or
agents or other lenders and whether provided under the original Senior Credit
Agreement or any other credit or other agreement or indenture).
"Senior Indebtedness" is defined, whether outstanding on the Issue Date or
thereafter issued, created, incurred or assumed, as the Bank Indebtedness and
all other Indebtedness of Details, including interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) thereon and fees relating
thereto, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that the obligations in
respect of such Indebtedness are not superior in right of, or are subordinate
to, payment to the Senior Subordinated Notes; provided, however, that Senior
Indebtedness will not include (i) any obligation of Details to any Subsidiary,
(ii) any liability for Federal, state, foreign, local or other taxes owed or
owing by Details, (iii) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness,
Guarantee or obligation of Details that is expressly subordinate or junior in
right of payment to any other Indebtedness, Guarantee or obligation of
Details, including any Senior Subordinated Indebtedness and any Subordinated
Obligations or (v) any Capital Stock.
"Senior Subordinated Indebtedness" means the Senior Subordinated Notes of
Details and any other Indebtedness of Details that specifically provides that
such Indebtedness is to rank pari passu with the Senior Subordinated Notes in
right of payment and is not subordinated by its terms in right of payment to
any Indebtedness or other obligation of Details which is not Senior
Indebtedness.
"Senior Subordinated Notes" means the $100.0 million aggregate principal
amount of 10% Senior Subordinated Notes due 2005 of Details.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Issuer within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means, as to any Person, any Indebtedness of such
Person (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Senior Subordinated Notes
pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and
one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of
such Person. Unless otherwise specified herein, each reference to a Subsidiary
shall refer to a Subsidiary of the Issuer.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Senior Subordinated Notes by any Restricted Subsidiary of Details pursuant to
the terms of the Indenture for the Senior Subordinated Notes, and,
collectively, all such Guarantees.
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"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States of America having capital, surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act), (iii) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Issuer) organized and in existence under the laws of
the United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group, (v)
Investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc. and (vi) Investments in mutual
funds whose investment guidelines restrict such funds' investments to those
satisfying the provisions of clauses (i) through (v) above.
"Total Consolidated Assets" means, as of any date of determination, the
total assets shown on the balance sheet of the Issuer and its Restricted
Subsidiaries as of the most recent date for which such balance sheet is
available, determined on a consolidated basis in accordance with GAAP.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Issuer (including any newly acquired or newly formed Subsidiary of the
Issuer) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Issuer or any Restricted Subsidiary of the Issuer
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under "Limitation on Restricted Payments." The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such designation
(x) Details could Incur $1.00 of additional Indebtedness under the covenant
described in "Limitation on Indebtedness by Details" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal,
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including payment at final maturity, in respect thereof, by (ii) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Issuer, all
of the Capital Stock of which (other than directors' qualifying shares) is
owned by the Issuer or another Wholly-Owned Subsidiary.
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THE EXCHANGE OFFER
At the closing of the Initial Offering, Holdings, the original issuer of the
Original Discount Notes and predecessor in interest to Details Capital under
the Registration Rights Agreement, Details and the Initial Purchaser entered
into the Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, Details Capital, as sucessor in interest to Holdings, agreed to (i)
file with the Commission on or prior to 90 days after the date of issuance of
the Original Discount Notes (the "Issue Date") a registration statement on
Form S-1 or Form S-4, (the "Exchange Offer Registration Statement") relating
to (the Exchange Offer) for the Original Discount Notes under the Securities
Act and (ii) use its reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act
within 180 days after the Issue Date. As soon as practicable after the
effectiveness of the Exchange Offer Registration Statement, Details Capital
will offer to the holders of Transfer Restricted Securities (as defined below)
who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Transfer
Restricted Securities for Exchange Discount Notes that are identical in all
material respects to the Original Discount Notes (except that the Exchange
Discount Notes will not contain terms with respect to transfer restrictions)
and that would be registered under the Securities Act. Details Capital will
keep the Exchange Offer open for the longer of 20 business days or 30 days
(unless extended if required by applicable law) after the date hereof.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, Details Capital is not permitted to effect the
Exchange Offer as contemplated hereby, (ii) any Securities (as defined herein)
validly tendered pursuant to the Exchange Offer are not exchanged for Exchange
Securities within 210 days after the Issue Date, (iii) the Initial Purchaser
so requests with respect to Original Discount Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer, (iv) any applicable law or
interpretations do not permit any holder of Original Discount Notes to
participate in the Exchange Offer, (v) any holder of Original Discount Notes
that participates in the Exchange Offer does not receive freely transferable
Exchange Notes in exchange for tendered Original Discount Notes, or (vi)
Details Capital so elects, then Details Capital will file with the Commission
a shelf registration statement (the "Shelf Registration Statement") to cover
resales of Transfer Restricted Securities by such holders who satisfy certain
conditions relating to the provision of information in connection with the
Shelf Registration Statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each Original Discount Note until (i) the date on
which such Original Discount Note has been exchanged for a freely transferable
Exchange Discount Note in the Exchange Offer; (ii) the date on which such
Original Discount Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or
(iii) the date on which such Original Discount Note is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant
to Rule 144(k) under the Securities Act.
Details Capital has agreed to use its reasonable best efforts to have the
Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement (each, a "Registration Statement") declared effective
by the Commission as promptly as practicable after the filing thereof. Unless
the Exchange Offer would not be permitted by a policy of the Commission,
Details Capital will commence the Exchange Offer and will use its reasonable
best efforts to consummate the Exchange Offer as promptly as practicable, but
in any event prior to 210 days after the Issue Date. If applicable, Details
Capital will use its reasonable best efforts to keep the Shelf Registration
Statement effective for a period of two years after the Issue Date.
If (i) the Exchange Offer Registration Statement or a Shelf Registration
Statement, if applicable, is not declared effective within 180 days after the
Issue Date; (ii) the Exchange Offer is not consummated on or prior to 210 days
after the Issue Date or (iii) a Shelf Registration Statement is filed and
declared effective within 180 days after the Issue Date but shall thereafter
cease to be effective (at any time that Details Capital is obligated to
maintain the effectiveness thereof) without being succeeded within 60 days by
an additional Registration Statement filed and declared effective (each such
event referred
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to in clauses (i) through (iii), a "Registration Default"), Details Capital
will be obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $0.192 per week per $1,000 principal amount
(or Accreted Value, as applicable) of the Original Discount Notes constituting
Transfer Restricted Securities held by such holder until the applicable
Registration Statement is filed, the Exchange Offer Registration Statement is
declared effective and the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective or again becomes effective, as
the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Original Discount Notes (not
before May 15, 2003) on semi-annual payment dates which correspond to interest
payment dates for the Original Discount Notes. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease.
The Registration Rights Agreement also provides that Details Capital (i)
shall, if required under applicable securities laws, upon written request make
available for a period of 90 days after the consummation of the Exchange Offer
a prospectus meeting the requirements of the Securities Act to any broker-
dealer for use in connection with any resale of any such Exchange Discount
Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including the expense of one counsel to the holders of the Original DIscount
Notes) and will indemnify certain holders of the Original Discount Notes
(including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Original Discount Notes who wishes to exchange such Original
Discount Notes for Exchange Discount Notes in the Exchange Offer will be
required to make certain representations, including representations that (i)
any Exchange Discount Notes to be received by it will be acquired in the
ordinary course of its business; (ii) it has no arrangement or understanding
with any person to participate in the distribution of the Exchange Discount
Notes and (iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of Details Capital, or if it is an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Discount Notes. If the holder is a broker-dealer that will
receive Exchange Discount Notes for its own account in exchange for Original
Discount Notes that were acquired by such broker-dealer as a result of market-
making activities or other trading activities (an "Exchanging Dealer"), it
will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Discount Notes. See "Plan of
Distribution."
Holders of the Original Discount Notes will be required to make certain
representations to Details Capital (as described above) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement in order to
have their Original Discount Notes included in the Shelf Registration
Statement and benefit from the provisions regarding liquidated damages set
forth in the preceding paragraphs. A holder who sells Original Discount Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
The summary herein of certain provisions of the Registration Rights
Agreement is a description of the material provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement.
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Except as set forth herein, after consummation of the Exchange Offer,
holders of Original Discount Notes have no registration or exchange rights
under the Registration Rights Agreement. See"--Consequences of Failure to
Exchange," and "--Resales of Exchange Discount Notes; Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Discount Notes which are not exchanged for Exchange Discount
Notes pursuant to an Exchange Offer and are not included in a resale
prospectus will remain Transfer Restricted Securities. Accordingly, such
Original Discount Notes may not be offered, sold or otherwise transferred
prior to the date which is two years after the later of the date of original
issue and the last date that Details Capital or any affiliate of Details
Capital was the owner of such securities (or any predecessor thereto) (the
"Resale Restriction Termination Date") only (a) to Details Capital (b)
pursuant to a registration statement which has been declared effective under
the Securities Act, (c) for so long as the Original Discount Notes are
eligible for resale pursuant to Rule 144A, to a person the owner reasonably
believes is a qualified institutional buyer that purchases for its own account
or for the account of a qualified institutional buyer to whom notice is given
that the transfer is being made in reliance on Rule 144A, (d) to an
"accredited investor" within the meaning of subparagraph (1), (2), (3) or (7)
of paragraph (a) of Rule 501 under the Securities Act that is purchasing for
his own account or for the account of such an "accredited investor" in each
case in a minimum of Original Discount Notes with a purchase price of $500,000
or (c) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing cases to
any requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their control.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Original
Discount Notes is proposed to be made pursuant to clause (d) above prior to
the Resale Restriction Termination Date, the transferor shall deliver a letter
from the transferee to Details Capital and the Trustee, which shall provide,
among other things, that the transferee is an "accredited investor" within the
meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501
under the Securities Act and that it is acquiring such Securities for
investment purposes and not for distribution in violation of the Securities
Act. Prior to any offer, sale or other transfer of Original Discount Notes
prior to the Resale Restriction Termination Date pursuant to clauses (d) or
(e) above, the issuer and the Trustee may require the delivery of an opinion
of counsel, certifications and/or other information satisfactory to each of
them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in the Prospectus and
in the Letter of Transmittal, the form of which is included as Exhibit 99.1 to
the Registration Statement of which this Prospectus is a part, Details Capital
will accept any and all Original Discount Notes validly tendered and not
withdrawn prior to the applicable Expiration Date. Details Capital will issue
$1,000 principal amount of Exchange Discount Notes in exchange for each $1,000
principal amount of Original Discount Notes accepted in the Exchange Offer.
Holders may tender some or all of their Original Discount Notes pursuant to
the Exchange Offer. However, Original Discount Notes may be tendered only in
integral multiples of $1,000 principal amount.
The form and terms of the Exchange Discount Notes are the same as the form
and terms of the Original Discount Notes, except that (i) the Exchange
Discount Notes have been registered under the Securities Act and therefore
will not bear legends restricting their transfer pursuant to the Securities
Act, and (ii) the holders of Exchange Discount Notes will not be entitled to
rights under the Exchange and Registration Rights Agreement (except under
certain limited circumstances). The Exchange Discount Notes will evidence the
same debt as the Original Discount Notes (which they replace), and will be
issued under, and be entitled to the benefits of, the Indenture.
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Solely for reasons of administration (and for no other purpose) Details
Capital has fixed the close of business on , 1998 as the record date for
the Exchange Offer for purpose of determining the persons to whom this
Prospectus and the Letter of Transmittal will be mailed initially. Only a
registered holder of Original Discount Notes (or such holder's legal
representative or attorney-in-fact) as reflected on the records of the trustee
under the governing indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the
Original Discount Notes entitled to participate in the relevant Exchange
Offer.
Holders of the Original Discount Notes do not have any appraisal or
dissenters' rights under the General Corporation Law of California or under
the Indenture in connection with the Exchange Offer. Details Capital intends
to conduct the Exchange Offer in accordance with the applicable requirements
of the Exchange Act and the rules and regulations of the Commission
thereunder.
Details Capital shall be deemed to have accepted validly tendered Original
Discount Notes when, as and if it has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of the Original Discount Notes for the purposes of receiving the
Exchange Discount Notes.
If any tendered Original Discount Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Discount
Notes will be returned without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Original Discount Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
the Original Discount Notes pursuant to the Exchange Offer. Details Capital
will pay all charges and expenses, other than certain applicable taxes, in
connection with their Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on ,
1998, unless Details Capital extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date and time to which such
Exchange Offer is extended.
In order to extend the Exchange Offer, Details Capital will notify the
Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, prior to 9:00 a.m., New York City time, on the
next Business Day after the previously scheduled Expiration Date.
Details Capital reserves the right, in its sole discretion, (i) to delay
accepting any Original Discount Notes, (ii) extend the Exchange Offer, (iii)
if the condition set forth below under "--Conditions of the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer, by giving oral
or written notice of such delay, extension or termination to the Exchange
Agent, or (iv) to amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by a public announcement thereof. If the Exchange
Offer is amended in a manner determined by Details Capital to constitute a
material change, it will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
the Original Discount Notes and the Exchange Offer will be extended for a
period of five to ten business days, as required by law, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
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Without limiting the manner in which Details Capital may choose to make
public announcement of any delay, extension, termination or amendment of its
Exchange Offer, Details Capital shall not have an obligation to publish,
advertise, or otherwise communicate any such public announcement, other than
by making a timely release thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered holder of Original Discount Notes may tender such Original
Discount Notes in the Exchange Offer. To tender in the Exchange Offer, a
Holder must complete, sign and date the Letter of Transmittal, have the
signatures thereon guaranteed if required by such Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal to the Exchange Agent at
the address set forth below under "--Exchange Agent" for receipt prior to the
applicable Expiration Date. In addition, either (i) certificates for such
Original Discount Notes must be received by the Exchange Agent along with the
Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of such Original Discount Notes into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
applicable Expiration Date, or (iii) the Holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal and all other required documents must be received by
the Exchange Agent at the address set forth below under "--Exchange Agent"
prior to the applicable Expiration Date.
The tender by a Holder will constitute an agreement between such holder and
Details Capital in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal applicable to such Exchange
Offer.
THE METHOD OF DELIVERY OF THE ORIGINAL DISCOUNT NOTES AND THE APPLICABLE
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT
IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR
ORIGINAL DISCOUNT NOTES SHOULD BE SENT TO DETAILS CAPITAL. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Original Discount Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Original Discount Notes, either make appropriate
arrangements to register ownership of the Original Discount Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Discount Notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special
Delivery Instructions" on the Letter of Transmittal designated for such
Original Discount Notes, or (ii) for the account of an Eligible Institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such
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guarantee must be by a participant in a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Original Discount Notes listed therein, such Original Discount
Notes must be endorsed or accompanied by a properly completed bond power,
signed by such registered holder as such registered holder's name appears on
such Original Discount Notes, with signature guaranteed by an Eligible
Institution.
If a Letter of Transmittal or any Original Discount Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to Details Capital, as applicable, of their authority to so act
must be submitted with the Letter of Transmittal designated for such Original
Discount Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Discount Notes will
be determined by Details Capital in its sole discretion, which determination
will be final and binding. Details Capital reserves the absolute right to
reject any and all Original Discount Notes not properly tendered or any
Original Discount Notes the issuer's acceptance of which would, in the opinion
of counsel for such issuer, be unlawful. Details Capital also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Original Discount Notes. The interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) by Details Capital will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Original Discount Notes must be cured within such time as Details Capital
shall determine. Although Details Capital intends to notify holders of defects
or irregularities with respect to tenders of Original Discount Notes issued by
it, neither Details Capital, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Original
Discount Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Original Discount Notes received
by the Exchange Agent that are not validly tendered and as to which the
defects or irregularities have not been cured or waived, or if Original
Discount Notes are submitted in a principal amount greater than the principal
amount of Original Discount Notes being tendered by such tendering holder,
such unaccepted or non-exchanged Original Discount Notes will be returned by
the Exchange Agent to the tendering holders (or, in the case of Original
Discount Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such unaccepted or non-exchanged Original
Discount Notes will be credited to an account maintained with such Book-Entry
Transfer Facility), unless otherwise provided in the Letter of Transmittal
designated for such Original Discount Notes, as soon as practicable following
the applicable Expiration Date.
By tendering Original Discount Notes in the Exchange Offer, each registered
holder will represent to the issuer of such Original Discount Notes that,
among other things, (i) the Exchange Discount Notes to be acquired by the
holder and any beneficial owner(s) of such Original Discount Notes
("Beneficial Owner(s)") in connection with the Exchange Offer are being
acquired by the holder and any Beneficial Owner(s) in the ordinary course of
business of the holder and any Beneficial Owner(s), for such holder's own
account, for investment and not with a view to or for sale in connection with
any distribution of the Exchange Discount Notes (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in a
distribution of the Exchange Discount Notes, (iii) the Holder and each
Beneficial Owner acknowledge and agree that (x) any person participating in an
Exchange Offer for the purpose of distributing the Exchange Discount Notes
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction with respect
to the Exchange Discount Notes acquired by such person and cannot rely on the
position of the Staff of
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the Commission set forth in no-action letters that are discussed herein under
"--Resales of the Exchange Discount Notes," and (y) any Participating Broker-
Dealer that receives Exchange Discount Notes for its own account in exchange
for Original Discount Notes pursuant to an Exchange Offer, where such Original
Discount Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must deliver a prospectus in
connection with any resale of such Exchange Discount Notes, see "Plan of
Distribution," but by so acknowledging, the holder shall not be deemed to
admit that, by delivering a prospectus, it is an "underwriter" within the
meaning of the Securities Act, (iv) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of
Details Capital except as otherwise disclosed to Details Capital in writing,
and (v) the holder and each Beneficial Owner understands that a secondary
resale transaction described in clause (iii) above should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Discount Notes at the Book-Entry Transfer Facility, for
purposes of the Exchange Offers, within two business days after the date of
this Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Original
Discount Notes by causing the Book-Entry Transfer Facility to transfer such
Original Discount Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Original Discount Notes
may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the applicable Letter of Transmittal, with any required signature
guarantees and any other documents, must be transmitted to and received by the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the applicable Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Discount Notes and (i) whose
Original Discount Notes are not immediately available, or (ii) who cannot
deliver their Original Discount Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the applicable Expiration
Date, may effect a tender if:
(1) The tender is made through an Eligible Institution;
(2) Prior to the applicable Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by mail, hand delivery or facsimile
transmission) setting forth the name and address of the holder, the
certificate number(s) of such Original Discount Notes and the principal
amount of the Original Discount Notes being tendered, stating that the
tender is being made thereby and guaranteeing that, within five business
days after the applicable Expiration Date, the applicable Letter of
Transmittal together with the certificate(s) representing the Original
Discount Notes (or a Book-Entry Confirmation) and any other documents
required by the applicable Letter of Transmittal will be delivered by the
Eligible Institution to the Exchange Agent; and
(3) Such properly completed and executed Letter of Transmittal, as well
as the certificate(s) representing all tendered Original Discount Notes in
proper form for transfer (or a Book-Entry Confirmation) and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within five business days after the applicable Expiration
Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Discount Notes
pursuant to an Exchange Offer may be withdrawn, unless theretofore accepted
for exchange as provided in the applicable Exchange Offer, at any time prior
to the Expiration Date of that Exchange Offer.
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To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Original Discount Notes to be
withdrawn (the "Depositor"), (ii) identify the Original Discount Notes to be
withdrawn (including the certificate number or numbers and aggregate principal
amount of such Original Discount Notes), and (iii) be signed by the holder in
the same manner as the original signature on the applicable Letter of
Transmittal (including any required signature guarantees). All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by Details Capital in its sole respective discretion, which
determination shall be final and binding on all parties. Any Original Discount
Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Discount Notes will be issued
with respect thereto unless the Original Discount Notes so withdrawn are
retendered. Properly withdrawn Original Discount Notes may be retendered by
following one of the procedures described above under"--Procedures for
Tendering" at any time prior to the applicable Expiration Date.
Any Original Discount Notes which have been tendered but which are not
accepted for exchange due to the rejection of the tender due to uncured
defects or the prior termination of the applicable Exchange Offer, or which
have been validly withdrawn, will be returned to the holder thereof (unless
otherwise provided in the Letter of Transmittal), as soon as practicable
following the applicable Expiration Date or, if so requested in the notice of
withdrawal, promptly after receipt by the issuer of the Original Discount
Notes of notice of withdrawal without cost to such holder.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or
the making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in commission policy such that there is a substantial question whether
the Exchange Offer is permitted by applicable federal law, Details Capital has
agreed to seek a no-action letter or other favorable decision from the
Commission allowing Details Capital to consummate the Exchange Offer.
If Details Capital determines, that the Exchange Offer is not permitted by
applicable Federal law, it may terminate the Exchange Offer. In connection
therewith Details Capital may (i) refuse to accept any Original Discount Notes
and return any Original Discount Notes that have been tendered by the holders
thereof, (ii) extend the Exchange Offer and retain all Original Discount Notes
tendered prior to the Expiration of the Exchange Offer, subject to the rights
of such holders of tendered Original Discount Notes to withdraw their tendered
Original Discount Notes, or (iii) waive such termination event with respect to
the Exchange Offer and accept all properly tendered Original Discount Notes
that have not been withdrawn. If such waiver constitutes a material change in
the Exchange Offer, Details Capital will disclose such change by means of a
supplement to this Prospectus that will be distributed to each registered
holder of Original Discount Notes, and Details Capital will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Original Discount Notes, if the Exchange Offer would otherwise
expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as "Exchange Agent"
for the Exchange Offer. Questions and request for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and other
documents should be directed to the Exchange Agent addressed as follows:
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By Registered or Certified Mail or Hand or Overnight Delivery:
State Street Bank and Trust Company
Two International Place
4th Floor
Boston, MA 02110
Attention: Earl Dennison
Confirm By Telephone: (617) 664-5670
Facsimile Transmissions: (617) 664-5371
(ELIGIBLE INSTITUTIONS ONLY)
Delivery to other than the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Details Capital. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of Details Capital and its affiliates.
No dealer-manager has been retained in connection with the Exchange Offer
and no payments will be made to brokers, dealers or others soliciting
acceptance of the Exchange Offer. However, reasonable and customary fees will
be paid to the Exchange Agent for its service and it will be reimbursed for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Details Capital and are estimated in the aggregate to be
approximately $ . Such expenses include fees and expenses of the Exchange
Agent and the Trustee under the Indenture, accounting and legal fees and
printing costs, among others.
Details Capital will pay all transfer taxes, if any, applicable to the
exchange of the Original Discount Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the exchange of
the Original Discount Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
ACCOUNTING TREATMENT
The carrying values of the Original Discount Notes are not expected to be
materially different from the fair value of the Exchange Discount Notes at the
time of the exchange. Accordingly, no gain or loss for accounting purposes
will be recognized. The expenses of the Exchange Offer will be amortized over
the term of the Exchange Discount Notes.
RESALES OF THE EXCHANGE DISCOUNT NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, Details Capital believes the Exchange Discount Notes issued pursuant
to the Exchange Offer in exchange for the Original Discount Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than (i) a broker-dealer who purchased such Original Discount Notes
directly from Details Capital to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
"affiliate" of Details Capital within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the
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Securities Act provided that the holder is acquiring the Exchange Discount
Notes in its ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Discount Notes. Holders of Original Discount
Notes wishing to accept the Exchange Offer must represent to Details Capital
that such conditions have been met. In the event that Details Capital's belief
is inaccurate, holders of Exchange Discount Notes who transfer Exchange
Discount Notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration thereunder may incur
liability under the Securities Act. Details Capital does not assume or
indemnify holders against such liability.
All resales must be made in compliance with applicable state securities or
"blue sky" laws. Such compliance may require that the Exchange Discount Notes
be registered or qualified in a particular state or that the resales be made
by or through a licensed broker-dealer, unless exemptions from these
requirements are available. Details Capital assumes no responsibility with
regard to compliance with such requirements.
Each affiliate of Details Capital must acknowledge that such person will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. Each Participating Broker-Dealer that
receives Exchange Discount Notes in exchange for Original Discount Notes held
for its own account, as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Discount Notes. Although a Participating Broker-Dealer
may be an "underwriter" within the meaning of the Securities Act, the Letter
of Transmittal states that by so acknowledging and by delivering a prospectus,
a Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Discount
Notes received in exchange for Original Discount Notes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences associated with the acquisition, ownership, and disposition of
the Exchange Discount Notes by holders who exchange Original Discount Notes
for the Exchange Discount Notes. The following summary does not discuss all of
the aspects of United States federal income taxation that may be relevant to a
prospective holder of the Exchange Discount Notes in light of his or her
particular circumstances, or to certain types of holders (including dealers in
securities, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, S corporations, persons who hold the Exchange
Discount Notes as part of a hedge, straddle, "synthetic security" or other
integrated investment and except as discussed below, foreign corporations and
persons who are not citizens or residents of the United States) which are
subject to special treatment under the federal income tax laws. This
discussion also does not address the tax consequences to nonresident aliens or
foreign corporations that are subject to United States federal income tax on a
net basis on income with respect to a Exchange Discount Note because such
income is effectively connected with the conduct of a U.S. trade or business.
Such holders generally are taxed in a similar manner to U.S. Holders (as
defined below); however, certain special rules apply. In addition, this
discussion is limited to holders who hold the Exchange Discount Notes as
capital assets within the meaning of Section 1221 of the Code. This summary
also does not describe any tax consequences under state, local or foreign tax
laws.
The discussion is based upon currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
of which are subject to change at any time by legislative, judicial or
administrative actions. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the Exchange Discount Notes.
There can be no assurance that the IRS will not take positions concerning the
tax consequences of the acquisition, ownership or disposition of the Exchange
Discount Notes which are different from those discussed herein.
PROSPECTIVE HOLDERS OF EXCHANGE DISCOUNT NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY
APPLY TO THEM, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder of Exchange Discount Notes who or which is for
United States federal income tax purposes (i) a citizen or resident of the
United States; (ii) a domestic corporation or domestic partnership; (iii) an
estate other than a "foreign estate" as defined in Section 7701(a)(31) of the
Code; or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States fiduciaries have the authority to control all substantial
decisions of the trust.
EXCHANGE OF ORIGINAL DISCOUNT NOTES FOR EXCHANGE DISCOUNT NOTES. The
exchange by a U.S. Holder of an Original Discount Note for an Exchange
Discount Note pursuant to the Exchange Offer will not constitute a taxable
exchange of the Original Discount Note if the economic terms of the Exchange
Discount Note (including the interest rate) are identical to the economic
terms of the Original Discount Note. Under recently promulgated Treasury
regulations relating to modifications and exchanges of debt instruments (the
"Section 1001 Regulations"), with certain exceptions, an alteration of a legal
right or obligation that occurs by operation of the terms of a debt instrument
is not a modification of the debt instrument and thus does not result in a
taxable exchange. Therefore, even if Liquidated Damages were payable with
respect to the Original Discount Notes but not with respect to the Exchange
Discount Notes, the exchange of an Original Discount Note for an Exchange
Discount
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Note would not be treated as a taxable exchange. Accordingly, the Company
intends to take the position that in the circumstances described in the
preceding sentence, the exchange will not constitute a taxable exchange of the
Original Discount Notes. As a result, there should be no U.S. Federal income
tax consequences to U.S. Holders exchanging the Original Discount Notes for
the Exchange Discount Notes.
Classification of the Exchange Discount Notes. Under applicable authorities,
the Exchange Discount Notes should be treated as indebtedness of the Company
for federal income tax purposes. In the event that the Exchange Discount Notes
are treated as equity, the amount treated as a distribution on any such
instrument would be treated as ordinary dividend income to the extent of the
current or accumulated earnings and profits of the Company.
The Company intends to characterize the Exchange Discount Notes as debt for
federal income tax purposes. Pursuant to Section 385(c) of the Code, this
characterization is binding on holders of the Exchange Discount Notes unless
such holder discloses any inconsistent treatment on such holder's tax return.
Section 385(c) is not binding on the IRS.
Original Issue Discount and Liquidated Damages on Exchange Discount
Notes. The Exchange Discount Notes will be issued with original issue discount
("OID"). Because the amount of OID is expected to be greater than the de
minimis amount ( 1/4 of 1 percent of the stated redemption price at maturity,
multiplied by the number of complete years to maturity of the debt
instruments), the Exchange Discount Notes will be considered to be issued with
OID for United States federal income tax purposes. As a result, Holders of
Exchange Discount Notes will be required to include such OID in gross income
in advance of the receipt of the cash payments related to such income, but
will not be required to include in income such cash payments when they are
received by such holder on the Exchange Discount Note.
The amount of OID with respect to an Exchange Discount Note will be equal to
the excess of the instrument's stated redemption price at maturity over its
issue price. For this purpose, the stated redemption price at maturity of an
Exchange Discount Note will equal the sum of all amounts payable pursuant to
the Exchange Discount Note, regardless of whether denominated as principal or
interest. The issue price of the Exchange Discount Notes will be the first
price at which a substantial amount of the Original Discount Notes were sold
(other than to brokers, underwriters, placement agents, etc.).
The amount required to be included in a U.S. Holder's income as OID in a
taxable year will be equal to the sum of the daily portions of OID for each
day during the taxable year. The daily portions of OID will be determined by
allocating to each day during such taxable year on which such holder holds the
Exchange Discount Note, a pro rata portion of the OID on the instrument
attributable to the "accrual period" (i.e., generally, the period that ends on
May 15 and November 15 of each calendar year) in which such day is included.
The amount of OID attributable to an accrual period will be the product of (i)
the "adjusted issue price" at the beginning of such accrual period (i.e., the
issue price plus OID attributable to prior accrual periods, less any cash
payments on the instrument during such prior accrual periods) multiplied by
(ii) the yield to maturity of the instrument (determined by semiannual
compounding). Each payment made under an Exchange Discount Note will be
treated first as a payment of any accrued unpaid OID that has not been
allocated to prior payments and second as a payment of principal (which is not
includible in income). Special rules will apply for calculating OID for
initial short or final accrual periods.
BECAUSE OF THE COMPLEXITY OF THE RULES RELATING TO OID, U.S. HOLDERS SHOULD
CONSULT THEIR TAX ADVISORS AS TO THE APPLICATION OF THE RULES TO THEIR
PARTICULAR CIRCUMSTANCES.
Sale, Exchange or Retirement of an Exchange Discount Note. Upon the sale,
exchange, retirement or other taxable disposition of an Exchange Discount
Note, a U.S. Holder will recognize
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taxable gain or loss in an amount equal to the difference between the amount
of cash and fair market value of property received in exchange therefor and
such holder's adjusted tax basis in the Exchange Discount Note. A U.S.
Holder's adjusted tax basis in an Exchange Discount Note will generally equal
such holders adjusted tax basis in the Original Discount Note exchange
therefor, increased by the amounts of any OID included in income by such
holder with respect to such Exchange Discount Note, and decreased by the
amounts of any payments actually received by such U.S. Holder with respect to
such Exchange Discount Note after the exchange.
Gain or loss recognized on the sale or other taxable disposition of an
Exchange Discount Note generally will be capital gain or loss and will be
long-term capital gain or loss if the Exchange Discount Note had been held for
more than one year (the maximum rate of tax on any such long-term capital gain
being further reduced if the Exchange Discount Note were held for more than
eighteen months) and otherwise will be short-term capital gain or loss. The
holding period of an Exchange Discount Note will include the holding period of
the Original Discount Note exchanged therefor.
Classification of Notes as Applicable High Yield Discount
Obligations. Section 163 of the Code provides that all of the OID with respect
to certain "applicable high yield discount obligations" generally issued after
July 10, 1989, will be bifurcated into two elements: (i) an interest element
that is deductible by the issuer only when paid and (ii) a disqualified
portion for which the issuer receives no deduction (the "disqualified
portion"). A U.S. Holder of an applicable high yield discount obligation must
continue to include OID on the obligation as it accrues. A corporate U.S.
Holder of the high yield obligation, however, is allowed a dividends-received
deduction for the part of the disqualified portion of the OID that would have
been treated as a dividend had it been distributed by the issuing corporation
with respect to its stock.
The deduction by the Company of OID on the Exchange Discount Notes will be
limited if the Exchange Discount Notes constitute applicable high yield
discount obligations. An Exchange Discount Note will be an applicable high
yield discount obligation if (i) its yield to maturity equals or exceeds the
sum of the long-term applicable federal rate for the month in which it was
issued plus 5% and (2) the Exchange Discount Note has significant OID. An
Exchange Discount Note will have significant OID if (1) the aggregate amount
that would be included in gross income with respect to the Exchange Discount
Note for periods before the close of any accrual period that ends more than
five years after the date of issue exceeds (2) the sum of the aggregate amount
of interest to be paid under the Exchange Discount Note before the close of
such accrual period and the product of the Exchange Discount Note's issue
price and its yield to maturity. If the Exchange Discount Notes are applicable
high yield discount obligations, the disqualified portion of OID will equal
the lesser of (i) the amount of the OID on the Exchange Discount Note and (ii)
the product of the total OID on the Exchange Discount Notes times the ratio of
(a) the excess of the yield to maturity over the sum of the long-term
applicable federal rate in effect for the month in which the Exchange Discount
Notes are issued plus 6% to (b) the yield to maturity.
Corporate U.S. Holders generally will be eligible for the 70% dividends-
received deduction with respect to the disqualified portion of OID on an
Exchange Discount Note to the extent of the Company's accumulated or current
earnings and profits. Although not totally clear, any amount qualifying as a
dividend should not be subject to extraordinary dividend treatment under
Section 1059 of the Code.
Backup Withholding. Certain holders of the Exchange Discount Notes may be
subject to backup withholding at the rate of 31% with respect to interest
(including OID) and cash received in certain circumstances upon the
disposition of an Exchange Discount Note. Generally, backup withholding will
apply if (i) the payee fails to furnish a taxpayer identification number
("TIN") in the prescribed manner, (ii) the IRS notifies the payor that the TIN
furnished by the payee is incorrect, (iii) the payee has failed to report
properly the receipt of "reportable payments" and the IRS has notified the
payor that
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withholding is required, or (iv) the payee fails to certify under the penalty
of perjury that such payee is not subject to backup withholding. Any amounts
withheld from a payment to a holder under the backup withholding rules will be
allowed as a refund or credit against such holder's United States federal
income tax liability, provided that the required information is furnished to
the IRS. Certain holders (including, among others, corporations and certain
tax-exempt organizations) are not subject to backup withholding.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section discusses special rules applicable to a holder of Exchange
Discount Notes that is a Non-U.S. Holder. For purposes of this discussion, a
"Non-U.S. Holder" is a holder that is not a U.S. Holder and is not subject to
U.S. federal income tax on a net basis on income with respect to an Exchange
Discount Note because such income is effectively connected with the conduct of
a U.S. trade or business.
Interest, OID and Dividends. In general, payments of interest received or of
OID accrued by any Non-U.S. Holder will not be subject to a United States
federal withholding tax, provided that (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (ii) the Non-U.S.
Holder is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code,
(iii) the Non-U.S. Holder is not a controlled foreign corporation that is
related to the Company actually or constructively through stock ownership, and
(iv) either (x) the beneficial owner of the Exchange Discount Note, under
penalties of perjury, provides the Company or its agent with the beneficial
owner's name and address and certifies that it is not a U.S. Holder on IRS
Form W-8 (or suitable substitute form) or (y) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its business (a "financial institution")
holds the Exchange Discount Note and certifies to the Company or its agent
under penalties of perjury that such a Form W-8 (or a suitable substitute) has
been received by it from the beneficial owner of the Exchange Discount Note or
a qualifying intermediary and furnishes the payor a copy thereof. If the Non-
U.S. Holder does not satisfy the above requirements, such holder will be
subject to United States federal withholding tax unless the holder is entitled
to the benefits of an income tax treaty under which the interest is exempt
from United States withholding tax and the Non-U.S. Holder or such holder's
agent provides a properly executed Form 1001 (or successor form) in the name
of the beneficial owner claiming the exemption. Payments of interest not
exempt from U.S. federal withholding tax as described above will be subject to
such withholding tax rate at the rate of 30% (subject to reduction under an
applicable income tax treaty).
Under applicable authorities, the Exchange Discount Notes should be treated
as indebtedness of the Company for U.S. federal income tax purposes. However,
if the Exchange Discount Notes were treated as equity, the amount treated as a
distribution on the Exchange Discount Notes would be subject to United States
federal income taxation at a rate of 30% on the gross amount of the dividend
(unless reduced by an applicable income tax treaty), which tax generally is
collected by withholding at a source. Under current United States Treasury
regulations, a Non-U.S. Holder is required to satisfy certain certification
and other requirements in order to claim the benefit of a reduced rate of
withholding under an applicable income tax treaty. As described above, the
Company intends to treat the Exchange Discount Notes as debt for U.S. federal
income tax purposes.
Gain on Disposition of Exchange Discount Notes. A Non-U.S. Holder generally
will not be subject to United States federal withholding tax with respect to
gain recognized on disposition of the Exchange Discount Notes unless (i) in
the case of a Non-U.S. Holder that is an individual, such Non-U.S. Holder is
present in the United States for 183 or more days in the taxable year of the
disposition and certain other requirements are met; (ii) the Non-U.S. Holder
is an individual who is a former citizen of the United States who lost such
citizenship within the preceding ten-year period (or former long-term
permanent resident of the United States who relinquished residency on or after
February 6, 1995)
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whose loss of citizenship or residency had as one of its principal purposes
the avoidance of United States tax; or (iii) in the case of gain representing
accrued OID, such OID, on the Exchange Discount Note does not qualify for any
of the exemptions described in the first paragraph under "--Interest, OID and
Dividends." If a Non-U.S. Holder falls under (ii) above, the holder will be
taxed on the net gain derived from the sale under the graduated U.S. federal
income tax rates that are applicable to U.S. citizens and resident aliens, and
may be subject to withholding under certain circumstances. If a Non-U.S.
Holder falls under (i) or (iii) above, the holder generally will be subject to
U.S. federal income tax at a rate of 30% on the gain derived from the sale (or
reduced treaty rate) and may be subject to withholding in certain
circumstances.
Information Reporting and Backup Withholding. Under current Treasury
regulations, backup withholding and information reporting will not apply to
payments made by the Company or a paying agent to Non-U.S. Holders if the
certification described under "Interest, OID and Dividends" is received,
provided that the payor does not have actual knowledge that the holder is a
U.S. Holder. The Company may be required to report annually to the IRS and to
each Non-U.S. Holder the amount of interest paid to, and the tax withheld, if
any, with respect to each Non-U.S. Holder.
If any payments of principal and interest are made to the beneficial owner
of an Exchange Discount Note by or through the foreign office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if the foreign office of a foreign "broker" (as defined in applicable United
States Treasury Department regulations) pays the proceeds of the sale of an
Exchange Discount Note to the seller thereof, backup withholding and
information reporting will not apply (absent actual knowledge that the payee
is a U.S. person). Information reporting requirements (but not backup
withholding) will apply, however, to a payment by a foreign office of a broker
that is a United States person, that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or that is a "controlled foreign corporation" (generally, a foreign
corporation controlled by certain United States shareholders) with respect to
the United States, unless the broker has documentary evidence in its records
that the holder is a Non-U.S. Holder and certain other conditions are met
(including that the broker has no actual knowledge that the holder is a U.S.
Holder), or the holder otherwise establishes an exemption. Payment by a United
States office of a broker is subject to both backup withholding at a rate of
31% and information reporting unless the holder certifies under penalties of
perjury that it is a Non-U.S. Holder, or otherwise establishes an exemption. A
Non-U.S. Holder may obtain a refund of or a credit against such holder's U.S.
federal income tax liability of any amounts withheld under the backup
withholding rules, provided the required information is furnished to the IRS.
The IRS released Treasury regulations on October 6, 1997 that revise the
procedures for withholding tax, and the associated backup withholding and
information reporting rules described above for payments of interest
(including accrued OID) and gross proceeds made after December 31, 1998. The
regulations modify the requirements imposed on a Non-U.S. Holder or certain
intermediaries for establishing the recipient's status as a Non-U.S. Holder
eligible for exemption from withholding and backup withholding. In particular,
the regulations impose more stringent conditions on the ability of financial
intermediaries acting for a Non-U.S. Holder to provide certifications on
behalf of the Non-U.S. Holder, which may include entering into an agreement
with the IRS to audit certain documentation with respect to such
certifications. Non-U.S. Holders should consult their tax advisors to
determine how the regulations will affect their particular circumstances.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Discount Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Discount Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Discount Notes
received in exchange for Original Discount Notes where such Original Discount
Notes were acquired as a result of market-making activities or other trading
activities. Details Capital has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions in the
Exchange Discount Notes may be required to deliver a prospectus.
Details Capital will not receive any proceeds from any sales of the Exchange
Discount Notes by Participating Broker-Dealers. Exchange Discount Notes
received by Participating Broker-Dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing
of options on the Exchange Discount Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to the purchaser or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange
Discount Notes. Any Participating Broker-Dealer that resells the Exchange
Discount Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Discount Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of Exchange
Discount Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date Details Capital will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. Details Capital has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the Holders of the Discount Notes) other than commissions or concessions
of any broker-dealers and will indemnify the Holders of the Discount Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Discount Notes offered
hereby will be passed upon for the Company by its counsel, Ropes & Gray, One
International Place, Boston, Massachusetts and its special California counsel,
Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport
Center Drive, Newport Beach, California.
EXPERTS
The consolidated financial statements of Details Holdings Corp., formerly
Details, Inc. as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 included in this Prospectus, have been
audited by McGladrey & Pullen, LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
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<PAGE>
The financial statements of Colorado Springs Circuits, Inc. as of April 1,
1997 and 1996 and for the years then ended, included in this Prospectus have
been audited by Stockman Kast Ryan & Scruggs, P.C., independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The statements of income and retained earnings and of cash flows of Colorado
Springs Circuits, Inc. for the year ended March 31, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
CHANGE 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 Price Waterhouse
LLP that it would be engaged as the Company's new principal independent
accountant to audit the Company's financial statements. The Company and its
Board of Directors selected Price Waterhouse LLP based primarily on the fact
that Price Waterhouse LLP typically serves as independent accountant for
portfolio companies of certain of Holdings' shareholders. The Company's former
accountants, McGladrey & Pullen, LLP, were considered for the engagement but
were not selected.
In connection with the audits of the two fiscal years ended December 31,
1996, there were no disagreements with McGladrey & Pullen, LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference in their opinion to the
subject matter of the disagreement. The audit report of McGladrey & Pullen,
LLP on the consolidated financial statements of the Company as of and for the
years ended December 31, 1996 and 1995, did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. A letter from McGladrey & Pullen, LLP
to that effect is attached as Exhibit 16.1 to the Registration Statement of
which this Prospectus is a part.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC. AND SUBSIDIARIES
Independent Auditor's Report.............................................. F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995 and as of
September 30, 1997 (unaudited)........................................... F-4
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994 and for the Nine Months Ended September 30, 1997 and 1996
(unaudited).............................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1995 and 1994 and for the Nine Months Ended
September 30, 1997 (unaudited)........................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 and the Nine Months Ended September 30, 1997 and 1996
(unaudited).............................................................. F-8
Notes to Consolidated Financial Statements................................ F-9
COLORADO SPRINGS CIRCUITS, INC.
Independent Auditors' Reports............................................. F-19
Balance Sheets as of April 1, 1997 and 1996............................... F-21
Statements of Income and Retained Earnings for the Years Ended April 1,
1997 and 1996 and March 31, 1995......................................... F-22
Statements of Cash Flows for the Years Ended April 1, 1997 and 1996 and
March 31, 1995........................................................... F-23
Notes to Financial Statements............................................. F-24
Interim Balance Sheet as of September 29, 1997 (unaudited)................ F-29
Interim Statements of Income and Retained Earnings for the Six Months
Ended September 29, 1997 and September 30, 1996 (unaudited).............. F-30
Interim Statements of Cash Flows for the Six Months Ended September 29,
1997 and September 30, 1996 (unaudited).................................. F-31
Notes to Interim Financial Statements (unaudited)......................... F-32
</TABLE>
F-1
<PAGE>
[This page intentionally left blank]
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of DirectorsDetails Holdings Corp., formerly Details,
Inc.Anaheim, California
We have audited the accompanying consolidated balance sheets of Details
Holdings Corp., formerly Details, Inc. and Subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of income,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Details
Holdings Corp., formerly Details, Inc. and Subsidiaries as of December 31,
1995 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
McGladrey & Pullen, LLP
Anaheim, California
February 14, 1997
F-3
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current Assets
Cash (Note 7)...................... $ 472,200 $ 168,900 $ 942,300
Trade receivables, less allowance
for doubtful accounts 1995
$330,000; 1996 $300,000; 1997
$400,000 (Note 7)................. 6,921,600 9,511,000 10,148,100
Inventories (Note 2)............... 874,900 1,237,800 2,413,700
Prepaid expenses................... 48,500 217,000 196,600
Prepaid income taxes............... -- 648,000 160,300
Deferred income taxes (Note 5)..... -- 690,000 690,000
----------- ------------- -------------
Total current assets............. 8,317,200 12,472,700 14,551,000
----------- ------------- -------------
Property and Equipment, net (Note 3). 4,701,800 12,846,900 14,931,000
----------- ------------- -------------
Unamortized Debt Issue Costs, net.... -- 2,057,500 1,542,300
Other Assets......................... 62,200 125,400 661,500
----------- ------------- -------------
62,200 2,182,900 2,203,800
----------- ------------- -------------
$13,081,200 $ 27,502,500 $ 31,685,800
=========== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Current maturities of long-term
debt (Note 4)..................... $ 1,981,900 $ 9,500,000 $ 10,625,000
Current maturities of capital
leases with stockholder (Note 4).. -- 410,900 364,700
Accounts payable................... 3,280,200 3,560,600 3,505,500
Accrued commissions................ 504,900 587,100 1,002,800
Other accrued expenses............. 729,600 1,799,500 1,858,400
Accrued bonus payable.............. -- -- 2,958,500
Dividends payable.................. 4,084,500 128,200 128,200
----------- ------------- -------------
Total current liabilities........ 10,581,100 15,986,300 20,443,100
----------- ------------- -------------
Long-Term Debt (Note 4).............. -- 78,350,300 70,229,200
Capital Leases with stockholder (Note
4).................................. -- 5,839,700 6,191,200
----------- ------------- -------------
Total liabilities (Note 6)....... 10,581,100 100,176,300 96,863,500
----------- ------------- -------------
Commitments and Contingencies (Notes
4, 6 and 10)
Temporary Stockholders' Equity (Note
6)
Redeemable common stock, 1996 6,959
shares; 1997 6,873 shares......... -- 38,906,000 77,000,000
Redeemable common stock warrants... -- 3,200,000 6,350,000
----------- ------------- -------------
Total temporary stockholders'
equity.......................... -- 42,106,000 83,350,000
----------- ------------- -------------
Other Stockholders' Equity (Deficit)
(Notes 4 and 6)
Common stock, no par value,
authorized 100,000 shares, issued
and outstanding 1995 15,300
shares; 1996 and 1997 2,758
shares............................ 15,300 5,300,500 5,300,500
Convertible preferred stock, no par
value, authorized 1995 none; 1996
and 1997 100,000 shares, issued
and outstanding 1996 and 1997
6,601 shares...................... -- 13,531,900 13,531,900
Additional paid-in-capital......... -- -- 2,922,000
Retained earnings (deficit)........ 2,484,800 (133,612,200) (170,282,100)
----------- ------------- -------------
Total other stockholders' equity
(deficit)....................... 2,500,100 (114,779,800) (148,527,700)
----------- ------------- -------------
$13,081,200 $ 27,502,500 $ 31,685,800
=========== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales (Note 7)...... $44,085,800 $59,370,200 $67,515,000 $49,086,000 $55,420,800
Cost of Goods Sold,
including rent paid to
stockholders 1994
$452,200; 1995 $558,700
(Note 4)............... 20,415,100 25,156,400 30,504,800 21,899,100 27,018,700
----------- ----------- ----------- ----------- -----------
Gross profit........ 23,670,700 34,213,800 37,010,200 27,186,900 28,402,100
Operating Expenses (Note
4)
Compensation to CEO... 411,900 417,900 1,055,100 836,000 811,000
General and
administration
including rent paid
to stockholder 1994
$85,200; 1995
$63,500.............. 1,384,600 1,789,700 1,929,000 1,377,500 1,624,800
Sales and marketing... 3,542,700 5,292,800 5,989,800 4,502,900 5,337,700
Stock compensation and
related bonuses...... -- -- -- -- 5,283,000
----------- ----------- ----------- ----------- -----------
Operating income.... 18,331,500 26,713,400 28,036,300 20,470,500 15,345,600
Interest Income
(Expense)
Interest income....... 13,100 41,800 102,300 71,100 55,500
Interest expense,
including interest
paid to stockholder
of $774,000 for 1996
year................. (180,900) (370,600) (9,517,800) (6,973,600) (7,427,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.............. 18,163,700 26,384,600 18,620,800 13,568,000 7,974,100
Income Tax Expense (Note
5)..................... 272,400 396,000 6,265,000 4,270,000 3,400,000
----------- ----------- ----------- ----------- -----------
Net income.......... 17,891,300 25,988,600 12,355,800 9,298,000 4,574,100
=========== =========== =========== =========== ===========
Pro forma income tax
adjustment
(Note 4)............... 7,175,000 10,425,000 1,295,000 1,295,000
----------- ----------- ----------- -----------
Pro forma net income
(Note 5)............... $10,716,300 $15,563,600 $11,060,800 $ 8,003,000
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK
------------------ -------------------
SHARES AMOUNT SHARES AMOUNT
------ ---------- ------ -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993............. 15,300 $ 15,300 -- $ --
Net income........................... -- -- -- --
Dividends declared................... -- -- -- --
------ ---------- ----- -----------
Balance, December 31, 1994............. 15,300 15,300 -- --
Net income........................... -- -- -- --
Dividends declared................... -- -- -- --
------ ---------- ----- -----------
Balance, December 31, 1995............. 15,300 15,300 -- --
Retirement of common stock (Note 6).. (8,162) (8,200) -- --
Transfer common stock subject to put
option (Note 6)..................... (6,959) (7,000) -- --
Issuance of common stock (Note 6).... 2,509 5,147,900 -- --
Issuance of preferred stock (Note 6). -- -- 6,671 13,684,400
Transfer of preferred stock to common
stock............................... 70 152,500 (70) (152,500)
Issuance of redeemable common stock
warrants (Note 6)................... -- -- -- --
Net income........................... -- -- -- --
Accretion of temporary stockholders'
equity to estimated fair value (Note
6).................................. -- -- -- --
Dividends declared................... -- -- -- --
------ ---------- ----- -----------
Balance, December 31, 1996............. 2,758 5,300,500 6,601 13,531,900
Net income (unaudited)............... -- -- -- --
Accretion of temporary stockholders'
equity to estimated fair value
(unaudited) (Note 6)................ -- -- -- --
Stock compensation expense
(unaudited) (Note 6)................ -- -- -- --
------ ---------- ----- -----------
Balance, September 30, 1997
(unaudited)........................... 2,758 $5,300,500 6,601 $13,531,900
====== ========== ===== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TEMPORARY STOCKHOLDERS' EQUITY
----------------------------------
ADDITIONAL RETAINED REDEEMABLE COMMON
PAID-IN- EARNINGS COMMON STOCK
CAPITAL (DEFICIT) TOTAL STOCK WARRANTS TOTAL
- ---------- ------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ -- $ 2,790,700 $ 2,806,000 $ -- $ -- $ --
-- 17,891,300 17,891,300 -- -- --
-- (17,891,300) (17,891,300) -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
-- 2,790,700 2,806,000 -- -- --
-- 25,988,600 25,988,600 -- -- --
-- (26,294,500) (26,294,500) -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
-- 2,484,800 2,500,100 -- -- --
-- (104,991,800) (105,000,000) -- -- --
-- (14,967,000) (14,974,000) 14,974,000 -- 14,974,000
-- -- 5,147,900 -- -- --
-- -- 13,684,400 -- -- --
-- -- -- -- -- --
-- -- -- -- 1,300,000 1,300,000
-- 12,355,800 12,355,800 -- -- --
-- (25,832,000) (25,832,000) 23,932,000 1,900,000 25,832,000
-- (2,662,000) (2,662,000) -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
-- (133,612,200) (114,779,800) 38,906,000 3,200,000 42,106,000
-- 4,574,100 4,574,100 -- -- --
-- (41,244,000) (41,244,000) 38,094,000 3,150,000 41,244,000
2,922,000 -- 2,922,000 -- -- --
- ---------- ------------- ------------- ----------- ---------- -----------
$2,922,000 $(170,282,100) $(148,527,700) $77,000,000 $6,350,000 $83,350,000
========== ============= ============= =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income................ $ 17,891,300 $ 25,988,600 $ 12,355,800 $ 9,298,000 $ 4,574,100
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation............. 881,800 1,054,200 2,047,100 1,494,500 1,828,800
Amortization............. -- -- 844,800 619,500 644,100
Stock compensation
expense................. -- -- -- -- 2,922,000
Deferred taxes........... -- -- (690,000) (297,000) --
Bad debt expense
(recovery).............. 164,200 (21,400) (27,100) (27,100) 95,300
Change in assets and
liabilities:
(Increase) decrease in:
Receivables............ (837,000) (1,975,200) (2,562,300) (1,327,000) (732,400)
Inventories............ (142,400) (421,000) (362,900) (519,000) (1,175,900)
Prepaid expenses and
other assets.......... (46,500) 28,900 (879,700) (221,600) (28,000)
Increase (decrease) in:
Accounts payable....... 259,200 1,747,000 280,400 (309,600) (55,100)
Accrued expenses....... (76,400) (259,900) 1,152,100 2,171,400 3,433,100
------------ ------------ ------------- ------------- -----------
Net cash provided by
operating activities. 18,094,200 26,141,200 12,158,200 10,882,100 11,506,000
------------ ------------ ------------- ------------- -----------
Cash Flows from Investing
Activities
Proceeds from sale of
equipment................ -- -- 89,600 7,800 --
Purchase of equipment..... (844,100) (2,945,900) (3,666,400) (2,719,900) (3,266,600)
------------ ------------ ------------- ------------- -----------
Net cash (used in)
investing activities. (844,100) (2,945,900) (3,576,800) (2,712,100) (3,266,600)
------------ ------------ ------------- ------------- -----------
Cash Flows from Financing
Activities
Principal payments on
notes payable............ (1,716,300) (752,200) (7,982,000) (5,982,000) (7,125,000)
Principal payments on
stockholder loan......... (1,000,000) -- -- -- --
Borrowings on notes
payable.................. 585,800 1,418,600 95,000,000 95,000,000 --
Principal payments on
capital lease
to stockholder........... -- -- (364,700) (266,400) (341,000)
Cash dividends paid on
common stock............. (13,025,800) (27,075,500) (6,618,300) (6,618,300) --
Proceeds from the issuance
of common and preferred
stock.................... -- -- 20,000,000 20,000,000 --
Stock issuance costs...... -- -- (1,167,700) (1,167,700) --
Debt issue costs incurred. -- -- (2,752,000) (2,752,000) --
Retirement of common
stock.................... -- -- (105,000,000) (105,000,000) --
------------ ------------ ------------- ------------- -----------
Net cash (used in)
financing activities. (15,156,300) (26,409,100) (8,884,700) (6,786,400) (7,466,000)
------------ ------------ ------------- ------------- -----------
Net increase
(decrease) in cash... 2,093,800 (3,213,800) (303,300) 1,383,600 773,400
Cash
Beginning................. 1,592,200 3,686,000 472,200 472,200 168,900
------------ ------------ ------------- ------------- -----------
Ending.................... $ 3,686,000 $ 472,200 $ 168,900 $ 1,855,800 $ 942,300
============ ============ ============= ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
The Company manufactures and sells printed circuit boards (PCB) to the
electronics industry throughout the United States on credit terms that the
Company establishes for individual customers. A majority of the Company's
sales are for the time critical segment (quick turn) of the PCB industry.
Quick turn PCB's are manufactured within 10 days.
Subsequent to the Recapitalization discussed in Note 10, the Company changed
its name to Details Holdings Corp. and incorporated Details, Inc. as a wholly-
owned subsidiary and contributed substantially all of its assets, subject to
certain liabilities to Details, Inc.
Environmental matters:
The Company's operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with
these environmental laws are major considerations for all PCB manufacturers
because metals and other hazardous materials are used in the manufacturing
process. In addition, because the Company is a generator of hazardous wastes,
the Company, along with any other person who arranges for the disposal of such
wastes, may be subject to potential financial exposure for costs associated
with an investigation and remediation of sites at which it has arranged for
the disposal of hazardous wastes, if such sites become contaminated. This is
true even if the Company fully complies with applicable environmental laws. In
addition, it is possible that in the future new or more stringent requirements
could be imposed. Management believes it has complied with all applicable
environmental laws and regulations. There have been no claims asserted nor is
management aware of any unasserted claims for environmental matters.
Interim financial information:
The financial information presented as of and for the periods ending
September 30, 1996 and 1997 has been prepared from the books and records
without audit. Such financial information does not include all disclosures
required by generally accepted accounting principles. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of financial information for the periods
indicated have been included. The results of the Company's operations for any
interim period are not necessarily indicative of the results attained for a
full fiscal year. The data disclosed in these notes to financial statements
related to the interim information is also unaudited.
A summary of the Company's significant accounting policies is as follows:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and their reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation:
In December 1996, the Company incorporated Details Europe Limited in the
United Kingdom and a foreign sales corporation. These subsidiaries had no
transactions during 1996.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
F-9
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment:
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using both the straight-line and
declining balance methods. For leasehold improvements, depreciation is
provided over the shorter of the estimated useful lives of the assets or the
lease term. Amortization of capitalized lease payments are included with
depreciation expense.
Unamortized debt issue costs:
Unamortized debt issue costs represent the portion of costs incurred in
connection with Company financing. These costs are being amortized over the
term of the credit agreement using the interest method. Accumulated
amortization as of December 31, 1996 was $692,500.
Temporary Stockholders' equity:
The Company has common stock and warrants to purchase common stock
outstanding which contain the right for the holder to put the instrument back
to the Company for cash. The Company records the fair value of these
instruments as temporary stockholders' equity with a corresponding charge to
accumulated deficit for any changes in the fair value of these instruments.
The fair value at January 31, 1996 was estimated at $2,179 per share, which
was the price per share paid by the outside investors upon the sale of stock
by the Company. The fair value at September 30, 1997 was estimated at $11,200
per share which approximates the price which was agreed to be paid to redeem
the temporary equity in connection with the Recapitalization as discussed in
Note 10. The fair value for all periods is estimated by management and the
board of directors.
Employee stock options:
The fair value of employee stock options has been estimated by management
and the board of directors. In estimating the fair value of stock options,
management considered both the $2,179 per share price of shares sold to
outside investors on January 31, 1996 and the fact that the employee stock
options did not represent a controlling interest in the Company.
Revenue recognition:
The Company recognizes revenue from the sale of its products upon delivery
of its products to its customers. The Company provides a normal warranty on
its products and accrues an estimated amount for this expense at the time of
the sale.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fair value of financial instruments:
The methods and assumptions used to estimate the fair value of the following
classes of financial instruments were as follows:
Debt--For fixed-rate instruments with a maturity in excess of one year,
the fair value of the debt is estimated using discounted cash flow analysis
based on the Company's current
F-10
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
incremental borrowing rates for similar types of borrowing arrangements.
The carrying value of these fixed rate instruments approximates their fair
value. For variable-rate instruments, the carrying amount approximates fair
value.
Interest rate cap agreement--The carrying amount approximates the fair
value based on the fair value of instruments with similar remaining terms.
NOTE 2. INVENTORIES
Inventories as of December 31, 1995 and 1996 and September 30, 1997 consist
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $498,300 $ 800,000 $ 985,000
Work-in-process............................ 376,600 437,800 1,428,700
-------- ---------- ----------
$874,900 $1,237,800 $2,413,700
======== ========== ==========
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Buildings and leasehold improvements................ $ 1,003,700 $ 5,845,600
Machinery and equipment............................. 7,733,200 12,053,500
Office furniture and equipment...................... 1,487,100 2,136,600
Waste treatment system.............................. 262,100 288,700
Vehicles............................................ 384,400 378,600
----------- -----------
10,870,500 20,703,000
Less accumulated depreciation....................... 6,168,700 7,856,100
----------- -----------
$ 4,701,800 $12,846,900
=========== ===========
</TABLE>
Buildings and leasehold improvements include buildings under a capitalized
lease of approximately $4,496,500 with related accumulated depreciation of
$449,600 at December 31, 1996. Machinery and equipment include a capitalized
lease of $2,118,900 with related accumulated depreciation of $211,900 at
December 31, 1996.
NOTE 4. LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Term A senior debt(A)...............$53,000,000.
Term B senior debt(A).............. 21,000,000
Subordinated debt, net of
discount(B)....................... 13,850,300
Capital leases(C).................. 6,250,600
-----------
94,100,900
Less current maturities............ 9,910,900
-----------
$84,190,000
===========
</TABLE>
F-11
<PAGE>
DETAILS, HOLDING CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(A) The Term A senior debt requires quarterly principal payments at increasing
amounts (ranging from $2,375,000 to $5,000,000) plus interest through
December 2000. The Term B senior debt requires quarterly interest only
payments with the principal due in January 2002. All interest is
calculated based upon LIBOR (5.53% at December 31, 1996) plus 3% or the
prime rate (8.25% at December 31, 1996) plus 1.75% at the Company's
option. The loans also contain a mandatory prepayment provision which
requires 100% of the cash proceeds upon the sale of stock or certain asset
sales and recoveries; and 75% of the "Excess Cash Flow Payment Periods",
as defined, through December 1997 and 50% thereafter. Included in the
credit facility with the Term A and B senior debt, is a $7,500,000
revolving note available to the Company. The revolving note bears interest
at similar rates to the Term notes as discussed above and is due and
payable in January 2002. At December 31, 1996 there is no balance
outstanding on this revolving note.
(B) The subordinated debt requires monthly interest payments at 12%. Principal
is due in two installments of $7,500,000 in February 2003 and 2004. The
debt is subordinate to the senior debt discussed above. In the event the
Company prepays the principal amount of this debt prior to maturity, the
Company is subject to a prepayment penalty ranging from 5% in year 1 to 0%
after year five. This prepayment penalty is reduced by 50% upon an Initial
Public Offering (IPO) and is eliminated upon the attainment of a certain
internal rate of return by the note holder. The subordinated debt holders
also received warrants to purchase 706.3 shares of the Company's common
stock for a nominal price. Management determined the fair value of the
warrants and allocated the proceeds to the subordinated debt and the
warrants issued based upon their relative fair value. The resulting
discount is being amortized over the life of the note using the interest
method (Note 6).
Both the senior and the subordinated debt are secured by substantially all
assets of the Company, contain certain debt covenants which the Company is
required to meet and include restrictions on the payment of dividends.
(C) On January 1, 1996, the Company and its major stockholder renegotiated the
two existing operating leases for its facilities and certain equipment.
The terms of the new leases require monthly payments totaling
approximately $95,000 over the ten-year term of the leases. The leases
contain an option for the Company to renew the leases for an additional
ten years at the end of the initial term. The leases also contain an
option for the Company to purchase the buildings and the machinery at its
fair value at the end of the initial term and at the end of the second
term. The building lease requires the Company to pay maintenance,
insurance and taxes and contains a provision to adjust the lease rate for
increases in the Consumer Price Index rate. These leases have been
accounted for as capital leases with an implicit interest rate of 12%.
Rent expense for 1994 and 1995 was $541,400 and $622,200, respectively
under the previous operating leases.
Floating-rate hedge:
The Company has entered into interest rate cap and interest rate floor
agreements having notional principal amounts of $40 million to reduce the
impact of changes in interest rates on its floating-rate debt. This agreement
effectively limits the Company's interest rate exposure on $40 million of
floating-rate debt should the three-month LIBOR rate exceed 8.5% or fall below
4.7% through April 1998, the term of the agreement. The Company is exposed to
credit loss in the event of nonperformance by the counterparties to the
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
F-12
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE
-------------------------------------
PRESENT
TOTAL LESS VALUE OF NET
MINIMUM AMOUNT MINIMUM OTHER
YEAR ENDING LEASE REPRESENTING LEASE LONG-TERM
DECEMBER 31, PAYMENTS INTEREST PAYMENTS DEBT TOTAL
------------ ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1997.................... $ 1,138,900 $ 728,000 $ 410,900 $ 9,500,000 $ 9,910,900
1998.................... 1,138,900 675,800 463,100 11,000,000 11,463,100
1999.................... 1,138,900 617,100 521,800 12,500,000 13,021,800
2000.................... 1,138,900 550,900 588,000 20,000,000 20,588,000
2001.................... 1,138,900 476,300 662,600 -- 662,600
Thereafter.............. 4,555,800 951,600 3,604,200 36,000,000 39,604,200
----------- ---------- ---------- ----------- -----------
$10,250,300 $3,999,700 $6,250,600 $89,000,000 95,250,600
=========== ========== ========== ===========
Less discount on subordinated debt........................................ 1,149,700
-----------
$94,100,900
===========
</TABLE>
NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS
For the year ended December 31, 1995 and prior years, the Company, with the
consent of its stockholder, elected to be taxed under sections of federal and
state income tax law, which provide that, in lieu of corporation income taxes,
the stockholder separately accounts for his pro rata share of the Company's
income, deductions, losses and credits. An additional state income tax is
imposed at a 1.5% rate. The Company's stockholder terminated this election
effective on February 1, 1996. The Company has presented pro forma net income
as if the Company had been a taxable entity.
As a result of this termination, the Company recorded a net deferred tax
asset of $297,000 on February 1, 1996 by a credit against income tax expense,
for temporary differences between the financial reporting and the income tax
basis of assets and liabilities.
Current deferred tax assets consist of the following components as of
December 31, 1996:
<TABLE>
<S> <C>
Receivables........................................................ $120,000
Other.............................................................. 91,000
California Franchise tax........................................... 479,000
--------
$690,000
========
</TABLE>
The provision for income taxes charged to income consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current income tax expense..................... $272,400 $396,000 $6,955,000
Deferred income tax (benefit).................. -- -- (690,000)
-------- -------- ----------
$272,400 $396,000 $6,265,000
======== ======== ==========
</TABLE>
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to income before income taxes due to
the following:
F-13
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense...... $ 6,357,000 $ 9,235,000 $6,517,000
Increase (decrease) in income taxes
resulting from:
State taxes, net of credits........ 272,400 396,000 981,000
Effect of change in tax status..... -- -- (297,000)
Income not subject to federal
corporate tax..................... (6,357,000) (9,235,000) (996,000)
Other.............................. -- -- 60,000
----------- ----------- ----------
$ 272,400 $ 396,000 $6,265,000
=========== =========== ==========
</TABLE>
NOTE 6. STOCKHOLDERS' EQUITY
In January 1996, the Company declared a dividend of $2,662,000 payable to
its sole stockholder. On January 31, 1996, the Company redeemed 8,162 shares
of its common stock from this stockholder for $105 million. The Company funded
this redemption through the issuance of $95 million of debt and the sale of
stock. In addition, the Company granted this stockholder the right to put back
to the Company, for cash, his remaining 6,959 shares of stock at its fair
value upon the earlier of January 2002 or 90 days after the full payment of
the Senior Debt (Note 4). The put expires upon a qualified public offering, as
defined. The Company also granted this stockholder certain antidilution rights
in connection with his remaining shares of stock. The stockholder agreed to
forfeit to the Company .64 shares of common stock for each share of the common
stock warrants and Tranche I options which are canceled (up to a maximum of
1,018 shares). During the period ended September 30, 1997, 86 shares were
forfeited (unaudited). Due to the existence of the put option, the estimated
fair value of these shares have been classified as temporary stockholders'
equity.
On January 31, 1996, the Company issued 6,671 shares of convertible
preferred stock for $14,533,338. In addition, the Company issued 2,509 shares
of common stock for $5,466,662. In connection with these issuances, the
Company incurred costs of $1,167,700. These costs have been applied against
the proceeds from the sale of stock.
In order to accomplish the sale of stock, the Company amended its articles
of incorporation to authorize the Company to issue up to 100,000 shares of
convertible preferred stock. The preferred stock is convertible into an equal
number of common shares of stock at the option of the holders. The holders of
the convertible preferred stock cast two votes for each share of stock held;
share equally with common stockholders as to dividends and have a preference
in the event of liquidation. Upon the occurrence of an Initial Public
Offering, the preferred stock will automatically convert to common stock.
Common stock warrants:
In connection with the issuance of $15 million of subordinated debt (Note
4), the Company issued warrants to acquire 706.3 shares of common stock at a
nominal price. Management estimated the value of these warrants at $1,300,000
at the time of issuance. The warrants contain certain antidilution provisions
and are exercisable through 2004. After five years, the warrant holders may
require the Company to repurchase the warrants or the stock purchased with the
warrants for fair value. The warrants also contain a "clawback" provision
which requires the holders of the warrants to surrender up to 282 of the
warrants upon the attainment of certain earnings targets by the Company in
1996 and 1997. The Company met the earnings target in 1996 and anticipates
that 141 of the warrants will be canceled. Due to the put provisions in the
warrants, the Company adjusts the recorded amount of the warrants to their
estimated fair value by a charge or credit to retained earnings. At December
31, 1996, management estimated the fair value of the remaining 565.3 warrants
at $3,200,000. Due to the existence of the put option, the estimated fair
value of these warrants has been classified as temporary stockholders' equity.
F-14
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock options:
On February 1, 1996, the Company granted stock options to various employees
under two programs. All options expire 10 years after the date they are
granted and contain a provision which requires the option holder to return the
option or the related stock purchased under the option to the Company at no
gain or a reduced gain should their employment with the Company be terminated
prior to five years from the date of grant. The options with senior management
include a provision which requires the Company to pay the optionee a bonus in
an amount sufficient to cover taxes that the optionee will incur upon exercise
of the option.
Senior management was granted options to purchase a total of 1,809 shares of
common stock at an exercise price of $2,179 per share. Options to purchase 880
shares of common stock (Tranche I) vest at the rate of 176 shares per year
through 2000 upon the attainment of certain annual earnings targets. If the
earnings target for a specific year is not met, the options related to that
year are canceled. Any future unearned options will become 100% vested upon
the sale of the Company or an initial public offering of the Company's stock.
During 1996, the Company met the 1996 earnings target and 176 common stock
options vested on May 1, 1997.
The remaining options to purchase 929 shares of common stock (Tranche II)
vest 185 shares in 1996 and 186 shares in 1997 through 2000 upon the
attainment of certain annual or cumulative earnings targets which are higher
than the targets discussed above. Any future unearned options become 100%
vested upon the sale of the Company. Tranche II option to purchase 106 shares
of common stock were transferred to middle management. During 1996, the
Company did not meet the earnings target for the Tranche II options and no
options were vested. Further, the Company does not believe that it is likely
that the Tranche II earnings targets will be met in the future.
The Company also issued to middle management options to purchase 247 shares
of common stock (including the 106 shares discussed above) at an exercise
price of $2,179 per share. The options vest based on the discretion of the
Compensation Committee. No options have been exercised.
The Company accounts for these stock options using APB Opinion No. 25 and
related interpretations. All stock options are accounted for as a variable
awards. Accordingly, the difference between the exercise price and the
estimated market price of the stock is recorded as compensation when the
number of shares is known. Although there is no established market for the
Company's stock, management estimated that the exercise price was at or above
the estimated market price for the common stock of the Company for the options
earned in 1996, and no compensation expense was recorded. However, options
which are earned in the future may result in a charge to earnings. Had
compensation cost for the stock options been determined based on the grant
date fair values as required by FASB Statement No. 123, there would have been
the following effect on the Company's reported net income for the year ended
December 31, 1996:
<TABLE>
<S> <C>
As reported.................................................... $12,355,800
===========
Pro forma...................................................... $12,355,800
===========
</TABLE>
Fair value was estimated using the minimum-value method, a risk-free
interest rate of 7.1% and an expected life of five years. No dividends were
assumed to be declared. Although there is no established market for the
Company's common stock, management believes the exercise price of the options
was at or above the fair value of the Company's stock on the grant date. The
weighted average value per option (computed using the minimum value method) of
the stock options granted in 1996 was $-0-.
F-15
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. CONCENTRATIONS
Major customers:
The Company had sales to the following customers that individually accounted
for more than 10% of the Company's total revenue. Revenue from these customers
and accounts receivable as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
NET REVENUE ACCOUNTS RECEIVABLE
----------------------------------- -------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Customer A.......... $12,573,156 $11,484,195 $ 5,889,401 $ 879,238 $ 528,927
Customer B.......... 4,737,816 4,939,054 10,709,947 989,091 931,130
</TABLE>
- --------
* Under 10% of sales
Cash concentration:
The Company has approximately $1,003,500 at December 31, 1996 invested with
one fund.
NOTE 8. EMPLOYEE BENEFIT PLAN
The Company has adopted a 401(k) plan subsequent to year end which is
effective January 1997. All employees of the Company over the age of 21 and
having at least one year of service, are eligible to participate in the plan.
The eligible employees may contribute 1% to 15% of their annual compensation
and there is currently no matching contribution required to be made by the
Company. At the discretion of the board of directors, they may elect to make a
nonelective contribution which vests at various rates depending on the years
of service until after six years when an employee would be 100% vested.
NOTE 9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash payments for:
Income taxes.......... $ -- $632,523 $7,638,914 $6,036,800 $7,437,600
======== ======== ========== ========== ==========
Interest.............. $112,800 $401,500 $7,774,034 $3,732,900 $2,912,300
======== ======== ========== ========== ==========
Supplemental Schedule of
Investing and Financing
Activities, capital
leases incurred for
acquisition of property
and equipment.......... $ -- $ -- $6,615,400 $6,615,400 $ 646,300
======== ======== ========== ========== ==========
</TABLE>
NOTE 10. SUBSEQUENT EVENTS (UNAUDITED)
On or about October 4, 1997, Holdings and Holdings' stockholders entered
into a recapitalization agreement (as amended to date, the "Recapitalization
Agreement") with DI Acquisition Corp. ("DIA") which provided for the
recapitalization (the "Recapitalization") by means of a merger (the "Merger")
of DIA with and into Holdings. DIA had no operations and was formed solely for
the purpose of effecting the Recapitalization.
F-16
<PAGE>
DETAILS, HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Recapitalization, Holdings accelerated the vesting of all
outstanding options (totalling 1,950 shares) to purchase shares of its common
stock (the "Old Common") making all such options immediately exercisable.
Certain members of management then exercised options to purchase 1,374.4
shares of Old Common.
Immediately prior to the Recapitalization, DIA was capitalized with a $62.4
million equity investment, summarized as follows: (i) investment funds
associated with Bain Capital, Inc. (the "Bain Capital Funds") purchased
925,775.9 shares of DIA's class A common stock ("DIA Class A") and 114,421.7
shares of DIA's class L common stock ("DIA Class L"); (ii) an affiliate of
Chase Manhattan Capital, L.P. ("CMC") purchased 224,120.0 shares of DIA Class
A and 27,700.2 shares of DIA Class L; and (iii) certain other investors (the
"Other Investors") purchased an aggregate of 98,000.0 shares of DIA Class A
and 12,112.4 shares of DIA Class L Common. The purchase paid for each share of
DIA Class A and DIA Class L was $5.00 and $364.09, respectively (the Class A
and L Issuance Price).
On October 28, 1997, the Recapitalization was consummated. In connection
with the Recapitalization:
(i) new classes of Holdings' common stock were created: Class A Common
Stock (the "Class A Common") and Class L Common Stock (the "Class L
Common");
(ii) DIA Merged with and into Holdings, with Holdings surviving the
merger.
(iii) each share of DIA Class A was converted into the right to receive
one share of Class A Common and each share of DIA Class L was converted
into the right to receive one share of Class L Common;
(iv) the value of each share of Old Common was established at
approximately $11,810 per share (which includes the right to contingent
payments of up to approximately $502 per share which right was retained by
all holders of Old Common and options to purchase Old Common);
(v) the holders of 16,295.6 shares of Old Common and Old Common
equivalents received approximately $184.3 million in cash, based on a
valuation of approximately $11,308 per share (the Per Share Merger
Consideration).
(vi) management retained 1,005.7 shares of Old Common, and options to
purchase 513.6 shares of Old Common; based upon the Per Share Merger
Consideration and the Class A and L Issuance Price, management's retained
shares and options were converted into 227,445.9 shares of Class A Common
and 28,111.3 shares of Class L Common and options to purchase 116,158.0
shares of Class A Common and 14,356.6 shares of Class L Common
(collectively, the "Management Rollover Equity");
(vii) CMC retained 685.4 shares of Old Common, and another stockholder
retained 247.1 shares of Old Common; based upon the Per Share Merger
Consideration and the Class A and L Issuance Price, CMC's retained shares
were converted into 155,000.0 shares of Class A Common and 19,157.3 shares
of Class L Common and the other stockholder's retained shares were
converted into 55,880.0 shares of Class A Common and 6,906.5 shares of
Class L Common (collectively, the "Existing Owner Rollover"); and
(viii) certain members of management received; (i) an aggregate of
10,374.5 shares of Class A Common as compensation for services rendered to
Holdings and its subsidiaries at a valuation of $5.00 per share of Class A
Common; and (ii) options to purchase an aggregate of 112,508.1 shares of
restricted Class A Common at a price of $5.00 per share granted under the
1997 Stock
F-17
<PAGE>
DETAILS HOLDINGS CORP., FORMERLY DETAILS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Option Plan, and options to acquire 112,508.1 shares of Class A Common at
an exercise price of $61.17 per share granted under the 1997 Stock Option
Plan.
After giving effect to the Recapitalization and related transactions, the
Bain Capital Funds owned approximately 46.0% of the fully diluted equity of
Holdings, CMC and its affiliates owned approximately 18.8% of the fully
diluted equity of Holdings, the other Existing Owner Rollover stockholder
owned approximately 2.8% of the fully diluted equity of Holdings, the Other
Investors owned approximately 4.9% of the fully diluted equity of Holdings,
and members of management owned (or had options to acquire) approximately
27.5% of the fully diluted equity of Holdings.
Financing for the Recapitalization consisted of a $62.4 million equity
investment and debt financing totalling $231.4 million.
The effect of the above Recapitalization and related transaction increased
stockholders' (deficit) to approximately $196.2 million and resulted in
charges to earnings of $23 million, net of estimated income tax of $16
million, in the fourth quarter of 1997 related to accelerated vesting of stock
options under variable awards and related cash bonuses, write-off of deferred
financing fees, amortization of remaining debt discount on existing debt and
other fees and expenses related to the Recapitalization. Because the merger
has been accounted for as a recapitalization, the historical basis of the
Company's assets and liabilities was not affected.
NTI ACQUISITION
On December 22, 1997, Details, Inc. acquired all of the outstanding shares
of common stock of Colorado Springs Circuits, Inc., a Colorado corporation and
a subsidiary of NTI d/b/a/ NTI ("NTI"), for approximately $38.5 million. The
purchase price includes the assumption of approximately $7.4 million of NTI's
debt without giving effect to the final purchase price adjustment. 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 Details, Inc.
Term Loan Facilities.
The NTI Acquisition has been accounted for under the purchase method of
accounting. As an a result, the total acquisition cost has been allocated to
the estimated fair value of tangible and intangible assets acquired and
liabilities assumed. Based upon management's preliminary estimate of the fair
value of the assets acquired and liabilities assumed, Details, Inc. has
recorded approximately $26 million in goodwill, which will be amortized over a
period of twenty-five years.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Colorado Springs Circuits, Inc.
We have audited the accompanying balance sheets of Colorado Springs
Circuits, Inc. as of April 1, 1997 and 1996, and the statements of income and
retained earnings and of cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Colorado Springs Circuits, Inc. as of
April 1, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Stockman Kast Ryan & Scruggs, P.C.
Colorado Springs, Colorado
May 9, 1997 (December 22, 1997 as to the matter discussed in Note 10 to the
financial statements)
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Colorado Springs Circuits, Inc.
Colorado Springs, Colorado
We have audited the accompanying statements of income and retained earnings
and of cash flows of Colorado Springs Circuits, Inc. for the year ended March
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of Colorado Springs Circuits, Inc.'s operations and its
cash flows for the year ended March 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Colorado Springs, Colorado
June 2, 1995
F-20
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
BALANCE SHEETS
APRIL 1, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 4)................. $ 431,732 $ 982,207
Trade receivables, less allowance for doubtful
accounts of $82,000 and $114,000 for 1997 and
1996, respectively (Note 4)....................... 4,232,025 3,499,828
Inventories (Notes 2 and 4)........................ 2,033,933 2,118,770
Deferred income taxes (Note 6)..................... 109,000 151,000
Prepaid expenses and other current assets.......... 311,711 65,793
------------ ------------
Total current assets............................. 7,118,401 6,817,598
Property and Equipment--Net (Notes 3 and 4).......... 9,725,642 5,425,327
Deferred Income Taxes (Note 6)....................... 243,000 109,000
Other Assets......................................... 20,165 227,104
------------ ------------
Total............................................ $ 17,107,208 $ 12,579,029
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................... $ 2,441,608 $ 1,644,866
Accrued payroll.................................... 256,798 418,451
Income taxes payable (Note 6)...................... 40,144 539,000
Other accrued liabilities.......................... 449,417 596,428
Current portion of note payable to bank (Note 4)... 1,240,000 125,926
Current portion of note payable to NTI (Note 4).... 420,000 420,000
Borrowings under bank line of credit (Note 4)...... 500,000
------------ ------------
Total current liabilities........................ 4,847,967 4,244,671
------------ ------------
Long-Term Debt (Note 4)
Note payable to bank............................... 4,443,333 1,003,240
Note payable to NTI................................ 2,914,967 3,334,967
------------ ------------
Total long-term debt............................. 7,358,300 4,338,207
------------ ------------
Deferred Income Taxes (Note 6)....................... 556,000 406,000
------------ ------------
Commitments (Note 5)
Stockholders' Equity
Common stock:
Class A--no par value, 3,000,000 shares autho-
rized, 1,000,000 shares issued and outstanding... 539,829 539,829
Class B--no par value, 2,000,000 shares autho-
rized, no shares outstanding
Retained earnings................................. 3,805,112 3,050,322
------------ ------------
Total stockholders' equity....................... 4,344,941 3,590,151
------------ ------------
Total............................................ $ 17,107,208 $ 12,579,029
============ ============
</TABLE>
See notes to financial statements.
F-21
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED APRIL 1, 1997 AND 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales............................... $26,984,726 $28,082,524 $21,943,818
Cost of Goods Sold (Note 5)............. 23,100,569 23,057,183 17,710,399
----------- ----------- -----------
Gross Margin........................ 3,884,157 5,025,341 4,233,419
----------- ----------- -----------
Operating Expenses
Sales and marketing................... 1,224,524 1,385,196 1,140,270
General and administrative (Note 5)... 1,076,603 1,106,688 1,221,644
----------- ----------- -----------
Total operating expenses............ 2,301,127 2,491,884 2,361,914
----------- ----------- -----------
Income from Operations.................. 1,583,030 2,533,457 1,871,505
----------- ----------- -----------
Other Income (Expense)
Interest expense (Note 4)............. (617,668) (595,612) (492,340)
Gain on sale of equipment............. 29,572 100,025
----------- ----------- -----------
Other income (expense)--net......... (588,096) (495,587) (492,340)
----------- ----------- -----------
Income Before Income Tax Provision...... 994,934 2,037,870 1,379,165
Income Tax Provision (Note 6)........... 240,144 772,470 368,815
----------- ----------- -----------
Net Income.......................... 754,790 1,265,400 1,010,350
Retained Earnings, Beginning of year.... 3,050,322 1,784,922 774,572
----------- ----------- -----------
Retained Earnings, End of year.......... $ 3,805,112 $ 3,050,322 $ 1,784,922
=========== =========== ===========
Net Income Per Common Share............. $ 0.75 $ 1.27 $ 1.01
=========== =========== ===========
Weighted Average Common Shares
Outstanding............................ 1,000,000 1,000,000 1,000,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 1, 1997 AND 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Operating Activities
Net income............................. $ 754,790 $1,265,400 $ 1,010,350
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 2,023,461 1,910,479 1,716,845
Gain on sale of equipment............ (29,572) (100,025) (2,500)
Deferred income taxes................ 58,000 (27,000) (90,000)
Changes in operating assets and
liabilities:
Accounts receivable................ (732,197) (712,438) (489,207)
Inventories........................ 84,837 187,167 (1,123,151)
Prepaid expenses and other current
assets............................ (245,918) 1,244 1,845
Other assets....................... 206,939 (218,804) 32,043
Accounts payable and accrued
liabilities....................... 488,078 (405,934) 1,473,807
Income taxes payable............... (498,856) 80,000 249,000
----------- ---------- -----------
Net cash provided by operating
activities...................... 2,109,562 1,980,089 2,779,032
----------- ---------- -----------
Investing Activities
Purchases of property and equipment.... (6,341,156) (931,701) (3,048,546)
Proceeds from sales of equipment....... 46,952 100,025 2,500
----------- ---------- -----------
Net cash used in investing
activities...................... (6,294,204) (831,676) (3,046,046)
----------- ---------- -----------
Financing Activities
Net repayments under line of credit.... (500,000) (100,770) (399,230)
Repayment of note to bank.............. (1,645,833) (416,667) (354,167)
Repayment of note to NTI............... (420,000) (420,000) (280,000)
Proceeds from issuance of note to bank. 6,200,000 400,000 1,250,000
----------- ---------- -----------
Net cash provided by (used in)
financing activities............ 3,634,167 (537,437) 216,603
----------- ---------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents............................. (550,475) 610,976 (50,411)
Cash and Cash Equivalents, Beginning of
year.................................... 982,207 371,231 421,642
----------- ---------- -----------
Cash and Cash Equivalents, End of year... $ 431,732 $ 982,207 $ 371,231
=========== ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (Note 4)........ $ 654,566 $ 577,919 $ 479,876
Cash paid for income taxes............. 681,000 719,470 209,815
</TABLE>
See notes to financial statements.
F-23
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--Colorado Springs Circuits, Inc. (the "Company"), a
Colorado corporation, manufactures printed circuit boards (PCB) primarily for
computer, electronics, medical and telecommunications industries. NTI, a
California corporation, owns 79.9% of the Class A voting common stock of the
Company. Two trusts, which are also the stockholders of NTI, each own 0.1% of
the Company's stock. The remaining 19.9% of the Company's stock is owned by
the president of the Company. The Company uses the name NTI in conducting its
business and is commonly referred to as NTI.
Fiscal Year--The Company's fiscal year end is determined by the Board of
Directors based on the Company's production periods.
Revenue Recognition--Sales are recognized by the Company when the products
are shipped.
Inventories--The Company's inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
Property and Equipment--Property and equipment are stated at cost and
depreciated using the straight-line method over estimated useful lives of five
years. Leasehold improvements are amortized over the term of the related lease
agreements. The Company reviews its long-lived assets annually to determine
potential impairment. In performing the review, the Company estimates the
future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the asset, an impairment is recognized.
Income Taxes--Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities using current tax rates. Changes in tax rates are recognized in
the period of the enactment date.
Net Income Per Common Share--Net income per common share is based upon the
net income and weighted average common shares outstanding for each year. The
adoption of Statement of Financial Accounting Standards No. 128 for fiscal
year 1998 will not have an impact on the Company's net income per common
share.
Statement of Cash Flows--For the purposes of the statement of cash flows,
the Company considers all highly liquid investments maturing within three
months of acquisition to be cash equivalents.
Use of Estimates--The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Environmental Matters:
The Company's operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which govern, among
other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of such materials. Compliance with
these environmental laws are major considerations for all PCB manufacturers
F-24
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
2. INVENTORIES
Inventories at April 1, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials.......................................... $ 201,965 $ 188,843
Work in process........................................ 1,721,097 1,816,097
Finished goods......................................... 110,871 113,830
---------- ----------
Total................................................ $2,033,933 $2,118,770
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at April 1, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Shop machinery and equipment........................ $16,663,898 $11,670,690
Leasehold improvements.............................. 2,834,666 2,117,722
Office furniture and equipment...................... 1,503,443 1,027,337
Vehicles............................................ 37,525 37,525
----------- -----------
Total............................................. 21,039,532 14,853,274
Accumulated depreciation and amortization........... 11,313,890 9,427,947
----------- -----------
Property and equipment--net....................... $ 9,725,642 $ 5,425,327
=========== ===========
</TABLE>
4. LONG-TERM DEBT
The Company has a note payable to a bank with total outstanding principal
balances as of April 1, 1997 and 1996 of $5,683,333 and $1,129,166,
respectively, with interest at the bank's prime rate plus 1%. Monthly
principal payments of $103,333 plus interest are required on the note until
its maturity date of October 15, 2001.
The Company also has a $2,500,000 revolving bank line of credit under which
the Company had outstanding borrowings of $500,000 as of April 1, 1996. No
borrowings were outstanding as of April 1, 1997. Borrowings bear interest at
the bank's prime rate (8.5% at April 1, 1997) plus 1%. The line of credit
matures on June 30, 1997.
Under the terms of the borrowing agreements, the Company is required to
comply with certain restrictive financial covenants relating to the
maintenance of certain net worth levels and financial ratios as well as
limitations with respect to incurring further indebtedness. Borrowings under
the agreements are collateralized by cash and cash equivalents, trade
receivables, inventories and property and equipment, and are guaranteed by
NTI, its stockholders and the president of the Company.
F-25
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The note payable to NTI is due in monthly installments of $35,000 plus
interest through April 30, 1999, at which time all remaining principal and
interest is due. The note is subordinated to all outstanding bank borrowings.
Interest accrues at the bank's prime rate plus 1%. The Company recorded
interest expense related to this note of $330,728, $394,986 and $359,585 for
the years ended April 1, 1997 and 1996 and March 31, 1995, respectively.
Future maturities of principal under the terms of existing debt agreements
are as follows as of April 1, 1997:
<TABLE>
<S> <C>
Fiscal year ending:
1998............................................................ $1,660,000
1999............................................................ 1,660,000
2000............................................................ 3,734,967
2001............................................................ 1,240,000
2002............................................................ 723,333
----------
Total......................................................... $9,018,300
==========
</TABLE>
The carrying values of the Company's debt are considered reasonable
estimates of the fair values.
5. COMMITMENTS
The Company leases certain facilities from the stockholders of NTI and
certain equipment from a bank under noncancelable operating leases. Future
minimum annual lease payments under these noncancelable operating leases are
as follows as of April 1, 1997:
<TABLE>
<S> <C>
Fiscal year ending:
1998............................................................ $ 735,084
1999............................................................ 735,084
2000............................................................ 735,084
2001............................................................ 660,324
2002............................................................ 510,804
Thereafter...................................................... 1,149,309
----------
Total......................................................... $4,525,689
==========
</TABLE>
Total rent expense charged to operations for the years ended April 1, 1997
and 1996 and March 31, 1995 was $724,794, $544,440 and $468,740, respectively,
including $500,517, $469,681 and $468,740, respectively, under the lease
agreements with the stockholders of NTI. The lease agreements with the
stockholders of NTI include renewal options and provide for rent escalations
based on increases in the consumer price index. Rent expense is allocated to
cost of goods sold and general and administrative expense in the accompanying
statements of income and retained earnings.
In the event that the Company sells substantially all of its assets or
merges with another entity whereby the other entity becomes the surviving
company, or should the stockholders of the Company sell more than fifty
percent of the outstanding shares of the Company to a third party, the Company
is committed under agreements to pay bonuses to certain individuals based on
percentages of the net consideration received. See Note 10.
6. INCOME TAXES
For the years ended April 1, 1996 and March 31, 1995, the Company's
operations were included in the consolidated federal and state income tax
returns of NTI. Under NTI's tax allocation method, a tax provision was
allocated to the Company based upon a calculation of income taxes as if the
F-26
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company filed separate income tax returns. As of April 1, 1996, the Company
has a liability to NTI of $539,000 for income taxes which have been allocated
to the Company. For the year ended April 1, 1997, due to a change in ownership
of the Company's common stock, the Company has filed federal and state income
tax returns separate from NTI and has recorded income taxes payable of $40,144
to the applicable taxing authorities.
The tax effects of temporary differences that give rise to significant
portions of deferred taxes at April 1, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Income tax credit carryforwards..................... $ 325,000 $ 169,000
Allowance for doubtful accounts and various
non-deductible accrued liabilities................. 109,000 151,000
--------- ---------
Total deferred income tax assets.................. 434,000 320,000
Deferred income tax liabilities--excess tax
depreciation....................................... (638,000) (466,000)
--------- ---------
Net deferred income tax liability................. $(204,000) $(146,000)
========= =========
</TABLE>
The deferred income tax assets and liabilities are recorded in the
accompanying balance sheets as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets--current.................... $ 109,000 $ 151,000
Deferred income tax assets--noncurrent................. 243,000 109,000
Deferred income tax liabilities--noncurrent............ (556,000) (406,000)
--------- ---------
Net deferred income tax liability.................... $(204,000) $(146,000)
========= =========
</TABLE>
The income tax provision for the years ended April 1, 1997 and 1996 and
March 31, 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current provision............................... $182,144 $799,470 $458,815
Deferred provision (benefit).................... 58,000 (27,000) (90,000)
-------- -------- --------
Income tax provision--net..................... $240,144 $772,470 $368,815
======== ======== ========
</TABLE>
The following summary reconciles income taxes computed at the federal
statutory rate with the income tax provision for the years ended April 1, 1997
and 1996 and March 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Federal income tax expense at statutory
rate....................................... $ 338,278 $692,876 $ 468,916
Tax effects of:
State income taxes, net of federal
deduction................................ 32,833 67,250 45,512
State tax credits generated............... (173,074) (42,974) (153,984)
Other..................................... 42,107 55,318 8,371
--------- -------- ---------
Income tax provision--net............... $ 240,144 $772,470 $ 368,815
========= ======== =========
</TABLE>
The Company's state tax credit carryforwards expire from 1998 through 2009.
F-27
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. MAJOR CUSTOMERS
Sales to the Company's largest customer accounted for approximately 11% of
total sales for the year ended April 1, 1997. Sales to the Company's two
largest customers accounted for approximately 12% each of total sales for the
year ended April 1, 1996 and approximately 13% and 12%, respectively, of total
sales for the year ended March 31, 1995.
8. EMPLOYEE BENEFIT PLAN
The Company has a qualified employee retirement savings plan covering
substantially all employees. The plan permits voluntary salary reduction
contributions by employees which are matched by the Company subject to
limitations as specified in the plan. The Company's matching contributions
vest over a period of six years. The Company made contributions to the plan
totalling $46,604, $42,716 and $39,706, respectively, for the years ended
April 1, 1997 and 1996 and March 31, 1995.
9. CONCENTRATIONS OF CREDIT RISK
Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily
of temporary cash investments and trade receivables. Although the Company
maintains cash deposits in excess of federal insured limits, such deposits are
placed with high quality financial institutions. Concentrations of credit risk
with respect to accounts receivable are limited due to a large number of
customers in diverse industries and generally short payment terms. Due to
these factors, no additional credit risk beyond amounts provided as an
allowance for doubtful accounts is believed to be inherent in the Company's
accounts receivable.
10. SUBSEQUENT EVENT
On December 22, 1997, the Company's stockholders sold all of their Class A
voting common stock of the Company to Details, Inc. for a purchase price of
approximately $38,500,000. The purchase price includes the assumption of
approximately $7.4 million of the Company's debt without giving effect to the
final purchase price adjustment. As a result of the sale of the common stock,
the Company is committed to pay the bonuses of approximately $3,280,000 to
certain individuals as discussed in Note 5. These bonuses were funded by the
selling stockholders of the Company and paid on December 22, 1997 in
conjunction with the sale.
F-28
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
BALANCE SHEET
SEPTEMBER 29, 1997
<TABLE>
<CAPTION>
SEPTEMBER 29,
1997
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 4)............................. $ 1,409,334
Trade receivables, less allowance for doubtful accounts of
$93,750 and $82,000 at September 29 and April 1, respectively
(Note 4)...................................................... 4,666,794
Inventories (Notes 2 and 4).................................... 2,172,185
Deferred income taxes.......................................... 186,575
Prepaid expenses and other current assets...................... 353,486
-----------
Total current assets......................................... 8,788,374
Property and Equipment--Net (Notes 3 and 4)...................... 9,183,479
Deferred Income Taxes............................................ 175,128
Other Assets..................................................... 28,162
-----------
Total........................................................ $18,175,143
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................... $ 2,055,782
Accrued payroll................................................ 233,721
Income taxes payable........................................... 33,174
Other accrued liabilities...................................... 607,742
Current portion of note payable to bank (Note 4)............... 1,240,000
Current portion of note payable to NTI (Note 4)................ 420,000
Borrowings under bank line of credit (Note 4).................. 1,300,000
-----------
Total current liabilities.................................... 5,890,419
-----------
Long-Term Debt (Note 4)
Note payable to bank........................................... 3,823,333
Note payable to NTI............................................ 2,704,967
-----------
Total long-term debt......................................... 6,528,300
-----------
Deferred Income Taxes............................................ 691,371
-----------
Stockholders' Equity
Common stock:
Class A--no par value, 3,000,000 shares authorized, 1,000,000
shares issued and outstanding................................ 539,829
Class B--no par value, 2,000,000 shares authorized, no shares
outstanding..................................................
Retained earnings.............................................. 4,525,224
-----------
Total stockholders' equity................................... 5,065,053
-----------
Total........................................................ $18,175,143
===========
</TABLE>
See notes to financial statements.
F-29
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net Sales........................................... $15,891,626 $13,685,592
Cost of Goods Sold.................................. 13,123,516 11,537,465
----------- -----------
Gross Margin........................................ 2,768,110 2,148,127
----------- -----------
Operating Expenses
Sales and marketing............................... 775,254 606,823
General and administrative........................ 567,909 542,786
----------- -----------
Total operating expenses........................ 1,343,163 1,149,609
----------- -----------
Income From Operations.............................. 1,424,947 998,518
----------- -----------
Other Income (Expense)
Interest expense (Note 4)......................... (401,739) (249,873)
Gain on sale of equipment......................... 11,743 27,608
----------- -----------
Other income (expense)--net..................... (389,996) (222,265)
----------- -----------
Income Before Income Tax Provision.................. 1,034,951 776,253
Income Tax Provision................................ 314,839 187,284
----------- -----------
Net Income.......................................... 720,112 588,969
Retained Earnings, Beginning of period.............. 3,805,112 3,050,322
----------- -----------
Retained Earnings, End of period.................... $ 4,525,224 $ 3,639,291
=========== ===========
Net Income Per Common Share......................... $ 0.72 $ 0.59
=========== ===========
Weighted Average Common Shares Outstanding.......... 1,000,000 1,000,000
=========== ===========
</TABLE>
See notes to financial statements.
F-30
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating Activities
Net income....................................... $ 720,112 $ 588,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 832,423 867,374
Gain on sale of equipment...................... (11,743) (27,608)
Deferred income taxes.......................... 125,668 (11,883)
Changes in operating assets and liabilities:
Accounts receivable.......................... (434,769) 811,022
Inventories.................................. (138,252) 282,793
Prepaid expenses and other current assets.... (41,775) 46,107
Other assets................................. (7,997) 223,204
Accounts payable and accrued liabilities..... (250,578) 476,169
Income taxes payable......................... (6,970) (481,833)
---------- -----------
Net cash provided by operating activities.. 786,119 2,774,314
---------- -----------
Investing Activities
Purchases of property and equipment.............. (296,237) (4,736,554)
Proceeds from sales of equipment................. 17,720 33,000
---------- -----------
Net cash used in investing activities...... (278,517) (4,703,554)
---------- -----------
Financing Activities
Net borrowings (repayments) under line of credit. 1,300,000 (500,000)
Repayment of note to bank........................ (620,000) (34,731)
Repayment of note to NTI......................... (210,000) (210,000)
Proceeds from issuance of note to bank........... 2,000,000
---------- -----------
Net cash provided by financing activities.. 470,000 1,255,269
---------- -----------
Net Increase (Decrease) In Cash and Cash
Equivalents....................................... 977,602 (673,971)
Cash and Cash Equivalents, Beginning of period..... 431,732 982,207
---------- -----------
Cash and Cash Equivalents, End of period........... $1,409,334 $ 308,236
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest........................... $ 406,186 $ 276,794
Cash paid for income taxes....................... 120,000 681,000
</TABLE>
See notes to financial statements.
F-31
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The financial statements of Colorado Springs Circuits, Inc. (the Company)
for the six months ended September 29, 1997 and September 30, 1996 are
unaudited. In management's opinion, the financial statements reflect all
adjustments necessary for a fair presentation of the results for these
periods, all adjustments being of a normal and recurring nature. The Company's
interim financial statements may not be indicative of the Company's operations
for the related fiscal years. The interim financial statements should be read
in conjunction with the financial statements and the notes thereto for the
years ended April 1, 1997 and 1996 and March 31, 1995. The Company uses the
name NTI in conducting its business and is commonly referred to as NTI.
2. INVENTORIES
Inventories at September 29, 1997 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29,
1997
-------------
<S> <C>
Raw materials.................................................. $ 243,376
Work in process................................................ 1,884,368
Finished goods................................................. 44,441
----------
Total........................................................ $2,172,185
==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at September 29, 1997 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29,
1997
-------------
<S> <C>
Shop machinery and equipment................................... $16,406,934
Leasehold improvements......................................... 2,857,287
Office furniture and equipment................................. 1,476,513
Vehicles....................................................... 37,525
-----------
Total........................................................ 20,778,259
Accumulated depreciation and amortization...................... 11,594,780
-----------
Property and equipment--net.................................. $ 9,183,479
===========
</TABLE>
Effective April 2, 1997, the Company changed the estimated useful lives of
shop machinery and equipment from five years to seven years. This change had
the effect of increasing net income for the six months ended September 29,
1997 by approximately $300,000 ($0.30 per common share).
4. LONG-TERM DEBT
The Company has a note payable to a bank with a total outstanding principal
balance as of September 29, 1997 of $5,063,333 with interest at the bank's
prime rate plus 1%. Monthly principal payments of $103,333 plus interest are
required on the note until its maturity date of October 15, 2001.
The Company also has a $2,500,000 revolving bank line of credit under which
the Company had outstanding borrowings of $1,300,000 as of September 29, 1997.
Borrowings bear interest at the bank's prime rate (8.5% at September 29, 1997)
plus 1%. The line of credit matures on June 30, 1998.
F-32
<PAGE>
COLORADO SPRINGS CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The note payable to NTI, which owns 79.9% of the Company's outstanding
common stock, is due in monthly installments of $35,000 plus interest through
April 30, 1999, at which time all remaining principal and interest is due. The
note is subordinated to all outstanding bank borrowings. Interest accrues at
the bank's prime rate plus 1%. The Company recorded interest expense related
to this note of $150,034 and $169,796 for the six months ended September 29,
1997 and September 30, 1996, respectively.
Under the terms of the borrowing agreements, the Company is required to
comply with certain restrictive financial covenants relating to the
maintenance of certain net worth levels and financial ratios as well as
limitations with respect to incurring further indebtedness. Borrowings under
the agreements are collateralized by cash and cash equivalents, trade
receivables, inventories and property and equipment, and are guaranteed by
NTI, its stockholders and the president of the Company.
5. SUBSEQUENT EVENT
On December 22, 1997, the Company's stockholders sold all of their shares of
Class A voting common stock of the Company to Details, Inc. for a purchase
price of approximately $38,500,000. The purchase price includes the assumption
of approximately $7.4 million of the Company's debt without giving effect to
the final purchase price adjustment. As a result of the sale of the common
stock, the Company is committed to pay bonuses of approximately $3,280,000 to
certain individuals. These bonuses were funded by the selling stockholders of
the Company and paid on December 22, 1997 in conjunction with the sale.
F-33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 1
Risk Factors............................................................... 17
Use of Proceeds............................................................ 24
Capitalization............................................................. 24
Unaudited Pro Forma Financial Data......................................... 25
Selected Historical Consolidated Financial Data............................ 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 39
The Industry............................................................... 45
Business................................................................... 47
Management................................................................. 54
Principal Stockholders..................................................... 61
Certain Relationships and Related Transactions............................. 63
Description of Other Indebtedness.......................................... 65
Description of Exchange Discount Notes..................................... 68
The Exchange Offer......................................................... 94
Certain Federal Income Tax Consequences.................................... 104
Plan of Distribution....................................................... 109
Legal Matters.............................................................. 109
Experts.................................................................... 109
Change in Accountants...................................................... 110
Index to Financial Statements.............................................. F-1
</TABLE>
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DETAILS CAPITAL CORP.
EXCHANGE OFFER
$110,000,000
SERIES B 12 1/2% SENIOR DISCOUNT NOTES DUE 2007
--------------------------
LOGO
--------------------------
----------------
PROSPECTUS
----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability for (i) acts or omissions that involve intentional misconduct or
knowing and culpable violation of law, (ii) acts or omissions that a director
believes to be contrary to the best interests of the Registrant or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for
the director's duty to the Registrant or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
Registrant or its shareholders, (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (vi) any improper
transactions between the corporation and a director in which a director has a
material financial interest, and (vii) liability for unlawful distributions,
loans or guarantees. This provision does not eliminate the directors' duty of
care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and By-laws contain provisions covering
indemnification to the maximum extent permitted by the California General
Corporation Law of corporate directors, officers and other agents against
certain liabilities and expenses incurred as a result of proceedings involving
such persons in their capacities as directors, officers, employees or agents,
including proceedings under the Securities Act or the Securities Exchange Act
of 1934, as amended.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1* Details Capital Corp. Articles of Incorporation
3.2* Details Capital Corp. By-laws.
4.1* Indenture dated as of November 18, 1997
4.2 Form of Supplemental Indenture
4.3* Exchange and Registration Rights Agreement dated as of November 18,
1997.
5.1* Opinion of Ropes & Gray re: legality.
5.2* Opinion of Stradling Yocca Carlson & Rauth re: legality.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1* Credit Agreement dated as of October 28, 1997.
10.2* Amended and Restated Recapitalization Agreement dated as of October
4, 1997.+
10.3* Stockholders Agreement dated as of October 28, 1997.
10.4* Real Property Master Lease Agreement dated as of January 1, 1996.
10.5* Personal Property Master Lease Agreement dated as of January 1,
1996.
10.6* Management Agreement dated October 28, 1997.
10.7* 1997 Details, Inc. Equity Incentive Plan.
10.8* 1996 Employee Stock Option Plan dated December 31, 1996.
10.9* 1996 Performance Stock Option Plan dated January 31, 1996.
10.10* McMaster Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
10.11* Gisch Employment Agreement dated September 19, 1995, as amended
October 28, 1997.
10.12* Muse Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
10.13* Wright Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
10.14* NTI Stock Purchase Agreement dated December 19, 1997.+
10.15* Marcelli Employment Agreement dated December 19, 1997.
10.16* NTI Real Property Lease Agreement dated as of June 15, 1994.
10.17* NTI Real Property Lease Agreement dated as of June 15, 1994.
10.18* NTI Real Property Lease Agreement dated as of June 15, 1994.
12.1* Statement regarding computation of ratio of earnings to fixed
charges.
16.1* Letter of McGladrey & Pullen LLP re: change of accountant
23.1 Consent of McGladrey & Pullen LLP.
23.2* Consent of Ropes & Gray (included in Exhibit 5.1).
23.3* Consent of Stradling Yocca Carlson & Rauth (included in Exhibit
5.2).
23.4 Consent of Stockman Kast Ryan & Scruggs, P.C.
23.5 Consent of Deloitte & Touche LLP.
24.1* Powers of Attorney (included on signature page).
25.1* Statement of Eligibility on Form T-1 of State Street Bank and Trust
Company under
the Indenture.
27.1* Financial Data Schedules.
99.1* Form of Letter of Transmittal used in connection with the Exchange
Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection with The
Exchange Offer.
99.3* Form of Exchange Agent Agreement.
</TABLE>
- --------
* Previously filed.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants, pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by any such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether or not such indemnification is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) That, every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
(4) That for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contained a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents file subsequent to the effective date of
the registration statement through the date of responding to the request.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the city of Anaheim, state of California, on the 3rd day of February, 1998.
Details Capital Corp.
/s/ Bruce D. McMaster
By: _________________________________
NAME: BRUCE D. MCMASTER
TITLE: PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Bruce D. McMaster President (principal
- ------------------------------------- executive officer) February 3,
BRUCE D. MCMASTER 1998
Vice President and
/s/ Joseph P. Gisch Chief Financial February 3,
- ------------------------------------- Officer (principal 1998
JOSEPH P. GISCH financial and
accounting officer)
Vice President and
* Director February 3,
- ------------------------------------- 1998
STEPHEN M. ZIDE
* Director
- ------------------------------------- February 3,
EDWARD CONARD 1998
* Director
- ------------------------------------- February 3,
PRESCOTT ASHE 1998
* Director
- ------------------------------------- February 3,
CHRISTOPHER BEHRENS 1998
Attorney-in-fact
/s/ Bruce D. McMaster February 3,
*By: ________________________________ 1998
BRUCE D. MCMASTER
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.1* Details Capital Corp. Articles of Incorporation
3.2* Details Capital Corp. By-laws.
4.1* Indenture dated as of November 18, 1997
4.2 Supplemental Indenture
4.3* Exchange and Registration Rights Agreement dated as of
November 18, 1997.
5.1* Opinion of Ropes & Gray re: legality.
5.2* Opinion of Stradling Yocca Carlson & Rauth re: legality.
10.1* Credit Agreement dated as of October 28, 1997.
10.2* Amended and Restated Recapitalization Agreement dated as of
October 4, 1997.+
10.3* Stockholders Agreement dated as of October 28, 1997.
10.4* Real Property Master Lease Agreement dated as of January 1,
1996.
10.5* Personal Property Master Lease Agreement dated as of January
1, 1996.
10.6* Management Agreement dated October 28, 1997.
10.7* 1997 Details, Inc. Equity Incentive Plan.
10.8* 1996 Employee Stock Option Plan dated December 31, 1996.
10.9* 1996 Performance Stock Option Plan dated January 31, 1996.
10.10* McMaster Employment Agreement dated September 1, 1995, as
amended October 28, 1997.
10.11* Gisch Employment Agreement dated September 19, 1995, as
amended October 28, 1997.
10.12* Muse Employment Agreement dated September 1, 1995, as amended
October 28, 1997.
10.13* Wright Employment Agreement dated September 1, 1995, as
amended October 28, 1997.
10.14* NTI Stock Purchase Agreement dated December 19, 1997.+
10.15* Marcelli Employment Agreement dated December 19, 1997.
10.16* NTI Real Property Lease Agreement dated as of June 15, 1994.
10.17* NTI Real Property Lease Agreement dated as of June 15, 1994.
10.18* NTI Real Property Lease Agreement dated as of June 15, 1994.
12.1* Statement regarding computation of ratio of earnings to fixed
charges.
16.1* Letter of McGladrey & Pullen LLP re: change of Accountant
23.1 Consent of McGladrey & Pullen LLP
23.2* Consent of Ropes & Gray (included in Exhibit 5.1).
23.3* Consent of Stradling Yocca Carlson & Rauth (included in
Exhibit 5.2).
23.4 Consent of Stockman Kast Ryan & Scruggs, P.C.
23.5 Consent of Deloitte & Touche LLP
24.1* Powers of Attorney (included on signature page).
25.1* Statement of Eligibility on Form T-1 of State Street Bank and
Trust Company under the Indenture.
27.1* Financial Data Schedules.
99.1* Form of Letter of Transmittal used in connection with the
Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection with
The Exchange Offer.
99.3* Form of Exchange Agent Agreement.
</TABLE>
- --------
* Previously filed
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
<PAGE>
Exhibit 4.2
THIS FIRST SUPPLEMENTAL INDENTURE is dated as of February __, 1998, between
Details Capital Corp., a California corporation (the "Company") and State Street
Bank and Trust Company, a Massachusetts trust company, as trustee under the
Indenture hereinafter mentioned (the "Trustee").
WHEREAS, Details Holdings Corp. a California corporation and the sole
stockholder of the Company ("Holdings"), heretofore executed and delivered to
the Trustee an indenture dated as of November 18, 1997 (the "Existing
Indenture", and the Existing Indenture, as it may from time to time be
supplemented or amended by one or more additional indentures supplemental
thereto entered into pursuant to the applicable provisions thereof, being
hereinafter called the "Indenture"), providing for the creation of and issuance
of (i) Holdings' 12 1/2% Senior Discount Notes due 2007, (the "Senior Discount
Notes") and (ii) if and when issued in exchange for Senior Discount Notes as
provided in the Registration Rights Agreement, Holdings' 12 1/2% Series B Senior
Discount Notes due 2007 (the "Exchange Discount Notes") (collectively, the
Senior Discount Notes and the Exchange Discount Notes are referred to herein as
the "Discount Notes"), of substantially the tenor and amount set forth in the
Existing Indenture; and
WHEREAS, in connection with the conveyance by Holdings to the Company of
substantially all of its assets, subject to certain liabilities including the
Discount Notes, the Company has agreed to assume all of Holdings' obligations in
respect of the Discount Notes under the Existing Indenture; and
WHEREAS, the Company intends by this First Supplemental Indenture, pursuant
to and as contemplated by Section 801 and Section 901 of the Existing Indenture,
to expressly assume all of the obligations of Holdings contained in the Existing
Indenture and in the Discount Notes and to succeed to, and be substituted for,
and exercise every right and power of, Holdings under the Indenture; and that
pursuant to Section 801 of the Existing Indenture, Holdings will be released
from all obligations and covenants under the Indenture;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
That, for and in consideration of the premises herein contained and in
order to comply with the terms of Section 801 of the Existing Indenture, the
Company agrees with the Trustee as follows:
ARTICLE 1
Assumption of Obligations of Holdings
-------------------------------------
Section 101. Assumption. The Company hereby expressly and unconditionally
----------- ----------
assumes the due and punctual performance and observance of all of the
obligations of Holdings contained in the Existing Indenture as if the Company
had been the original maker of the Discount Notes, and also hereby expressly and
unconditionally assumes the due and punctual payment of the
<PAGE>
principal of and interest on all of the Discount Notes and the due and punctual
performance and observance of all of the covenants and conditions of Holdings
contained in each Discount Note outstanding on the date of this First
Supplemental Indenture. Any reference to "Holdings" as defined in the Existing
Indenture shall be deemed to refer to the Company, and subject to the provisions
of Article Eight of the Existing Indenture, shall also include the Company's
successors and assigns. Any Discount Note delivered after the date of this First
Supplemental Indenture in substitution or exchange for any outstanding Discount
Note shall constitute an obligation of the Company.
ARTICLE 2
Amendment of Existing Indenture
-------------------------------
Section 201. Amendment of Section 202. Pursuant to Sections 802 and 906
----------- ------------------------
of the Existing Indenture, Section 202 of the Existing Indenture is hereby
amended by adding the following to the end thereof:
Discount Notes issued after February __, 1998 shall bear the following
legend:
DETAILS CAPITAL CORP., A CALIFORNIA CORPORATION (THE "COMPANY"), HAS
EXPRESSLY ASSUMED, PURSUANT TO THE TERMS OF A FIRST SUPPLEMENTAL INDENTURE DATED
AS OF FEBRUARY __, 1998 BETWEEN THE COMPANY AND STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE (THE "TRUSTEE"), THE OBLIGATIONS OF DETAILS HOLDINGS CORP.,
A CALIFORNIA CORPORATION ("HOLDINGS"), UNDER THIS DISCOUNT NOTE AND THE
INDENTURE DATED AS OF NOVEMBER 18, 1997 BETWEEN HOLDINGS AND THE TRUSTEE AS IF
THE COMPANY HAD BEEN THE ORIGINAL MAKER HEREOF.
ARTICLE 3
The Trustee
-----------
Section 301. Privileges and Immunities of Trustee. The Trustee accepts
----------- -------------------------------------
the amendment of the Indenture effected by this First Supplemental Indenture but
only upon the terms and conditions set forth in the Indenture, including the
terms and provisions defining and limiting the liabilities and responsibilities
of the Trustee, which terms and provisions shall in like manner define and limit
its liabilities and responsibilities in the performance of the trust created by
the Indenture as hereby amended. The Trustee shall not be responsible for the
adequacy or sufficiency of the First Supplemental Indenture, for the due
execution thereof by the Company or for the recitals contained herein, which are
the Company's.
ARTICLE 4
-2-
<PAGE>
Miscellaneous Provisions
------------------------
Section 401. Instruments to be Read Together. This First Supplemental
----------- -------------------------------
Indenture is an indenture supplemental to and in implementation of the Existing
Indenture, and said Existing Indenture and this First Supplemental Indenture
shall henceforth be read together.
Section 402. Confirmation. The Existing Indenture as amended and
----------- ------------
supplemented by this First Supplemental Indenture is in all respects confirmed
and preserved.
Section 403. Terms Defined. All terms defined in the Existing Indenture
----------- -------------
have the meanings herein as so defined.
Section 404. Counterparts. This First Supplemental Indenture may be
----------- ------------
signed in any number of counterparts each of which so executed shall be deemed
to be an original, but all such counterparts shall together constitute but one
and the same instrument.
Section 405. Effectiveness. The provisions of this First Supplemental
----------- -------------
Indenture will take effect immediately upon its execution and delivery by the
Trustee in accordance with the provisions of Section 801 of the Existing
Indenture.
Section 406. Governing Law. This First Supplemental Indenture shall be
----------- -------------
governed by, and be construed in accordance with, the laws of the State of New
York excluding (to the greatest extent permissible by law) any rule of law that
would cause the application of the laws of any jurisdiction other than the state
of New York. Upon the issuance of the Exchange Discount Notes or the
effectiveness of the shelf registration statement, the Indenture shall be
subject to the provisions of the Trust Indenture Act that are required to be
part of the Indenture and shall, to the extent applicable, be governed by such
provisions. Each of the parties hereto agrees to submit to the jurisdiction of
the courts of the state of New York and the U.S. federal courts, in each case
sitting in the borough of Manhattan, and waives any objection as to venue or
forum non conveniens.
[Remainder of Page Intentionally Left Blank]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
Details Capital Corp.
By:
----------------------------
Name: Bruce McMaster
Title: President
ATTEST:
- -----------------------------
Name: Joseph P. Gisch
Title: Secretary
State Street Bank and Trust
Company
By:
----------------------------
Name: Earl W. Dennison, Jr.
Title: Vice President
-4-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts,"
"Summary Historical Consolidated Financial Data," and "Selected Historical
Consolidated Financial Data," and to the use of our report dated February 14,
1997 in Amendment No. 2 to the Registration Statement (Form S-4) (333-41187)
and related Prospectus of Details Capital Corp. for the registration of its
$110 million Series B 12 1/2% Senior Discount Notes due 2007.
/s/ McGladrey & Pullen, llp
McGladrey & Pullen, llp
Anaheim, California
February 4, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-41187 of Details Capital Corp. on Form S-4 of our report dated May 9, 1997
and December 22, 1997 relating to the financial statements of Colorado Springs
Circuits, Inc. as of April 1, 1997 and 1996 and for the years then ended,
appearing in the Prospectus, which is part of this Registration Statement and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Stockman Kast Ryan & Scruggs, P.C.
Stockman Kast Ryan & Scruggs, P.C.
Colorado Springs, Colorado
February 4, 1998
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-41187 of Details Capital Corp. on Form S-4 of our report dated June 2,
1995 relating to the statements of income and retained earnings and of cash
flows of Colorado Springs Circuits, Inc. for the year ended March 31, 1995,
appearing in the Prospectus, which is part of this Registration Statement and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Denver, Colorado
February 4, 1998
