<PAGE>
As filed with the Securities and Exchange Commission on April 6, 2000
Registration No. 333-95623
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 3
TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DDi CORP.
DDi MERGER CO.(1)
(Exact name of registrants as specified in their charters)
California 3672 95-3253877
(Primary Standard
Delaware Industrial 06-1576013
(State or other (I.R.S. Employer
jurisdiction Classification Code Identification No.)
of incorporation or Number)
organization)
1220 Simon Circle, Anaheim, California 92806
(714) 688-7200
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive office)
--------------
Charles D. Dimick Bruce D. McMaster
Chairman President and Chief Executive Officer
DDi Corp. DDi Corp.
1220 Simon Circle 1220 Simon Circle
Anaheim, California 92806 Anaheim, California 92806
(714) 688-7200 (714) 688-7200
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
--------------
Copies of all communications, including communications sent to agents for
service, should be sent to:
Alfred O. Rose, Esq. Stacy J. Kanter, Esq.
Ropes & Gray Skadden, Arps, Slate, Meagher & Flom
One International Place LLP
Boston, Massachusetts 02110-2624 Four Times Square
(617) 951-7000 New York, New York 10036-6572
(212) 735-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered Share(2) Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ $ $287,140,625 $75,805(3)
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</TABLE>
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(1) DDi Corp., a California corporation, will reincorporate in Delaware
concurrently with the closing of this offering by way of merger with and
into its subsidiary, DDi Merger Co., a Delaware corporation, which
expressly adopts this Registration Statement for all purposes under the
Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) $75,805 was paid as of March 22, 2000.
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED APRIL 6, 2000
14,687,500 Shares
[DDi LOGO APPEARS HERE]
DDi Corp.
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of common stock is expected to be between
$15.00 and $17.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "DDIC."
The underwriters have an option to purchase a maximum of 2,203,125 additional
shares from us to cover over-allotments of shares.
Investing in our common stock involves risk. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Price Underwriting
to Discounts and Proceeds to
Public Commissions DDi Corp.
------ ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Robertson Stephens
Chase H&Q Lehman Brothers
The date of this prospectus is , 2000.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 8
Cautionary Note Regarding Forward-
Looking Statements................. 12
Use of Proceeds..................... 13
The Reclassification................ 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Unaudited Pro Forma Consolidated
Financial Data..................... 18
Selected Consolidated Financial and
Other Data......................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 28
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 36
Management....................... 45
Related Party Transactions....... 56
Principal Stockholders........... 57
Description of Indebtedness...... 60
Description of Capital Stock..... 63
Shares Eligible for Future Sale.. 66
Underwriting..................... 69
Notice to Canadian Residents..... 72
Legal Matters.................... 73
Experts.......................... 73
Additional Information........... 73
Index to Consolidated Financial F-1
Statements......................
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
The industry statistical data presented in this prospectus, except where
otherwise noted, have been compiled from an electronics manufacturing services
industry report, "Contract Manufacturing from a Global Perspective, 1999
Update," prepared by Technology Forecasters, Inc., a California-based
management consulting firm specializing in the electronics manufacturing
industry. Although we have not independently verified the data, we believe that
the information provided by Technology Forecasters in this prospectus is
reliable. In addition, statistical data relating to us presented in this
prospectus have been compiled from our internal surveys and schedules, which,
while believed by us to be reliable, have not been verified by any independent
sources.
Dynamic Details is a trademark of our subsidiary. We have applied for
trademark protection of DDi and the DDi logo.
Dealer Prospectus Delivery Obligations
Until , 2000 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as an underwriter and with respect to unsold allotments or
subscriptions.
<PAGE>
Description of cover art: photographs of operations and products surrounding
"DDi targets the fast-growing communications and networking industries. DDi's
electronics design, development and manufacturing expertise and its leading
edge process technology provide its customers with the flexibility to shorten
product development cycles and reduce their time to market in a marketplace
demanding increasingly rapid product introduction."
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information we present more fully elsewhere in this
prospectus. This prospectus contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed in the forward-looking statements as a result of factors described
under "Risk Factors" and elsewhere in this prospectus.
DDi Corp.
We provide electronics design, development and manufacturing services to
original equipment manufacturers and to other providers of electronics
manufacturing services. We specialize in providing technologically advanced
services to our customers on a short turnaround basis, and we are one of the
few companies that focus on this segment of the electronics manufacturing
services industry. We target the fast-growing communications and networking
equipment industries, which are characterized by aggressive new product
development programs demanding the rapid application of advanced technology and
design. We offer a suite of value-added, integrated services in support of our
customers' new product development, including:
. on-campus and in-the-field design of complex printed circuit boards,
the basic platforms used to interconnect electronic components in
virtually all electronic products;
. time-critical development and fabrication of complex printed circuit
boards predominantly for use in the pre-launch phase of new product
development;
. assembly of printed circuit boards including large printed circuit
boards called backpanels, which involves mounting electronic
components on the boards; and
. assembly and integration of our customers' complete systems and
products.
Our customers use our services to develop and produce a wide variety of end
products, including communications switching and transmission equipment,
wireless base stations, work stations, high-end computing equipment and data
networking equipment. The technologically advanced, time-critical segment of
the electronics manufacturing services industry in which we operate is
characterized by rapid growth, high margins and significant customer diversity.
Our design, development and manufacturing expertise and our leading-edge
process technology allow us to provide our customers with a broad array of
time-critical services and make us integral to their product development and
manufacturing strategies. Our services are referred to as "quick-turn" because
we provide limited numbers of custom-designed printed circuit boards to our
customers in as little as 24 hours. As a result, we enable our customers to
shorten product development cycles and reduce their time to market for new
products. We distinguish ourselves from other electronics manufacturing
services companies by focusing on direct relationships with research and
development personnel at original equipment manufacturers. This focus makes us
a strategic partner in our customers' new product initiatives and gives us
access to emerging providers of next-generation technology. We believe our core
strengths in the design, test and launch phases of new electronic product
development give us a competitive advantage in providing services to selected
industries characterized by rapid product introductions and strong growth.
We believe the fast-growing communications and networking equipment
industries represent large and attractive markets for our electronics
manufacturing services. Original equipment manufacturers in these industries
are increasingly outsourcing component design and development and product
manufacturing services to electronics manufacturing service providers, such as
ourselves, and are focusing instead on their core strengths, such as product
development, sales, marketing and customer service. The electronics
manufacturing services industry grew at a compound annual growth rate of 20%
from 1993 to 1999, fueled by increases in the rate of outsourcing combined with
steady, underlying growth in the electronics equipment industry. Technology
Forecasters, Inc. forecasts that the electronics manufacturing services
industry will continue to grow at this rate,
1
<PAGE>
with industry revenues projected to be approximately $149 billion in 2003.
Communications equipment manufacturers represent a particularly attractive
market for our services because they have historically outsourced a smaller
portion of their cost of goods sold than other electronics manufacturers.
Technology Forecasters, Inc. predicts that communications equipment
manufacturers will increase their outsourcing significantly between now and
2003. We believe we are well-positioned to capitalize on the combined effect of
the growth in the electronics manufacturing services and communications
industries, both internally and by strategic acquisitions.
Our diverse customer base includes over 1,400 companies. Our largest original
equipment manufacturer customers in terms of net sales are Alcatel, IBM, Intel,
Marconi Communications and 3Com. Our customers also include other electronics
manufacturing service providers such as Celestica, Jabil and Solectron, our
largest electronics manufacturing service provider customers in terms of net
sales. These providers benefit from our strengths in the technologically
advanced, time-critical segment of the electronics manufacturing services
industry. We achieved a net increase of approximately 150 customers in 1999. In
1999, our ten largest customers, in the aggregate, accounted for less than 40%
of our net sales, and our largest customer accounted for less than 8% of net
sales. The fast-growing communications and networking equipment industries
represented approximately 55% of our net sales during the same period.
Our Strategy
Our goal is to be the leading provider of technologically advanced, time-
critical electronics manufacturing services. To achieve this goal, we will:
. Continue our focus on the fast-growing communications and networking
equipment industries;
. Capitalize on our strong customer relationships and design expertise to
participate in future product introductions and further outsourcing
programs;
. Strengthen our process management and technological leadership in our
segment of the electronics manufacturing services industry and continue
to improve quality and delivery times by incorporating emerging
technologies;
. Leverage our leadership in quick-turn design, development and
manufacturing services to further expand our assembly operations and
other value-added services;
. Expand our international presence to better serve the needs of customers
seeking to outsource their worldwide design, development and
manufacturing activities; and
. Pursue selected acquisition opportunities, including asset divestitures
by original equipment manufacturers.
Recent Developments
MCM Electronics Acquisition. On March 22, 2000, we entered into an agreement
to acquire MCM Electronics Limited, a time-critical electronics manufacturing
service provider based in the United Kingdom. We expect to consummate this
acquisition on the closing date of this offering. We will pay the current
investors in MCM Electronics a combination of our common stock and cash, and
assume some of its debt. See "Use of Proceeds" and "Unaudited Pro Forma
Consolidated Financial Data."
Like DDi, MCM Electronics primarily focuses on technologically advanced,
time-critical design, manufacturing and assembly of printed circuit boards. MCM
Electronics' management currently owns approximately 35% of the company. Its
chief executive officer, Martin H.G. Malone, has over 24 years of industry
experience focused on technologically advanced, time-critical services. MCM
Electronics operates out of four facilities in southern England. It has
approximately 450 customers and net sales for the twelve months ended December
31, 1999 of more than $58 million. For the ten months ended January 31, 2000,
approximately 32% of its net sales were to customers in the communications
industry. MCM Electronics' top
2
<PAGE>
five customers in terms of net sales included Alcatel, Raychem, Rotork Controls
and Soundcraft/BSS, and they together accounted for approximately 38% of total
net sales during the 12 months ended December 31, 1999.
We believe our acquisition of MCM Electronics is a critical step in our
strategy to expand our international service offering. With its focus on
technologically advanced, time-critical services, MCM Electronics complements
our core strengths. The acquisition builds on our growing sales in Europe and
will enable us to better service our global accounts. We expect to achieve cost
savings by combining our marketing efforts and through volume purchases of raw
materials and capital equipment.
Domestic Facility Consolidation. In December 1999, we implemented our plan to
consolidate our Colorado operations into our Texas facility and to close our
Colorado facility. This consolidation and closure was substantially completed
on March 31, 2000. We are currently serving the majority of the customers who
were serviced by our Colorado facility out of our Texas facility. By combining
our Texas and Colorado operations, we are eliminating lower-margin product
lines and decreasing our overhead costs, and we expect to gain efficiency
through better capacity utilization and streamlined management.
----------------
We are a California corporation organized in 1978 and operate through our
subsidiary, Dynamic Details, Incorporated. Prior to the completion of our
initial public offering, we plan to reincorporate in Delaware. See "The
Reclassification." Our principal executive office is located at 1220 Simon
Circle, Anaheim, California 92806 and our telephone number is (714) 688-7200.
We maintain a website on the Internet at www.ddiglobal.com. Our website, and
the information contained therein, is not a part of this prospectus.
3
<PAGE>
The Offering
Common stock offered...... 14,687,500 shares of common stock by DDi Corp.
Over-allotment option..... Up to 2,203,125 shares of common stock offered by
DDi Corp.
Common stock to be
outstanding after the
offering.................
41,368,750 shares of common stock. See "The
Reclassification." In calculating the number of
shares of common stock, we included 1,931,250
shares of common stock, the number of shares we
would have issued in connection with our
acquisition of MCM Electronics if the acquisition
had occurred on December 31, 1999 and the initial
public offering price of our shares was $16.00. In
calculating the number of shares of common stock,
we did not include approximately 2,300,000 shares
issuable upon exercise of stock options and
warrants outstanding on December 31, 1999 with a
weighted average exercise price of $10.92 per
share, approximately 1,400,000 shares of common
stock issuable upon exercise of stock options that
will be granted at the closing of this offering
with an exercise price equal to the public offering
price or 4,248,054 shares of common stock available
for future grant under our stock plans on that
date.
Use of proceeds........... We intend to use the approximately $212.3 million
that we estimate we will receive from this offering
to repay a portion of our existing indebtedness and
indebtedness assumed in connection with our
acquisition of MCM Electronics and to make cash
payments associated with this acquisition. See "Use
of Proceeds."
Proposed Nasdaq National
Market symbol............
DDIC
4
<PAGE>
Summary Consolidated Financial and Other Data
The summary consolidated financial data set forth below is only a summary.
You should read it together with "Unaudited Pro Forma Consolidated Financial
Data," "Selected Consolidated Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes appearing elsewhere
in this prospectus. The pro forma combined financial data set forth below give
effect to the reclassification, as described under "The Reclassification," the
consummation of the offering and the application of the net proceeds as
described under "Use of Proceeds," and our acquisition of MCM Electronics, as
described under "Prospectus Summary--Recent Developments," as if each had
occurred on January 1, 1999 in the case of the unaudited pro forma consolidated
statements of operations data and as of December 31, 1999 in the case of the
unaudited pro forma balance sheet data. The unaudited pro forma consolidated
statement of operations does not purport to represent what our results of
operations would have been if the foregoing transactions had occurrred as of
the date indicated or what such results will be for future periods.
<TABLE>
<CAPTION>
Pro Forma
Year Ended Combined
December 31, Year Ended
----------------------- December 31,
1997 1998 1999 1999
------ ------- ------ ------------
(in millions)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net sales................................ $ 78.8 $ 174.9 $292.5 $350.7
Cost of goods sold....................... 38.7 119.6 202.4 244.1
------ ------- ------ ------
Gross profit........................... 40.1 55.3 90.1 106.6
Operating expenses:
Sales and marketing.................... 7.3 12.8 23.6 24.1
General and administration............. 2.1 8.4 15.3 23.1
Amortization of intangibles............ -- 10.9 22.3 25.6
Restructuring and related charges(a)... -- -- 7.0 14.1
Stock compensation and related
bonuses(b)............................ 31.3 -- -- --
Compensation to the former CEO ........ 2.1 -- -- --
Write-off of acquired in-process
research and development(c)........... -- 39.0 -- --
------ ------- ------ ------
Operating income (loss).................. (2.7) (15.8) 21.9 19.7
Interest expense, net.................... 25.2 37.4 46.7 32.1
------ ------- ------ ------
Loss before taxes and extraordinary
loss.................................... (27.9) (53.2) (24.8) (12.4)
Income tax benefit....................... 10.9 3.5 7.4 0.9
------ ------- ------ ------
Loss before extraordinary loss........... (17.0) (49.7) (17.4) (11.5)
Extraordinary loss....................... (1.6) (2.4) -- --
------ ------- ------ ------
Net loss................................. $(18.6) $ (52.1) $(17.4) $(11.5)
====== ======= ====== ======
Other Financial Data:
Depreciation............................. $ 2.6 $ 9.2 $ 14.4 $ 17.3
Amortization of deferred financing
costs................................... 1.4 1.8 2.1 2.3
Capital expenditures..................... 6.6 18.0 18.2 23.6
Supplemental Data:
Adjusted EBITDA(d)....................... $ 33.3 $ 44.1 $ 66.7 $ 76.7
Net cash from operating activities(e).... 9.1 16.7 24.8 --
Net cash used in investing
activities(e)........................... (44.9) (194.8) (18.6) --
Net cash from (used in) financing
activities(e)........................... 41.1 174.9 (7.7) --
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
As of
December 31,
1999
-----------------
Pro
Forma
Actual Combined
------- --------
(in millions)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................................... $ 0.6 $ 7.2
Working capital............................................... 19.1 32.2
Total assets.................................................. 354.3 462.5
Total debt, including current maturities...................... 476.7 332.0
Stockholders' equity (deficit)................................ (187.1) 50.5
</TABLE>
- --------
(a) The 1999 restructuring and related charges represent the charge recorded
in December 1999 in connection with our announced consolidation of our
Colorado operations into our Texas facility and the closure of our
Colorado facility. The charge consists of $4.5 for severance and other
exit costs and $2.5 related to the impairment of net property, plant and
equipment. The pro forma restructuring and related charges also include a
charge of $3.6 recorded by MCM Electronics for the closure of its facility
in Newbury, England, a charge of $2.6 related to a write-off of goodwill
associated with the closure and a loss of $0.9 recorded in connection with
a vacated leased facility.
(b) Represents the charge for stock compensation and related bonuses recorded
for vested stock options exchanged in conjunction with a recapitalization.
(c) Represents the allocation of a portion of the purchase price in the DCI
merger to in-process research and development. At the date of the merger,
technological feasibility of the in-process research and development
projects had not been reached and the technology had no alternative future
uses. Accordingly, we expensed the portion of the purchase price allocated
to in-process research and development.
(d) EBITDA means earnings before net interest expense, income taxes,
depreciation and amortization. Adjusted EBITDA is presented because we
believe it is an indicator of our ability to incur and service debt and is
used by our lenders in determining compliance with financial covenants.
However, adjusted EBITDA should not be considered as an alternative to
cash flow from operating activities, as a measure of liquidity or as an
alternative to net income as a measure of operating results in accordance
with generally accepted accounting principles. Our definition of adjusted
EBITDA may differ from definitions of adjusted EBITDA used by other
companies.
The following table sets forth a reconciliation of EBITDA to adjusted
EBITDA for each period included herein:
<TABLE>
<CAPTION>
Pro Forma
Year Ended Combined
December 31, Year Ended
------------------ December 31,
1997 1998 1999 1999
----- ----- ----- ------------
(in millions)
<S> <C> <C> <C> <C>
EBITDA...................................... $(0.1) $43.3 $58.6 $65.2
Former CEO compensation(1) ................. 2.1 -- -- --
Management fee(2)........................... -- -- 1.1 --
Executive severance(3)...................... -- 0.8 -- --
Stock compensation and bonuses(4)........... 31.3 -- -- --
Restructuring and related charges(5)(6)..... -- -- 7.0 11.5
----- ----- ----- -----
Adjusted EBITDA............................. $33.3 $44.1 $66.7 $76.7
===== ===== ===== =====
</TABLE>
6
<PAGE>
--------
(1) Reflects elimination of compensation to the former CEO whose employment
agreement was terminated in October 1997.
(2) Reflects elimination of the management fee incurred under our Bain
Capital management agreement, which will be terminated in connection
with the offering.
(3) Reflects one-time severance payments to two of our executives who were
terminated as a result of redundancies created by the DCI merger.
(4) Reflects elimination of the charge for stock compensation and related
bonuses recorded for vested stock options exchanged in conjunction with
the recapitalization.
(5) Reflects, on a pro forma basis, the elimination of a $3.6 charge
recorded by MCM Electronics for the closure of its facility in Newbury,
England and a loss of $0.9 recorded by MCM Electronics in connection
with a vacated leased facility and, on an actual and pro forma basis,
the elimination of the $7.0 charge recorded for the consolidation and
closure of our Colorado facility. See note (a) above.
(6) We implemented in December 1999 a plan to consolidate our Colorado
operations into our Texas facility and to close our Colorado facility,
which operated at a loss in 1999. We are currently serving a majority
of the customers who were serviced by our Colorado facility out of our
Texas facility, and based on our detailed customer-by-customer
analysis, we believe that we will retain customers and accounts
representing approximately 75% of our Colorado facility's net sales.
The capacity of the Texas facility would have been sufficient to
service this portion of the revenue stream in 1999. If we had serviced
this revenue stream in our Texas facility with our Texas facility's
cost structure:
. our Colorado net sales would have decreased from $30.2 to $22.7;
. the cost of goods sold related to those sales would have decreased from
$30.8 (the actual cost of goods sold of our Colorado facility) to $19.1
(the product of $22.7 and the cost of goods sold ratio achieved in our
Texas facility);
. the operating expenses associated with those sales would have decreased
from $3.7 to $2.3 (the product of $22.7 and the operating expense ratio
achieved in our Texas facility); and
. depreciation and amortization (which are included in operating expenses
and cost of goods sold) would have decreased by $0.7.
As a result, 1999 operating income and EBITDA associated with those sales
would have increased by $5.6 and $4.9, respectively. The $4.9 increase is
not reflected in the above table. There can be no assurance that our
actual results would have been, or that our future results will be,
consistent with the foregoing assumptions.
(e) Because of the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the pro forma interest
and other expenses, cash flows from operating, investing and financing
activities are not presented for the pro forma periods.
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. If any of the following risks
or uncertainties actually occur, our business, financial condition and
operating results would likely suffer. In that event, the market price of our
common stock could decline, and you could lose all or part of the money you
paid to buy our common stock.
A downturn in the communications or networking equipment industries would
likely negatively impact our revenues.
A majority of our customers are in the communications and networking
equipment industries, which are characterized by intense competition,
relatively short product life-cycles and significant fluctuations in product
demand. In addition, these industries are generally subject to rapid
technological change and product obsolescence. Furthermore, these industries
are subject to economic cycles and have in the past experienced, and are likely
in the future to experience, recessionary periods. A recession or any other
event leading to excess capacity or a downturn in the communications or
networking equipment industries would likely negatively impact our revenues.
If we are unable to respond to rapidly changing technology and process
development, we may not be able to compete effectively.
The market for our products and services is characterized by rapidly
changing technology and continuing process development. The future success of
our business will depend in large part upon our ability to maintain and enhance
our technological capabilities, to develop and market products and services
that meet changing customer needs, and to 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
products and services requiring more advanced technology on a quicker
turnaround basis. We are more leveraged than some of our principal competitors,
and we therefore may not be able to respond to technological changes as quickly
as these competitors.
In addition, the electronics manufacturing services industry could in the
future encounter competition from new or revised technologies that render
existing technology less competitive or obsolete or that reduce the demand for
our services. There can be no assurance that we will effectively respond to the
technological requirements of the changing market. To the extent we determine
that new technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and equipment
may require us to make significant capital investments. There can be no
assurance that we will be able to obtain capital for these purposes in the
future or that any investments in new technologies will result in commercially
viable technological processes.
Because we sell on a purchase-order basis, we may experience variability in our
operating results, which could negatively impact the price of our common stock.
Our operating results have fluctuated in the past because we sell on a
purchase-order basis rather than pursuant to long-term contracts. We are
therefore sensitive to variability in demand by our customers. Because we time
our expenditures in anticipation of future sales, our operating results may be
less than we estimate if the timing and volume of customer orders do not match
our expectations. Furthermore, we may not be able to capture all potential
revenue in a given period if our customers' demand for quick-turnaround
services exceeds our capacity during that period. Because of these factors, you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. Because a significant portion of
our operating expenses are fixed, even a small revenue shortfall can have a
disproportionate effect on our operating results. It is possible that, in
future periods, our results may be below the expectations of public market
analysts and investors. This could cause the market price of our common stock
to decline.
8
<PAGE>
Because we provide materials for our quick-turn services, inaccuracies in
forecasting our supply needs could negatively impact our results of operations.
A substantial portion of our net sales are derived from quick-turn services
for which we provide both the materials and the manufacturing services. As a
result, we often bear the risk of fluctuations in the cost of materials, and
the risk of generating scrap and excess inventory, which can affect our gross
profit margins. We forecast our future inventory needs based upon the
anticipated demands of our customers. Inaccuracies in making these forecasts or
estimates could result in a shortage or an excess of materials, either of which
could negatively affect production schedules and margins.
Our substantial indebtedness could adversely affect our financial health and
the restrictions imposed by the terms of our debt instruments may severely
limit our ability to plan for or respond to changes in our business.
We are highly leveraged. As of December 31, 1999, on a pro forma basis
giving effect to the use of proceeds from this offering to repay some of our
debt and the assumption of debt in our acquisition of MCM Electronics, our
total debt would have been $332.0 million, our ratio of total debt to total
capitalization would have been 0.87 to 1 and we would have had approximately
$44.3 million available under the Dynamic Details senior credit facility for
future borrowings subject to covenant compliance. In addition, subject to the
restrictions under our various debt agreements, we may incur additional
indebtedness in an unrestricted amount from time to time to finance
acquisitions or capital expenditures or for other purposes.
As a result of our level of debt and the terms of our debt instruments:
. our vulnerability to adverse general economic conditions is heightened;
. we will be required to dedicate a substantial portion of our cash flow
from operations to repayment of debt, limiting the availability of cash
for other purposes;
. we are and will continue to be limited by financial and other
restrictive covenants in our ability to borrow additional funds,
consummate asset sales, enter into transactions with affiliates or
conduct mergers and acquisitions;
. our flexibility in planning for, or reacting to, changes in our business
and industry will be limited;
. we are sensitive to fluctuations in interest rates because some of our
debt obligations are subject to variable interest rates; and
. our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired.
There can be no assurance that our leverage and such restrictions will not
materially and adversely affect our ability to finance our future operations or
capital needs or to engage in other business activities.
We have experienced recent significant growth in a short period of time and may
have trouble integrating acquired businesses and managing our expansion.
Since December 1997, we have consummated a merger and an acquisition. We
have a limited history of owning and operating our businesses on a consolidated
basis. There can be no assurance that we will be able to meet performance
expectations or successfully integrate our acquired businesses on a timely
basis without disrupting the quality and reliability of service to our
customers or diverting management resources. We expect to complete our
acquisition of MCM Electronics on or after the completion of this offering. See
"Prospectus Summary--Recent Developments." Our rapid growth has placed and may
continue to place a significant strain on management, our financial resources
and our information, operating and financial systems. If we are unable to
manage this growth effectively, our rate of growth and our revenues may be
adversely affected.
9
<PAGE>
If we fail to execute our acquisition strategy effectively, our revenue growth
may be adversely affected and our common stock price may decline.
As part of our business strategy, we expect that we will continue to grow by
pursuing acquisitions of other companies, assets or product lines that
complement or expand our existing business. We expect to complete our
acquisition of MCM Electronics on or after the completion of this offering. See
"Prospectus Summary--Recent Developments." Competition for attractive companies
in our industry is substantial. We cannot assure you that we will be able to
identify suitable acquisition candidates or to finance and complete
transactions that we select. In addition, our existing credit facilities
restrict our ability to acquire the assets or business of other companies. The
attention of our management may be diverted, and our operations may be
otherwise disrupted. Our failure effectively to execute our acquisition
strategy may cause the growth of our revenues to suffer and the price of our
common stock to decline.
We expect to use the net proceeds of this offering to repay indebtedness and,
as a result, we may be unable to finance changes required by unexpected
economic or business conditions or to finance acquisitions.
We expect to use most of the net proceeds of this offering to repay a
portion of our existing indebtedness and investor loans assumed in connection
with our acquisition of MCM Electronics. See "Use of Proceeds" and "Prospectus
Summary--Recent Developments." We expect that our principal sources of funds
during 2000 will be cash generated from operating activities and borrowings
under the senior credit facility of our operating subsidiary, Dynamic Details,
Incorporated. We can give no assurance, however, that these funds will be
sufficient if changes in economic conditions or our industry occur that are
beyond our control. We would require additional equity or debt financing to
finance acquisitions. The Dynamic Details senior credit facility contains
restrictions on our ability to borrow additional funds. See "Description of
Indebtedness--Dynamic Details Senior Credit Facility." There can be no
assurance that additional financing will be available when required or, if
available, will be on terms satisfactory to us. In addition, we may be required
to use proceeds from debt and equity financings to repay a portion of our debt.
If we are unable to protect our unpatented proprietary techniques, we may be
unable to compete effectively.
Our success depends in part on proprietary technology and manufacturing
techniques. We have no patents for these proprietary techniques and rely
primarily on trade secret protection. Litigation may be necessary to protect
our technology and determine the validity and scope of the proprietary rights
of our competitors. Intellectual property litigation could result in
substantial costs and diversion of management and other resources. If any
infringement claim is asserted against us, we 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.
Because we depend on a core group of significant customers, our results of
operations may be negatively impacted if key customers discontinue the use of
our services.
Although we have a large number of customers, net sales to our largest
customer accounted for approximately 8% of our net sales in 1999. Net sales to
our ten largest customers accounted for approximately 40% of our net sales
during the same period. We may depend upon a core group of customers for a
material percentage of our net sales in the future. Substantially all of our
sales are made on the basis of purchase orders rather than long-term
agreements. There can be no assurance that significant customers will order
services from us in the future or that they will not reduce or delay the amount
of services ordered from us. Any reduction or delay in orders could negatively
impact our revenues. In addition, we generate significant accounts receivable
in connection with providing services to our customers. If one or more of our
significant customers were to become insolvent or otherwise were unable to pay
for the services provided by us, our results of operations would be adversely
affected.
10
<PAGE>
Our business will suffer if either of our two senior executives discontinues
his employment with us or if we are unable to recruit and retain highly skilled
engineering and sales staff.
We depend on the services of our senior executives, including Charles D.
Dimick, our Chairman, and Bruce D. McMaster, our President and Chief Executive
Officer. Although we have entered into employment agreements with these and
other executive officers, there can be no assurance that we will be able to
retain our executive officers and key personnel or attract additional qualified
management in the future. Mr. Dimick's and Mr. McMaster's employment agreements
expire in July 2001 and October 2000, respectively. Our business also depends
on our ability to continue to recruit, train and retain skilled employees,
particularly engineering and sales personnel, due to our focus on the
technologically advanced and time-critical segment of the electronics
manufacturing services. In addition, our ability to successfully integrate
acquired companies depends in part on our ability to retain key management and
existing employees at the time of the acquisition.
Our international expansion may be more costly or difficult than we expect.
We are expanding into new foreign markets. We expect to complete our
acquisition of MCM Electronics, a United Kingdom company, on or after the
completion of this offering. See "Prospectus Summary--Recent Developments."
Entry into foreign markets may require considerable management time as well as,
in the case of new operations, start-up expenses for market development, hiring
and establishing office facilities before any significant revenues are
generated. As a result, operations in new foreign markets may achieve low
margins or may be unprofitable. We will be unable to utilize net operating
losses incurred by our foreign operations to reduce our U.S. income taxes.
Therefore, as we expand internationally, we may not experience the operating
margins we expect, and our revenues may be negatively impacted and our common
stock price may decline.
The Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act and other environmental laws create
potential financial liability because we use hazardous materials and generate
hazardous wastes in our manufacturing processes. If any site at which our
wastes are disposed becomes contaminated, we could be held liable for damages
and clean-up costs. If we fail to comply with federal, state and foreign
environmental laws, we can be assessed fines and be subject to revocation of
permits necessary to our manufacturing processes.
Our operations are regulated under a number of federal, state and foreign
environmental and safety laws and regulations that 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. These laws and regulations
include the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, and the Comprehensive Environmental Response, Compensation and
Liability Act, as well as analogous state and foreign laws. Compliance with
these environmental laws is a major consideration for us because we use in our
manufacturing process materials classified as hazardous such as ammoniacal
etching solutions, copper and nickel. In addition, because we are a generator
of hazardous wastes, we may be subject to potential financial liability for
costs associated with an investigation and any remediation of sites at which we
have arranged for the disposal of hazardous wastes if such sites become
contaminated. Even if we fully comply with applicable environmental laws and
are not directly at fault for the contamination, we may still be liable. The
wastes we generate include spent ammoniacal etching solutions, solder stripping
solutions and hydrochloric acid solution containing palladium; waste water
which contains heavy metals, acids, cleaners and conditioners; and filter cake
from equipment used for on-site waste treatment. Violations of environmental
laws could subject us to revocation of our effluent discharge permits. Any such
revocations could require us to cease or limit production at one or more of our
facilities, thereby negatively impacting our revenues and potentially causing
our common stock price to decline.
11
<PAGE>
Our current principal stockholders will continue to have significant influence
over our business after this offering, and could delay, deter or prevent a
change of control or other business combination.
Upon completion of this offering and the MCM Electronics acquisition,
investment funds affiliated with Bain Capital, Inc., Celerity Partners, L.L.C.
and The Chase Manhattan Bank will together hold approximately 35.6% of our
outstanding common stock on a fully diluted basis. In addition, six of the nine
directors who will serve on our board following this offering will be
representatives of affiliates of the Bain Capital funds, Celerity Partners,
L.L.C. and affiliates of The Chase Manhattan Bank. By virtue of such stock
ownership and board representation, these entities will continue to have a
significant influence over all matters submitted to our stockholders, including
the election of our directors, and to exercise significant control over our
business, policies and affairs. Such concentration of voting power could have
the effect of delaying, deterring or preventing a change of control or other
business combination that might otherwise be beneficial to our stockholders.
Provisions in our charter documents and state law may make it harder for others
to obtain control of us even though some stockholders might consider such a
change of control to be favorable.
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in
management is delayed or prevented, the market price of our common stock could
suffer. See "Description of Capital Stock."
Shares eligible for public sale after this offering could adversely affect our
stock price.
We, our officers and directors, and the holders of substantially all of the
shares of our common stock have agreed not to sell shares of our common stock
until 180 days following the date of this prospectus without the consent of
Credit Suisse First Boston Corporation. Upon expiration of these 180-day lock-
up agreements and subject to the volume limitations imposed by Rule 144 of the
Securities Act, 24,698,347 shares will be available for resale in the public
market. See "Shares Eligible for Future Sale." The market price of our common
stock could decline as a result of these sales or the perception that these
sales could occur.
The initial public offering price is significantly higher than the book value
of our common stock and you will experience immediate and substantial dilution
in the value of your investment.
The initial public offering price per share will significantly exceed the net
tangible book value per share. Accordingly, investors purchasing shares in this
offering will suffer immediate and substantial dilution of their investment.
See "Dilution."
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements throughout this prospectus. In some cases
you can identify these statements by forward-looking words such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will," and "would" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position or state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed above in the section caption "Risk Factors," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual result to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus and in
the documents that we incorporate by reference in this prospectus could have an
adverse effect on our business, results of operations and financial position.
12
<PAGE>
You should read this prospectus completely and with the understanding that
our actual future results may be materially different from what we expect. We
may not update these forward-looking statements after the date of this
prospectus, even though our situation will change in the future. All forward-
looking statements attributable to us are expressly qualified by these
cautionary statements.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 14,687,500 shares of
common stock in this offering will be approximately $212.3 million, assuming an
initial public offering price of $16.00 per share, the midpoint of the range
set forth on the cover page of this prospectus. We intend to use:
. approximately $46.6 million of the net proceeds to redeem all of the
senior discount notes issued by our subsidiary, DDi Intermediate
Holdings Corp., and to pay any associated redemption premiums and
accrued and unpaid interest thereon;
. approximately $36.1 million of the net proceeds to redeem a portion of
the senior discount notes issued by our subsidiary, DDi Capital Corp.,
and to pay associated redemption premiums and accrued and unpaid
interest thereon;
. approximately $100.0 million of the net proceeds to reduce the
indebtedness of our subsidiary, Dynamic Details, Incorporated, under its
senior credit facility;
. approximately $24.3 million of the net proceeds to repay the MCM
Electronics investor loans, including accrued interest assumed in
connection with our acquisition of MCM Electronics. See "Prospectus
Summary--Recent Developments;" and
. approximately $5.3 million of the net proceeds to pay cash
consideration, including fees and expenses, in connection with our
acquisition of MCM Electronics.
The amounts stated above are based on expected outstanding accreted values
of these obligations as of April 17, 2000 for the DDi Intermediate senior
discount notes, the Dynamic Details senior credit facility and the MCM
Electronics investor loans and as of May 17, 2000 for the DDi Capital senior
discount notes. The distribution of the net proceeds from this offering will
change to reflect increases in accreted values of these obligations depending
on the date on which this offering closes.
We own 100% of the capital stock of DDi Intermediate Holdings Corp., which
in turn owns 100% of the capital stock of DDi Capital Corp., which in turn owns
100% of the capital stock of Dynamic Details, Incorporated, our primary
operating subsidiary.
Our DDi Intermediate senior discount notes mature on June 30, 2008, and bear
interest at the rate of 13.5% per annum. As of December 31, 1999, the
outstanding accreted value of these senior discount notes was approximately
$40.8 million. Under the terms of the indenture relating to the senior discount
notes, we may use the net proceeds from this offering to redeem all of the DDi
Intermediate senior discount notes outstanding at a price that would provide
the noteholders with a 20% per annum return on the price at which the notes
were issued, plus accrued and unpaid interest thereon. Approximately 50% of the
DDi Intermediate senior discount notes are held by investment funds advised by
Sankaty Advisors, Inc., an affiliate of Bain Capital. See "Related Party
Transactions."
Our DDi Capital senior discount notes mature on November 15, 2007, and bear
interest at the rate of 12.5% per annum. As of December 31, 1999, the accreted
value on these senior discount notes was approximately $77.7 million. Under the
terms of the indenture relating to the senior discount notes, we may use the
net proceeds from this offering to redeem up to 40% of the aggregate principal
amount of the senior discount notes outstanding at a price equal to 112.5% of
the accreted value thereof plus accrued and unpaid interest thereon. See
"Description of Indebtedness--DDi Capital Senior Discount Notes."
The Dynamic Details senior credit facility consists of multi-tranche term
loans and a revolving credit facility with a final maturity date in April 2005
and an aggregate principal balance of $251.7 million as of December 31, 1999.
The loans under this facility bear interest at varying rates based, at our
option, on either
13
<PAGE>
LIBOR plus 225 to 250 basis points or the bank rate plus 125 to 150 basis
points. The overall effective interest rate for the term loans at December 31,
1999 was 8.90%. See "Description of Indebtedness--Dynamic Details Senior Credit
Facility."
The MCM Electronics investor loans mature on June 30, 2001. During the year
ending June 30, 2000, interest accrues on the outstanding principal at 6.5% per
annum. The loans must be repaid upon a change of control of MCM Electronics.
Pending these uses, we will invest the net proceeds in short-term, interest-
bearing, investment-grade securities.
THE RECLASSIFICATION
We currently have two classes of common stock, designated as Class A common
stock and Class L common stock. Each share of Class L common stock is entitled
to a preferential payment upon any distribution by us to holders of our capital
stock (whether by dividend, liquidating distribution or otherwise) equal to the
original cost of such share ($364.0909) plus an amount which accrues from the
date such share was issued on a daily basis at a rate of 12.0% per annum,
compounded quarterly. After payment of this preference amount, each share of
Class A common stock and Class L common stock shares equally in all
distributions by us to holders of our capital stock.
As of April 17, 2000, the expected closing date of this offering, the
preference amount will be $487.58 per share of Class L common stock issued at
the time of our recapitalization in October 1997. Immediately prior to the
completion of this offering, we will reincorporate in Delaware. At the time of
the reincorporation, each of the outstanding shares of Class A common stock
will be converted into 3.2278 shares of common stock. Each of the outstanding
shares of Class L common stock will be converted into a number of shares of
common stock equal to 3.2278 multiplied by the number of shares of Class A
common stock into which the share of Class L common stock is convertible, based
on its preference amount.
The foregoing is referred to in this prospectus as the "reclassification."
None of these newly converted shares will be sold at the time of the offering.
As of April 17, 2000, assuming an initial public offering price of $16.00
per share (the mid-point of the range set forth on the cover page of this
prospectus), the shares of Class A common stock and Class L common stock
outstanding on December 31, 1999 will be reclassified into 24,750,000 shares of
common stock outstanding immediately after the reclassification but prior to
this offering. The actual number of shares of common stock that will be issued
as a result of the reclassification is subject to change based on the actual
offering price and the fact that fractional shares otherwise issuable as a
result of the reclassification will be redeemed for cash. See "Description of
Capital Stock."
DIVIDEND POLICY
We have not declared or paid a cash dividend on our common stock since
January 1996, and we do not anticipate paying any cash dividends during at
least the next five years. Our existing credit facilities restrict our ability
to pay dividends. We presently intend to retain earnings to finance future
operations and expansion and to reduce indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
14
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our
capitalization as of December 31, 1999 on an actual basis, on a pro forma basis
to reflect:
. the cashless exercise of outstanding warrants held by Chase Manhattan
Capital, LLC and Chase Securities Inc., which will occur automatically
as a result of this offering;
. the reclassification as if it had occurred on December 31, 1999
(assuming that this offering is closed on April 17, 2000 and that the
initial public offering price per share is $16.00); and
. the application of the estimated net proceeds from this offering to
repay some of our existing debt as described in "Use of Proceeds,"
assuming December 31, 1999 debt balances and an initial public offering
price of $16.00 per share;
and on a pro forma, combined basis to reflect our acquisition of MCM
Electronics, as described in "Prospectus Summary--Recent Developments" and
"Unaudited Pro Forma Consolidated Financial Data."
You should read this information together with our consolidated financial
statements and the related notes to those statements included in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Pro Forma
Actual Pro Forma Combined
----------- ----------- -----------
(in millions, except share data)
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 0.6 $ 29.3 $ 7.2
=========== =========== ==========
Current maturities of long-term
obligations........................... $ 7.0 $ 7.0 $ 8.4
Long-term obligations, net of current
maturities:
Dynamic Details senior credit
facility............................ 245.8 141.2 141.2
Dynamic Details senior subordinated
notes............................... 100.0 100.0 100.0
DDi Capital senior discount notes.... 77.7 46.6 46.6
DDi Intermediate senior discount
notes............................... 40.8 -- --
MCM Electronics senior credit
facility............................ -- -- 29.8
Other long-term obligations.......... 5.4 5.4 6.0
----------- ----------- ----------
Total long-term obligations, net of
current maturities................ 469.7 293.2 323.6
Stockholders' (deficit) equity:
Preferred Stock, $0.01 par value,
5,000,000 shares authorized; no
shares issued on an actual, pro
forma or pro forma combined basis... -- -- --
Common stock, $0.01 par value, no
shares authorized or issued on an
actual basis; 75,000,000 shares
authorized and 39,437,500 shares
issued and outstanding on a
pro forma basis; 75,000,000 shares
authorized and 41,368,750 shares
issued and outstanding on a pro
forma combined basis................ -- 0.4 0.4
Class L common stock, no par value,
475,000 shares authorized; 396,330.2
shares issued and outstanding on an
actual basis, and no shares
authorized, issued and outstanding
on a pro forma or a pro forma
combined basis...................... 147.2 -- --
Class A common stock, no par value,
5,175,000 shares authorized;
3,522,183.0 shares issued and
outstanding on an actual basis and
no shares authorized, issued and
outstanding on a pro forma or a pro
forma combined basis................ 15.7 -- --
Additional paid-in capital........... -- 374.8 405.7
Stockholder receivables.............. (0.6) (0.6) (0.6)
Accumulated deficit.................. (349.4) (355.0) (355.0)
----------- ----------- ----------
Total stockholders'(deficit) equity ... (187.1) 19.6 50.5
----------- ----------- ----------
Total capitalization................... $ 289.6 $ 319.8 $ 382.5
=========== =========== ==========
</TABLE>
15
<PAGE>
DILUTION
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of common stock in this
offering and the net tangible book value per share of common stock immediately
after the offering.
As of December 31, 1999, our pro forma net tangible book value was
approximately $(406.4) million, or $(16.42) per share of common stock assuming
the reclassification. Pro forma net tangible book value per share is determined
by dividing the amount of our total tangible assets less total liabilities by
the pro forma number of shares of common stock outstanding upon completion of
the reclassification.
After giving effect to the sale of shares of our common stock in this
offering and our acquisition of MCM Electronics, our pro forma net tangible
book value as of December 31, 1999 would have been approximately $(232.8)
million, or $(5.63) per share. This represents an immediate increase in pro
forma net tangible book value of $10.79 per share to our existing stockholders
and an immediate dilution in pro forma net tangible book value of $21.63 per
share to public investors purchasing shares at the initial public offering
price and to MCM Electronics investors issued shares in connection with the
acquisition. If the initial public offering price is higher or lower, the
dilution to the public and MCM Electronics investors will be greater or less,
respectively.
The following table illustrates the dilution in pro forma net tangible book
value per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $16.00
Pro forma net tangible book value per share at December
31, 1999 ................................................ (16.42)
Increase per share attributable to public and MCM
Electronics investors.................................... 10.79
-------
Pro forma net tangible book value per share after this
offering and our acquisition of MCM Electronics.......... (5.63)
------
Dilution of net tangible book value per share to public
and MCM Electronics investors............................ $21.63
======
</TABLE>
The table below assumes an initial public offering price of $16.00 per share
before deducting underwriting discounts and commissions and estimated offering
expenses payable by us and summarizes, as of December 31, 1999 on a pro forma
basis, the differences among:
Shares Purchased
. the number of shares of common stock purchased from us by our
existing stockholders since our inception, as described under "The
Reclassification;"
. the number of shares of common stock purchased by public investors in
this offering; and
. the number of shares of common stock issued to MCM Electronics
shareholders, assuming consummation of the MCM Electronics
acquisition on December 31, 1999, the date of its most recent balance
sheet, which number will increase or decrease depending on the date
that the MCM acquisition is consummated (see "Unaudited Pro Forma
Consolidated Financial Data")
Total Consideration
. the aggregate cash consideration paid by existing stockholders;
. the aggregate cash consideration paid by public investors; and
. the aggregate cash value ascribed to the shares issued to MCM
Electronics investors
Average Price Per Share
. the average purchase price per share paid by the existing
stockholders;
. the average purchase price per share paid by the public investors;
and
. the average purchase price per share ascribed to the shares issued to
MCM Electronics investors.
16
<PAGE>
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 24,750,000 60% $162,900,000 38% $6.58
Public investors........ 14,687,500 35% 235,000,000 55% 16.00
MCM Electronics
investors.............. 1,931,250 5% 30,900,000 7% 16.00
---------- --- ------------ ---
Total................. 41,368,750 100% $428,800,000 100%
========== === ============ ===
</TABLE>
The above discussion and tables assume the exercise of outstanding warrants
held by Chase Manhattan Capital, LLC and Chase Securities Inc. (which will
occur automatically as a result of this offering) but no exercise of any stock
options or other warrants outstanding as of December 31, 1999. As of December
31, 1999, after giving effect to the offering there were options and other
warrants outstanding to purchase a total of approximately 2,300,000 shares of
common stock with a weighted average exercise price of $10.92 per share and
options to purchase a total of approximately 1,400,000 shares of common stock
which will be granted on the date of this prospectus with an exercise price
equal to the initial public offering price. Options and warrants to purchase
1,635,198 shares were exercisable on December 31, 1999. If all of the
exercisable in-the-money options and other warrants were exercised, the effect
to public and MCM investors would be anti-dilutive. See "Capitalization" and
"Management."
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1999 give effect to each of the following, as if each had
occurred on January 1, 1999:
.the reclassification, as described under "The Reclassification;"
.the consummation of the offering and the application of the net proceeds,
as described under "Use of Proceeds;" and
.in the pro forma combined column, our acquisition of MCM Electronics, as
described under "Prospectus Summary--Recent Developments."
The unaudited pro forma consolidated balance sheet as of December 31, 1999
gives pro forma effect to the following, as if each event had occurred as of
December 31, 1999:
.the reclassification, as described under "The Reclassification;"
.the consummation of the offering and the application of the net proceeds,
as described under "Use of Proceeds;" and
.in the pro forma combined column, our acquisition of MCM Electronics, as
described under "Prospectus Summary--Recent Developments."
The unaudited pro forma financial data are provided for informational
purposes only and are not necessarily indicative of the results of operations
or financial position had the transactions assumed therein occurred, nor are
they necessarily indicative of the results of operations which may be expected
to occur in the future. Furthermore, the unaudited pro forma financial data are
based upon assumptions that we believe are reasonable and should be read in
conjunction with the consolidated financial statements and the accompanying
notes thereto included elsewhere in this prospectus.
The unaudited pro forma statements of operations do not reflect
extraordinary losses on the early extinguishment of debt resulting from the
write-off of debt issuance costs and the incurrence of prepayment penalties in
connection with the prepayment of debt upon completion of the offering
estimated at $4.4 million and $7.1 million, respectively. The unaudited pro
forma consolidated balance sheet, however, does reflect such charges and the
related tax benefit of $1.8 million and $2.8 million, respectively.
The unaudited pro forma consolidated statements of operations do not reflect
an extraordinary gain resulting from the recognition of deferred swap income
estimated at $2.2 million resulting from the partial repayment of the Dynamic
Details senior credit facility upon completion of the offering. The unaudited
pro forma consolidated balance sheet, however, reflects the gain and the
related tax liability of $0.9 million.
As discussed further in note (g) to the unaudited pro forma balance sheet,
we entered into an agreement to acquire MCM Electronics Limited. The financial
statements of MCM Electronics presented elsewhere in this prospectus are
prepared in accordance with generally accepted accounting principles in the
United Kingdom ("U.K. GAAP") and are presented in British pounds. MCM
Electronics' fiscal year ends on March 31. In July 1999, the management of
Symonds Limited formed MCM Electronics and completed a management-led buyout of
Symonds. As a result, MCM Electronics is the successor company to Symonds. The
following pro forma consolidated financial data for MCM Electronics has been
prepared after:
. converting U.K. GAAP to generally accepted accounting principles in the
United States (U.S. GAAP);
. converting British pounds to U.S. dollars; and
. making other adjustments explained in the notes to the pro forma
consolidated financial data.
The unaudited pro forma consolidated statement of operations does not
reflect the extraordinary loss on the early extinguishment of debt resulting
from the write-off of MCM Electronics debt issuance costs estimated at $1.3
million. The unaudited pro forma consolidated balance sheet, however, does
reflect this charge and the related tax benefit of $0.4 million.
18
<PAGE>
DDi CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1999
(dollars in millions)
<TABLE>
<CAPTION>
MCM
DDi Offering DDi Electronics Acquisition Pro Forma
Historical Adjustments Pro Forma Historical (f) Combined Adjustments Combined
---------- ----------- --------- -------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents........... $ 0.6 $ 235.0 (a) $ 29.3 $ 6.6 $ 35.9 $ (2.1)(g) $ 7.2
(22.7)(a) (23.6)(a)(g)
(176.5)(a) (3.0)(g)
(7.1)(b)
Accounts receivable,
net................... 42.8 -- 42.8 12.7 55.5 -- 55.5
Inventories............ 20.2 -- 20.2 6.1 26.3 -- 26.3
Prepaid expenses and
other................. 2.5 -- 2.5 2.0 4.5 -- 4.5
Deferred tax asset..... 5.2 2.8 (b) 8.9 -- 8.9 0.4 (h) 9.3
1.8 (c) --
(0.9)(d) --
------- ------- ------ ----- ------ ------ ------
Total current assets... 71.3 32.4 103.7 27.4 131.1 (28.3) 102.8
Property, plant and
equipment, net......... 63.2 -- 63.2 12.7 75.9 -- 75.9
Debt issue costs, net... 13.8 (4.4)(c) 9.4 2.4 11.8 (1.3)(h) 10.5
Goodwill and other
intangible, net........ 205.5 -- 205.5 32.0 237.5 67.3 (g) 272.8
-- (32.0)(g)
Other................... 0.5 -- 0.5 -- 0.5 -- 0.5
------- ------- ------ ----- ------ ------ ------
Total assets........... $ 354.3 $ 28.0 $382.3 $74.5 $456.8 $ 5.7 $462.5
======= ======= ====== ===== ====== ====== ======
Liabilities and
stockholders' (deficit)
equity:
Current liabilities:
Current maturities of
long-term debt and
capital lease
obligations........... $ 7.0 $ -- $ 7.0 $ 1.4 $ 8.4 $ -- $ 8.4
Current portion of
deferred interest rate
swap income........... 1.5 -- 1.5 -- 1.5 -- 1.5
Current maturities of
deferred notes
payable............... 2.5 -- 2.5 -- 2.5 -- 2.5
Accounts payable....... 18.1 -- 18.1 10.1 28.2 -- 28.2
Accrued expenses....... 22.3 -- 22.3 4.6 26.9 (0.7)(a)(g) 26.2
Income tax payable..... 0.9 -- 0.9 2.9 3.8 -- 3.8
------- ------- ------ ----- ------ ------ ------
Total current
liabilities........... 52.3 -- 52.3 19.0 71.3 (0.7) 70.6
Long-term debt and
capital lease
obligations............ 469.7 (176.5)(a) 293.2 53.3 346.5 (22.9)(g) 323.6
Deferred interest rate
swap income............ 3.9 (2.2)(d) 1.7 -- 1.7 -- 1.7
Deferred notes payable.. 1.4 -- 1.4 -- 1.4 -- 1.4
Deferred tax liability.. 13.4 -- 13.4 0.6 14.0 -- 14.0
Other................... 0.7 -- 0.7 -- 0.7 -- 0.7
------- ------- ------ ----- ------ ------ ------
Total liabilities...... $ 541.4 $(178.7) $362.7 $72.9 $435.6 $(23.6) $412.0
------- ------- ------ ----- ------ ------ ------
Stockholders' (deficit)
equity:
Class L common stock... 147.2 (147.2)(e) -- -- -- -- --
Class A common stock... 15.7 (15.7)(e) -- -- -- -- --
Common stock........... -- 0.4 (e) 0.4 -- 0.4 -- 0.4
Additional paid-in-
capital............... -- 212.3 (a) 374.8 2.0 376.8 30.9 (g) 405.7
147.2 (e) (2.0)(i)
15.7 (e) --
(0.4)(e) --
Stockholder
receivables........... (0.6) -- (0.6) -- (0.6) -- (0.6)
Accumulated deficit.... (349.4) (4.3)(b) (355.0) (0.4) (355.4) 1.3 (i) (355.0)
(2.6)(c) (0.9)(h)
1.3 (d) --
------- ------- ------ ----- ------ ------ ------
Total stockholders'
(deficit) equity...... (187.1) 206.7 19.6 1.6 21.2 29.3 50.5
------- ------- ------ ----- ------ ------ ------
$ 354.3 $ 28.0 $382.3 $74.5 $456.8 $ 5.7 $462.5
======= ======= ====== ===== ====== ====== ======
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
19
<PAGE>
DDi CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars and pounds in millions, except share data)
(a) Reflects our sale of 14,687,500 shares of common stock generating gross
proceeds of $235.0 and the use of the estimated net proceeds of $212.3,
net of the estimated underwriting discount and the offering expenses
totaling $22.7, to repay:
. the DDi Intermediate senior discount notes;
. 40% of the DDi Capital senior discount notes;
. a portion of the Tranches A and B term facilities outstanding under the
Dynamic Details senior credit facility;
. prepayment premiums of $7.1 related to the DDi Intermediate senior
discount notes and the DDi Capital senior discount notes;
. the MCM Electronics investor loans of $23.6 including accrued interest
of $0.7; and
to pay the cash consideration of $5.1, including fees and expenses, payable
in connection with the MCM Electronics acquisition. See "Use of Proceeds"
and "Description of Indebtedness."
(b) Reflects the prepayment premiums of $7.1, before $2.8 of related income
tax benefit (at a 40% effective tax rate), on the DDi Intermediate senior
discount notes and the DDi Capital senior discount notes resulting from
the repayment of the debt in connection with the offering. Amounts will
differ based on the closing date of the offering.
(c) Represents the write-off of $4.4 in capitalized debt issuance costs,
before $1.8 of related income tax benefit (at a 40% effective tax rate),
resulting in an extraordinary loss of $2.6 in connection with the paydown
of outstanding debt in connection with the offering. Amounts will differ
based on the closing date of the offering.
(d) Reflects the recognition of $2.2 in deferred swap income, before $0.9 of
related income tax (at a 40% effective tax rate), resulting in an
extraordinary gain of $1.3 in connection with the paydown of the Dynamic
Details senior credit facility in connection with the offering. Amounts
will differ based on the closing date of the offering.
(e) Adjusted to give effect to the reclassification.
(f) Historical MCM Electronics, formerly Symonds Limited, financial data
included in the accompanying pro forma consolidated balance sheet has
been adjusted to reflect the conversion from U.K. GAAP to U.S. GAAP and
the conversion to U.S. Dollars at an exchange rate on December 31, 1999
of $1.6117 to (Pounds)1.00.
The following table reconciles MCM Electronics' assets, liabilities and
stockholders' equity, stated in accordance with U.K. GAAP, to U.S. GAAP as
of December 31, 1999:
<TABLE>
<CAPTION>
Stockholders'
Assets Liabilities Equity
------------ ------------ -------------
<S> <C> <C> <C>
As reported in accordance with U.K.
GAAP (in (Pounds)) (Pounds)44.9 (Pounds)43.6 (Pounds)1.3
U.S. GAAP adjustments:
Debt issuance costs 1.5 1.2 .3
Goodwill .3 -- .3
Valuation of interests in leveraged
buyout transactions (.5) -- (.5)
Sale leaseback -- .4 (.4)
------------ ------------ -----------
As reported adjusted to U.S. GAAP (in
(Pounds)) (Pounds)46.2 (Pounds)45.2 (Pounds)1.0
Foreign currency exchange rate 1.6117 1.6117 1.6117
------------ ------------ -----------
As reported, adjusted to U.S. GAAP
and U.S. $ $ 74.5 $ 72.9 $ 1.6
============ ============ ===========
</TABLE>
20
<PAGE>
DDi CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars and pounds in millions, except share data)
(g) Under purchase accounting, the total purchase price will be allocated to
the acquired assets and liabilities of MCM Electronics based on their
relative fair values as of the closing date of the MCM Electronics
acquisition. We intend to undertake a study to determine the allocation of
the total purchase price to the various assets acquired, including in-
process research and development, and the liabilities assumed.
Accordingly, the final allocations could be different from the amounts
reflected herein, and such differences may be significant. If it is
determined that a portion of the purchase price is allocated to in-process
research and development, a charge would be recognized in the period in
which the acquisition occurs. The purchase price of $85.9 represents the
total of the cash consideration, the estimated value of our shares
exchanged for the remaining shares of MCM Electronics (1,931,250 shares at
$16.00 per share), the value of assumed and repaid liabilities (net of
cash acquired) and estimated fees and expenses. The amount and components
of the estimated purchase price along with the allocation of the estimated
purchase price to assets purchased and liabilities assumed as though the
MCM Electronics acquisition had occurred on December 31, 1999 are as
follows:
<TABLE>
<S> <C>
Purchase Price (1):
Cash consideration (2)........................................ $ 2.1
Estimated value of DDi equity issued (2)...................... 30.9
Assumption of MCM Electronics senior credit facility and
accrued interest, net of cash acquired of $6.6............... 24.3
Assumption of certain capitalized leases...................... 1.1
Assumption of other notes payable............................. 0.9
Repayment of investor loans and accrued interest.............. 23.6
Estimated fees and expenses................................... 3.0
------
$ 85.9
======
Allocation of Purchase Price:
MCM Electronics net assets at December 31, 1999 (net of cash
acquired).................................................... $ (5.9)
Elimination of historical goodwill at December 31, 1999....... (32.0)
Assumption of MCM Electronics debt, other notes payable and
capitalized leases........................................... 32.9
Redemption of investor loans and accrued interest............. 23.6
Estimated goodwill from the MCM Electronics acquisition....... 67.3
------
$ 85.9
======
</TABLE>
(1) The purchase price will be calculated based on an enterprise value for
MCM Electronics of (Pounds)52.8. The purchase price that we will pay
for all of the common stock of MCM Electronics will equal the
(Pounds)52.8 enterprise value, minus the sum of:
. amounts outstanding under MCM Electronics' senior credit
facility, plus accrued interest (net of cash);
. (Pounds)0.3 in respect of MCM Electronics' capitalized leases;
. MCM Electronics' other notes payable;
. MCM Electronics' investor loans including accrued interest; and
. (Pounds)1.7 in respect of MCM Electronics' transaction expenses.
21
<PAGE>
DDi CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars and pounds in millions, except share data)
The purchase price for the common stock of MCM Electronics will
be paid 6.7% in cash and 93.3% in newly-issued shares of our common
stock, which will be valued at the price at which shares are first
sold to the public in this offering. If the price at which shares
are first sold to the public in this offering is greater than
$18.50 per share, then we will issue additional shares of our
common stock and pay additional cash consideration to the MCM
Electronics stockholders as follows:
<TABLE>
<CAPTION>
Additional
Cash Consideration
(in actual Aggregate Number
IPO Price dollars) of Additional Shares
--------- ------------------ --------------------
<S> <C> <C>
$18.50 $ -- 0
19.00 9,690.00 16,490
20.00 27,600.00 44,620
21.00 47,250.00 72,750
22.00 66,000.00 97,000
23.00 84,870.00 119,310
24.00 103,680.00 139,680
25.00 123,000.00 159,080
26.00 141,960.00 176,540
27.00 160,380.00 192,060
28.00 179,760.00 207,580
29.00 198,360.00 221,160
30.00 216,900.00 233,770
</TABLE>
If we had acquired MCM Electronics on December 31, 1999, the cash
portion of the purchase price for the common stock of MCM
Electronics would have been $2.1, the value of the shares of our
common stock issued to MCM Electronics stockholders would have been
$30.9, and the number of shares of our common stock issued to MCM
Electronics investors would have been 1,931,250 if the initial
price to the public were $16.00 per share, or 1,670,270 if the
initial price to the public were $18.50. If the initial price to
the public were $19.00 per share, the cash portion of the purchase
price would have been $2.1, the value of shares issued would have
been $31.2 and the number of shares issued would have been
1,643,315. If the initial price to the public were $30 per share,
the cash portion of the purchase price would have been $2.3, the
value of shares issued would have been $37.9 and the number of
shares issued would have been 1,263,770.
(2) The purchase price was calculated based on the December 31, 1999
debt levels of MCM Electronics. If these debt levels were to
increase or decrease by $1.0 between December 31, 1999 and the
close of the acquisition, the actual amount of cash paid and the
value of our common stock issued to MCM Electronics shareholders
would increase or decrease by approximately $0.067 and $0.933
(58,313 shares), respectively.
The MCM Electronics acquisition is subject to an acquisition audit, which
could result in a purchase price adjustment. This adjustment, if any, could
increase or decrease the purchase price and will be recorded upon
completion of the audit.
(h) Represents the write-off of $1.3 of MCM Electronics capitalized debt
issuance costs, before $0.4 of related income tax benefit (at a 30%
effective tax rate), resulting in an extraordinary loss of $0.9 in
connection with the repayment of the MCM Electronics investor loans in
connection with the offering. Amounts will differ based on the closing
date of the offering.
(i) Reflects the elimination of MCM Electronics' historical stockholders'
equity balance in connection with purchase accounting.
22
<PAGE>
DDi CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in millions, except share data)
<TABLE>
<CAPTION>
MCM Electronics
DDi DDi Twelve Months
Year Ended Pro Forma ended
December 31, Offering December 31, December 31, Acquisition Pro Forma
1999 Adjustments 1999 1999(a) Combined Adjustments Combined
------------ ----------- ------------ --------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $292.5 $ -- $292.5 $58.2 $350.7 $-- $350.7
Cost of goods sold...... 202.4 -- 202.4 41.7 244.1 -- 244.1
------ ----- ------ ----- ------ ---- ------
Gross profit........... 90.1 90.1 16.5 106.6 106.6
Operating expenses:
Sales and marketing.... 23.6 (1.1)(b) 22.5 1.6 24.1 -- 24.1
General and
administrative........ 15.3 -- 15.3 7.8 23.1 -- 23.1
Amortization of
intangibles........... 22.3 -- 22.3 1.6 23.9 1.7 (e) 25.6
Restructuring and other
related charges....... 7.0 -- 7.0 7.1 14.1 -- 14.1
------ ----- ------ ----- ------ ---- ------
Income from continuing
operations............. 21.9 1.1 23.0 (1.6) 21.4 (1.7) 19.7
Interest expense (net).. 46.7 (17.3)(c) 29.4 4.2 33.6 (1.5)(f) 32.1
------ ----- ------ ----- ------ ---- ------
Income (loss) from
continuing operations
before provision for
income taxes and
extraordinary loss..... (24.8) 18.4 (6.4) (5.8) (12.2) (0.2) (12.4)
Income tax benefit
(expense).............. 7.4 (7.4)(d) -- 0.5 0.5 0.4 (g) 0.9
------ ----- ------ ----- ------ ---- ------
Net income (loss) from
continuing operations.. $(17.4) $11.0 $ (6.4) $(5.3) $(11.7) $0.2 $(11.5)
====== ===== ====== ===== ====== ==== ======
Pro forma loss per share
of common and common
equivalent stock (basic
and diluted): $(0.28)
======
Pro forma weighted
average number of
shares of common and
common equivalent stock
outstanding (in
thousands) (basic and
diluted): 41,296
======
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
23
<PAGE>
DDi CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(dollars and pounds in millions)
(a) Represents historical MCM Electronics financial data for the last twelve
months ended December 31, 1999 after the following:
. conversion from U.K. GAAP to U.S. GAAP;
. conversion to U.S. dollars utilizing an average monthly exchange rate of
$1.6179 to (Pounds)1.00;
. pro forma interest of $2.1 and related tax benefit of $0.5 recorded to
reflect MCM Electronics' management-led buyout of Symonds Limited as if it
had occurred on January 1, 1999; and
. pro forma elimination of $0.8 of seller advisory costs related to the
management-led buyout of Symonds Limited as if it had occurred on January
1, 1999.
MCM Electronics (the successor) completed a management-led buyout on July 5,
1999 of Symonds Limited (the predecessor). Included in this twelve-month
period is the three-month period ended March 31, 1999 (which is the fourth
quarter of Symonds Limited audited financial statements for the year ended
March 31, 1999), the three-month period ended June 30, 1999 of the
predecessor (as a proxy for the period ended July 5, 1999), and the six-
month period ended December 31, 1999 of MCM Electronics (the successor).
The following table reconciles MCM Electronics net income (loss) in
accordance with U.K. GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
Nine Months Three Months Six Months Twelve Months
Year Ended Ended Ended Ended Ended
March 31, December 31, June 30, December 31, December 31,
1999 1998 1999 1999 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net income (loss) in
accordance with U.K.
GAAP................... (Pounds)(4.3) (Pounds)1.8 (Pounds) 0.2 (Pounds)-- (Pounds)(5.9)
Discontinued operations:
Operating loss from
discontinued
operations............ 0.8 -- -- -- 0.8
Loss on disposal of a
business............... 2.4 -- -- -- 2.4
------------ ----------- ------------ ----------- ------------
Net income (loss) from
continuing operations
in accordance with U.K.
GAAP................... (1.1) 1.8 0.2 -- (2.7)
U.S. GAAP adjustments:
Amortization of
goodwill.............. (0.9) (0.8) (0.2) -- (0.3)
Provision for
termination of a
business.............. 0.6 -- (0.6) -- --
Interest expense....... -- -- -- 0.3 0.3
Tax expense............ (0.2) -- 0.2 (0.1) (0.1)
------------ ----------- ------------ ----------- ------------
Net income (loss) from
continuing operations
in accordance with U.S.
GAAP................... (Pounds)(1.6) (Pounds)1.0 (Pounds)(0.4) (Pounds)0.2 (Pounds)(2.8)
Pro forma interest
related to management
buyout (net of income
tax)................... (0.5) -- (0.5) -- (1.0)
Pro forma elimination of
seller advisory costs
related to the
management-led buyout.. -- -- 0.5 -- 0.5
------------ ----------- ------------ ----------- ------------
(Pounds)(2.1) (Pounds)1.0 (Pounds)(0.4) (Pounds)0.2 (Pounds)(3.3)
Foreign currency
exchange rate: 1.6179 1.6179 1.6179 1.6179 1.6179
------------ ----------- ------------ ----------- ------------
Net income (loss) from
continuing operations
in accordance with U.S.
GAAP................... $ (3.4) $ 1.6 $ (0.6) $ 0.3 $ (5.3)
============ =========== ============ =========== ============
</TABLE>
24
<PAGE>
DDi CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in millions)
(b) Represents the elimination of management fees incurred in connection with
our management agreement with Bain Capital, which was terminated in
connection with the offering.
(c) Reflects the decrease in interest expense in connection with the use of
net proceeds from the offering to repay outstanding debt as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
DDi historical interest expense.......................... $46.7
-----
Elimination of historical interest on the DDi
Intermediate senior discount notes...................... (5.2)
Elimination of 40% historical interest on the DDi Capital
senior discount notes................................... (3.6)
Elimination of historical interest on the Dynamic Details
senior credit facility.................................. (7.9)
Elimination of amortization of debt issuance costs....... (0.6)
-----
Net decrease in historical interest expense from the
offering................................................ (17.3)
-----
Pro forma interest expense after the offering............ $29.4
=====
</TABLE>
(d) Represents the income tax adjustment required to result in a pro forma
income tax provision based on our historical tax provision using
historical amounts and the direct tax effects of the pro forma
transactions described herein at an estimated 40% effective tax rate.
(e) Represents the amortization of the goodwill of $3.3 resulting from the
excess of the purchase price over the net book value of MCM Electronics,
less the amortization of goodwill of $1.6 originating from the MCM
Electronics management-led buyout, calculated as though the MCM
Electronics acquisition occurred on January 1, 1999. Goodwill is being
amortized over twenty years. Under purchase accounting, the total purchase
price will be allocated to the acquired assets and assumed liabilities of
MCM Electronics based on their relative fair values as of the closing date
of the MCM Electronics acquisition. Accordingly, the final allocations and
resulting increases in amortization expense will be different from the
amounts reflected herein and such differences may be significant.
(f) Reflects the decrease in interest expense in connection with the use of
offering proceeds to repay the MCM Electronics investor loans.
(g) Represents the income tax adjustment required to result in a pro forma
income tax provision based on MCM Electronics' historical tax provision
using historical amounts and the direct tax effects of the pro forma
transactions described herein at an estimated 30% effective tax rate as
adjusted to exclude the adjustments to goodwill resulting from the MCM
Electronics transactions, which amounts are not deductible for income tax
purposes.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial data as of and for the dates
and periods indicated have been derived from our consolidated financial
statements. The selected consolidated statement of operations data for the
years ended December 31, 1995 and 1996 and the selected consolidated balance
sheet data as of December 31, 1995, 1996 and 1997 were derived from our audited
consolidated financial statements that are not included in this prospectus. The
selected historical consolidated statement of operations data for the years
ended December 31, 1997, 1998 and 1999 and the historical consolidated balance
sheet data as of December 31, 1998 and 1999 were derived from the historical
consolidated financial statements that were audited by PricewaterhouseCoopers
LLP, whose report appears elsewhere in this prospectus. You should read the
data set forth below in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes thereto appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(in millions, except share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales............... $ 59.4 $ 67.5 $ 78.8 $ 174.9 $ 292.5
Cost of goods sold...... 25.2 30.5 38.7 119.6 202.4
---------- ---------- ---------- ---------- ----------
Gross profit............ 34.2 37.0 40.1 55.3 90.1
Operating expenses:
Sales and marketing... 5.3 6.0 7.3 12.8 23.6
General and
administration....... 1.8 1.9 2.1 8.4 15.3
Amortization of
intangibles.......... -- -- -- 10.9 22.3
Restructuring and
related charges(a)... -- -- -- -- 7.0
Stock compensation and
related bonuses(b)... -- -- 31.3 -- --
Compensation to the
former CEO........... 0.4 1.1 2.1 -- --
Write-off of acquired
in-process research
and development(c)... -- -- -- 39.0 --
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 26.7 28.0 (2.7) (15.8) 21.9
Interest expense, net... 0.3 9.4 25.2 37.4 46.7
---------- ---------- ---------- ---------- ----------
Income (loss) before
taxes and extraordinary
loss................... 26.4 18.6 (27.9) (53.2) (24.8)
Income tax benefit
(expense).............. (0.4) (6.2) 10.9 3.5 7.4
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary loss..... 26.0 12.4 (17.0) (49.7) (17.4)
Extraordinary loss...... -- -- (1.6) (2.4) --
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 26.0 $ 12.4 $ (18.6) $ (52.1) $ (17.4)
========== ========== ========== ========== ==========
Net loss allocable to
shares of Class A
common stock........... -- -- $ (19.7) $ (58.4) $ (31.5)
Net loss per share of
Class A common stock
(basic and diluted).... -- -- $ (10.42) $ (21.55) $ (9.01)
Weighted average shares
outstanding (basic and
diluted)............... -- -- 1,887,591 2,709,440 3,501,582
Net income per common
share (basic)(d)....... $ 1,699 $ 1,254 -- -- --
Net income per common
share (diluted)(d)..... $ 1,699 $ 1,228 -- -- --
Weighted average shares
outstanding
(basic)(d)............. 15,300,000 9,854,000 -- -- --
Weighted average shares
outstanding
(diluted)(d)........... 15,300,000 10,059,000 -- -- --
Other Financial Data:
Depreciation............ $ 1.1 $ 2.0 $ 2.6 $ 9.2 $ 14.4
Amortization of deferred
financing costs........ -- 0.8 1.4 1.8 2.1
Capital expenditures.... 2.9 10.2 6.6 18.0 18.2
Supplemental Data:
Adjusted EBITDA(e)...... $ 28.2 $ 31.2 $ 33.3 $ 44.1 $ 66.7
Net cash from operating
activities............. 26.1 12.2 9.1 16.7 24.8
Net cash used in
investing activities... (2.9) (3.6) (44.9) (194.8) (18.6)
Net cash from (used in)
financing activities... (26.4) (8.9) 41.1 174.9 (7.7)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1996 1997 1998 1999
Consolidated Balance Sheet Data: ----- ------ ------- ------- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 0.5 $ 0.2 $ 5.4 $ 2.1 $ 0.6
Working capital.................. (2.3) (3.5) 23.6 15.3 19.1
Total assets..................... 13.1 27.5 108.9 365.0 354.3
Total debt, including current
maturities...................... 2.0 94.1 273.5 466.9 476.7
Stockholders' equity (deficit)... 2.5 (72.7) (191.2) (169.8) (187.1)
</TABLE>
- --------
(a) The 1999 restructuring and related charges represent the charge recorded
in December 1999 in connection with our announced consolidation of our
Colorado operations into our Texas facility and the closure of our
Colorado facility. The charge consists of $4.5 for severance and other
exit costs and $2.5 related to the impairment of net property, plant and
equipment.
(b) Represents the charge for stock compensation and related bonuses recorded
for vested stock options exchanged in conjunction with the
recapitalization.
(c) Represents the allocation of a portion of the purchase price in the DCI
merger to in-process research and development. At the date of the merger,
technological feasibility of the in-process research and development
projects had not been reached and the technology had no alternative future
uses. Accordingly, we expensed the portion of the purchase price allocated
to in-process research and development.
(d) Given the changes in our capital structure in connection with our
recapitalization in 1997, historical earnings per share of common stock
for the years ended December 31, 1995 and 1996 are not comparable to
subsequent years.
(e) EBITDA means earnings before net interest expense, income taxes,
depreciation and amortization. Adjusted EBITDA is presented because we
believe it is an indicator of our ability to incur and service debt and is
used by our lenders in determining compliance with financial covenants.
However, adjusted EBITDA should not be considered as an alternative to
cash flow from operating activities, as a measure of liquidity or as an
alternative to net income as a measure of operating results in accordance
with generally accepted accounting principles. Our definition of adjusted
EBITDA may differ from definitions of adjusted EBITDA used by other
companies.
The following table sets forth a reconciliation of EBITDA to adjusted
EBITDA for each period included herein:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
EBITDA.................. $27.8 $30.1 $(0.1) $43.3 $58.6
Former CEO
compensation(1) ....... 0.4 1.1 2.1 -- --
Management fee(2)....... -- -- -- -- 1.1
Executive severance(3).. -- -- -- 0.8 --
Stock compensation and
bonuses(4)............. -- -- 31.3 -- --
Restructuring and
related charges(5)(6).. -- -- -- -- 7.0
----- ----- ----- ----- -----
Adjusted EBITDA......... $28.2 $31.2 $33.3 $44.1 $66.7
===== ===== ===== ===== =====
</TABLE>
--------
(1) Reflects elimination of compensation to the former CEO whose
employment agreement was terminated in October 1997.
(2) Reflects elimination of the Bain management fee incurred under our
Bain management agreement, which will be terminated in connection with
the offering.
(3) Reflects one-time severance payments to two of our executives who were
terminated as a result of redundancies created by the DCI merger.
(4) Reflects elimination of the charge for stock compensation and related
bonuses recorded for vested stock options exchanged in conjunction
with the recapitalization.
(5) Reflects elimination of the charge recorded for the consolidation and
closure of our Colorado facility. See note (a) above.
(6) We implemented in December 1999 a plan to consolidate our Colorado
operations into our Texas facility and to close our Colorado facility,
which operated at a loss in 1999. We are currently serving a majority
of the customers who were serviced by our Colorado facility out of our
Texas facility, and based on our detailed customer-by-customer
analysis, we believe that we will retain customers and accounts
representing approximately 75% of our Colorado facility's net sales.
The capacity of the Texas facility would have been sufficient to
service this portion of the revenue stream in 1999. See note (6)
within note (d) to "Summary Consolidated Financial and Other Data" for
a detailed explanation of the expected economic impact of this
consolidation.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the "Selected
Consolidated Financial and Other Data" section of this prospectus and our
Consolidated Financial Statements and notes to those statements included
elsewhere in this prospectus. The forward-looking statements in this discussion
regarding the electronics manufacturing services industry, our expectations
regarding our future performance, liquidity and capital resources and other
non-historical statements in this discussion include numerous risks and
uncertainties, as described in the "Risk Factors" section of this prospectus.
Our actual results may differ materially from those contained in any forward-
looking statements.
Overview
We provide technologically advanced, time-critical electronics design,
development and manufacturing services to original equipment manufacturers and
other electronics manufacturing service providers. Operating through our
subsidiary, Dynamic Details, Incorporated, we target the fast-growing
communications and networking equipment industries, which are characterized by
aggressive new product development programs demanding the rapid application of
advanced technology and design.
Time-critical. We can deliver highly complex printed circuit boards to our
customers in as little as 24 hours. Approximately 50% of our net sales for the
year ended December 31, 1999 were generated from services delivered in 10 days
or less.
Technologically advanced. Approximately 50% of our net sales during the same
period involved the design or manufacture of printed circuit boards with at
least eight layers, an industry-accepted measure of complexity. In addition,
many of our lower layer-count boards are complex as a result of the
incorporation of technologically advanced features.
Growth rate. Our net sales have grown at a compound annual growth rate of
63% from $67.5 million for the year ended December 31, 1996 to $292.5 million
for the year ended December 31, 1999, inclusive of the growth attributable to
the acquisition of Colorado Springs Circuits, Inc., or NTI, in 1997 and the
merger with Dynamic Circuits, Inc., or DCI, in 1998. Prices for our products
and services are predominantly a function of delivery time, complexity and
overall market demand. In 1999 our average price per printed circuit board
panel increased from the levels achieved in 1998 assuming the DCI merger had
occurred on January 1, 1998.
Due to our use of debt to finance recapitalizations, the acquisition of NTI
and the merger with DCI, our net interest expense has increased from 1995 to
1999. Beginning in 1998, our results of operations have also been impacted by
the amortization of intangibles resulting from the acquisition and the merger.
In 1999, our net loss of $17.4 million reflected $46.7 million of net interest
expense, $22.3 million of amortization of intangibles and a $7.0 million charge
related to the Colorado consolidation. See "Unaudited Pro Forma Consolidated
Financial Data."
We recognize revenue upon shipment or, in the case of services, at the time
the service is performed. Substantially all of our sales are made on the basis
of purchase orders rather than long-term agreements.
From time to time, we engage in discussions concerning prospective
acquisitions. On March 22, 2000, we agreed to acquire MCM Electronics Limited,
headquartered in the United Kingdom, for total consideration of approximately
$85.9 million, including assumed debt. MCM Electronics focuses on the
technologically advanced, time-critical segment of the electronics
manufacturing industry. See "Prospectus Summary--Recent Developments" and
"Unaudited Pro Forma Consolidated Financial Data."
Company History and Significant Transactions
We were organized in 1978. In 1991, we installed new management, headed by
Bruce D. McMaster, and began to focus primarily on time-critical electronics
manufacturing services.
28
<PAGE>
Recapitalization
In October 1997, we were recapitalized by investors led by Bain Capital,
Celerity Partners and Chase Capital Partners, which collectively invested $62.4
million. After completing the recapitalization, investment funds associated
with these entities owned stock representing approximately 72.5% of our fully-
diluted equity; and our management owned stock and options representing
approximately 27.5% of our fully-diluted equity.
In connection with the recapitalization, we incurred the following
nonrecurring charges:
. fees and interest charges on bridge loans (aggregating $14.5 million);
. $31.3 million for the accelerated vesting of variable employee stock
options and related bonuses;
. $2.7 million for the early extinguishment of long-term debt, before
income taxes; and
. $1.2 million for the buyout of our former CEO's employment contract.
Colorado Facility (formerly NTI)
In December 1997, we acquired Colorado Springs Circuits, Inc., or NTI, for
approximately $38.9 million. NTI manufactured printed circuit boards requiring
lead times of twenty days or more for original equipment manufacturers. At that
time, the acquisition provided us with additional capacity and access to new
customers.
We accounted for the NTI acquisition under the purchase method of accounting
and recorded approximately $27 million in goodwill (which is being amortized
over a period of twenty-five years).
We implemented in December 1999 a plan to consolidate our Colorado
operations into our Texas facility and to close our Colorado facility, which
operated at a loss in 1999. We are currently serving a majority of the
customers who were serviced by our Colorado facility out of our Texas facility,
and based on our detailed customer-by-customer analysis, we believe that we
will retain customers and accounts representing approximately 75% of our
Colorado facility's net sales. The capacity of our Texas facility would have
been sufficient to service this portion of the revenue stream in 1999. By
combining our Texas and Colorado operations, we are eliminating lower-margin
product lines and decreasing our overhead costs, and we expect to gain
efficiency through better capacity utilization and streamlined management.
If we had serviced this revenue stream in our Texas facility with our Texas
facility's cost structure:
. our Colorado net sales would have decreased from $30.2 million to $22.7
million;
. the cost of goods sold related to those sales would have decreased from
$30.8 million (the actual cost of goods sold of our Colorado facility)
to $19.1 million (the product of $22.7 million and the cost of goods
sold ratio achieved in our Texas facility);
. the operating expenses associated with those sales would have decreased
from $3.7 million to $2.3 million (the product of $22.7 million and the
operating expense ratio achieved in our Texas facility); and
. depreciation and amortization (which is included in operating expenses
and cost of goods sold) would have decreased by $0.7 million.
As a result, 1999 operating income and EBITDA associated with those sales would
have increased by $5.6 million and $4.9 million, respectively. There can be no
assurance that our actual results would have been, or that our future results
will be, consistent with the foregoing assumptions.
DCI Merger
On July 23, 1998, we merged with Dynamic Circuits, Inc., or DCI, for an
aggregate consideration paid to DCI stockholders of approximately $250 million.
A portion of the consideration was paid in cash, and the balance of the
consideration (approximately $73 million) was paid through the issuance of our
capital stock.
29
<PAGE>
DCI provided design and manufacturing services relating to complex printed
circuit boards, backpanel assemblies and electromechanical interconnect devices
with operations in California, Texas, Georgia and Massachusetts. It was led by
Charles D. Dimick, who became our Chairman following the merger. DCI
experienced a growth in net sales of more than 67% during 1997, and its net
sales for the six months ended June 30, 1998 were more than double its net
sales for the six months ended June 30, 1997.
We accounted for the DCI merger under the purchase method of accounting and
recorded approximately $120 million in goodwill (which is being amortized over
20 years), approximately $60 million of identifiable intangible assets (which
are being amortized over their estimated useful lives of 10 years, using an
accelerated method of amortization, reflecting the relative contribution of
each developed technology in periods following the acquisition date), and
approximately $21 million and $4 million, respectively, of intangible assets
associated with DCI's customer relationships and tradenames and assembled
workforce assets (which are being amortized on a straight-line basis over their
estimated useful lives of 18 years and 4 years, respectively). We also
identified $39 million of acquired in-process research and development
investments, which we expensed in the fourth quarter ended December 31, 1998.
Since the DCI merger we have continued to invest in the development of the
various in-process research and development technologies that existed at DCI at
the time of the merger. We believe that our research and development efforts
are reasonably consistent with DCI's plans at the time of the merger, given the
inherent uncertainties involved in estimating the technological hurdles of
developing next-generation technologies. Approximately 70% of the $2.1 million
planned total cost to complete the projects had been incurred as of December
31, 1999. This investment has enabled us to market products incorporating some
of the technologies included in DCI's plan. No significant adjustments have
been made in the economic assumptions or expectations on which we based our
merger decision.
Results of Operations
The following table sets forth income statement data expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net sales........................................ 100.0 % 100.0 % 100.0 %
Cost of goods sold............................... 49.1 68.4 69.2
------- ------- -------
Gross profit..................................... 50.9 31.6 30.8
Operating expenses:
Sales and marketing............................ 9.2 7.3 8.1
General and administration..................... 2.7 4.8 5.2
Amortization of intangibles.................... -- 6.2 7.6
Restructuring and related charges.............. -- -- 2.4
Stock compensation and related bonuses......... 39.7 -- --
Compensation to the former CEO................. 2.7 -- --
Write-off of acquired in-process research and
development................................... -- 22.3 --
------- ------- -------
Operating income (loss).......................... (3.4) (9.0) 7.5
Interest expense (net)........................... 32.0 21.4 16.0
------- ------- -------
Loss before income taxes and extraordinary loss.. 35.4 30.4 8.5
Income tax benefit............................... 13.8 2.0 2.5
Extraordinary loss, net of income tax benefit.... (2.0) (1.4) --
------- ------- -------
Loss............................................. 23.6% 29.8% 6.0%
======= ======= =======
</TABLE>
30
<PAGE>
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Net sales increased $117.6 million (67%) to $292.5 million in 1999, from
$174.9 million in 1998. Of this increase, $31.0 million resulted from internal
sales growth. The balance resulted from the inclusion in 1999 of a full year of
DCI sales. Sales growth accelerated in the second half of 1999 as our
production of more complex and larger panels increased average sales price per
panel. On a pro forma basis giving effect to the DCI merger, net sales
increased by over 25% for the six months ended December 31, 1999 as compared to
the corresponding six months in 1998.
Gross profit increased $34.8 million (63%) to $90.1 million in 1999, from
$55.3 million in 1998. The increase resulted from the merger with DCI, which
contributed $32.8 million to the increase. Partially offsetting this increase
was a $0.6 million gross loss in our Colorado facility in 1999 due to a
decrease in panel production in that operation, compared to a $1.6 million
gross profit in that facility in 1998. We announced our plan to close the
Colorado facility in December 1999. See "--Company History and Significant
Transactions--Colorado Facility (formerly NTI)." We experienced increased
pricing pressure early in the first quarter of 1999, with increased competition
following the slowdown in Asian markets in late 1998. Pricing stabilized late
in the first quarter of 1999 and has recovered strongly through the remainder
of 1999.
Sales and marketing expenses increased $10.8 million (84%) to $23.6 million
in 1999, from $12.8 million in 1998. The increase is due to the inclusion of
DCI's results for the full year ended December 31, 1999 (approximately $5.9
million), growth in our sales force to accommodate existing and anticipated
near-term increases in customer demand (approximately $3.5 million), and an
increase in commissions and other variable expenses relating to our increased
sales volume (approximately $1.4 million).
General and administration expenses increased $6.9 million (82%) to $15.3
million in 1999, from $8.4 million in 1998. The increase is due to the
inclusion of DCI's results for the full year ended December 31, 1999
(approximately $4.9 million), an increase in staffing and other back-office
expenditures to support growth in our design operations and the company as a
whole (approximately $1.7 million) and an increase in fees under the management
agreement with an affiliate of Bain Capital, Inc. (approximately $1.1 million).
Partially offsetting these increases was a non-recurring charge of
approximately $0.8 million recorded in 1998, representing severance-related
costs for executives terminated as a result of the DCI merger.
Amortization of intangibles increased $11.4 million (105%) to $22.3 million
in 1999, from $10.9 million in 1998. The merger with DCI accounts for $11.2
million of this increase.
Restructuring and related charges were $7.0 million in 1999, representing
one-time costs incurred in connection with our decision to close our Colorado
facility. These charges consist of $4.5 million for severance and other exit
costs and $2.5 million of costs related to the impairment of net property,
plant and equipment. See Note 15 to our consolidated financial statements for
further information about these charges.
Write-off of acquired in-process research and development totaled $39.0
million in 1998. This charge represents the appraised value of the in-process
research and development component of the total purchase price paid in the DCI
merger. See Note 14 to our consolidated financial statements for further
information about this charge. There was no comparable expense in 1999.
Net interest expense increased $9.3 million (25%) to $46.7 million, from
$37.4 million in 1998. The increase in net interest expense is attributable to
the increased level of borrowings in connection with the merger with DCI.
The income tax benefit was $7.4 million in 1999, as compared to a benefit of
$3.5 million in 1998. The difference between the effective tax rate and the
statutory federal tax rate of 35% is attributable to the acquired in-process
research and development charge recorded in 1998 and goodwill amortization in
each period. As these expenses are non-deductible, no related income tax
benefit is recorded. Due to the consolidation of our Colorado and Texas
operations and the closure of our Colorado facility in December 1999, we
believe that a portion of our Colorado net operating loss carryforwards may not
be realized. Accordingly, a valuation allowance was established in 1999 for
deferred income tax benefits related to these carryforwards. See Note 12
31
<PAGE>
to our consolidated financial statements for a reconciliation of the tax
benefit recorded in each period to the corresponding amount of income tax
determined by applying the U.S. Federal income tax rate to the loss before
income taxes and for additional information relating to our Colorado net
operating loss carryforwards.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Net sales increased $96.1 million (122%) to $174.9 million in 1998 from
$78.8 million in 1997. The facilities that we and our predecessors operated
achieved internal sales growth of approximately $8 million, caused by a 13%
increase in the average panel selling price realized at our Anaheim facility
which was driven by a demand for higher layer count and more technologically
advanced printed circuit boards; and growth in volume of units shipped
attributable to increased demand from contract manufacturing customers. The
balance of the sales growth resulted from the acquisition of NTI and the merger
with DCI.
Gross profit increased $15.2 million (38%) to $55.3 million in 1998 from
$40.1 million in 1997. The increase resulted from the acquisition of NTI and
the merger with DCI, which added $1.6 million and $14.2 million, respectively,
to gross profit. Partially offsetting these increases were costs of $0.7
million incurred in 1998 related to our newly formed design centers. The
decline in gross profit as a percent of net sales to 32% in 1998 from 51% in
1997 resulted from the acquisition of the pre-production and assembly
facilities attributable to the DCI merger and NTI acquisition. NTI historically
had lower margins than our other operations.
Sales and marketing expenses increased $5.5 million (75%) to $12.8 million
in 1998, from $7.3 million in 1997. The increase is due to the acquisition of
NTI and the merger with DCI, which added $1.4 million and $4.2 million,
respectively, to sales and marketing expenses. Such increases reflect the
inclusion of NTI's results for the full year ended December 31, 1998 and DCI's
results following the date of the DCI merger.
General and administration expenses increased $6.3 million (300%) to $8.4
million in 1998, from $2.1 million in 1997. The increase is due to the
acquisition of NTI and the merger with DCI, which added $1.9 million and $3.9
million, respectively, to general and administration expenses. Included in
these increases is approximately $0.8 million accrued in 1998 for severance-
related costs for certain employees of these divisions. Such increases reflect
the inclusion of NTI's results for the full year ended December 31, 1998 and
DCI's results following the date of the DCI merger.
Amortization of intangibles of $10.9 million in 1998 resulted from the
acquisition of NTI in December 1997 and the merger with DCI in July 1998. The
amortization of goodwill from the acquisition of NTI in 1997 was immaterial.
Write-off of acquired in-process research and development totaled $39.0
million in 1998. This charge represents the appraised value of the in-process
research and development component of the total purchase price paid in the DCI
merger. See Note 14 to our consolidated financial statements for further
information about this charge.
Interest expense (net) increased $12.2 million (48%) to $37.4 million in
1998, from $25.2 million in 1997. The increase in interest expense was due to
an increase in the level of borrowings in connection with the recapitalization,
the acquisition of NTI and the merger with DCI.
The income tax benefit was $3.5 million in 1998 as compared to a benefit of
$10.9 million in 1997. In 1998, the difference between the effective tax rate
and the statutory federal income tax rate of 35% is attributable to the non-
deductible acquired in-process research and development charge, for which no
income tax benefit is recorded. See Note 12 to our consolidated financial
statements for a reconciliation of the tax provision (benefit) recorded in each
period to the corresponding amount of income tax determined by applying the
U.S. Federal income tax rate to income (loss) before income taxes.
In both 1998 and 1997, we recorded losses on the early extinguishment of
debt resulting from the write-off of unamortized debt issue costs. The early
extinguishment of debt in 1997 resulted from the recapitalization and the NTI
acquisition. The extinguishment in 1998 resulted from the DCI merger. These
losses are presented as extraordinary losses, net of related income tax
benefit.
32
<PAGE>
Quarterly Financial Information
The following table presents selected quarterly financial information for
each of the eight quarters ended December 31, 1999. This information is
unaudited but, in our opinion, reflects all adjustments, consisting only of
normal recurring adjustments that we consider necessary for a fair presentation
of this information in accordance with generally accepted accounting
principles. These quarterly results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $28.3 $26.3 $61.2 $59.1 $59.2 $71.7 $82.9 $78.7
Cost of goods sold...... 16.4 16.1 41.6 45.5 41.4 51.0 57.4 52.6
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ $11.9 $10.2 $19.6 $13.6 $17.8 $20.7 $25.5 $26.1
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The quarterly financial information is presented on an actual historical
basis, not on a pro forma basis for the DCI merger, which closed on July 23,
1998. The decline in net sales and gross profit in the three months ended
December 31, 1998 compared with the previous three months is the result of a
decrease in average sales price per printed circuit board panel resulting from
a decline in international demand caused by the Asian financial crisis in the
second half of 1998. The decline in net sales for the three months ended
December 31, 1999 compared to the three months ended September 30, 1999 is the
result of seasonality and a slowdown in purchase orders related to concerns
about the Year 2000 issue. Gross profit in the same period increased due to an
increase in the average price per panel.
Liquidity and Capital Resources
Our principal sources of liquidity are cash provided by operations and
borrowings under various debt agreements. Our principal uses of cash have been
to finance mergers and acquisitions, meet debt service requirements, and
finance capital expenditures. We anticipate that these uses, including
acquisition opportunities currently under review, will continue to be our
principal uses of cash in the future.
Net cash provided by operating activities for the years ended December 31,
1999, 1998 and 1997 was $24.8 million, $16.7 million and $9.1 million,
respectively. Fluctuations in net cash provided by operating activities are
attributable to increases and decreases in our net income before non-cash
charges and normal fluctuations in working capital. In 1997, however, net cash
provided by operating activities was reduced by a $10.0 million cash bonus paid
as part of the stock compensation expenses incurred in connection with a
recapitalization.
Net cash used in investing activities for the years ended December 31, 1999,
1998 and 1997 was $18.6 million, $194.8 million and $44.9 million,
respectively. These activities consist of capital expenditures in each period
and cash of $38.9 million used in the acquisition of NTI in 1987 and $178.7
million used in the merger with DCI in 1998 (see Note 14 to our consolidated
financial statements).
Our capital expenditures were $18.2 million, $18.0 million and $6.6 million
in 1999, 1998 and 1997, respectively. Of these amounts, approximately $2.1
million and $0.6 million were incurred in 1998 and 1997, respectively, under
capital lease obligations. We anticipate capital expenditures for 2000 will be
consistent with 1999 levels.
Net cash provided by (used in) financing activities for the years ended
December 31, 1999, 1998 and 1997 was $(7.7) million, $174.9 million and $41.1
million, respectively. Our principal financing activities in 1999 included
payments of debt, capital lease and note obligations and the generation of net
proceeds from the restructuring of our interest rate exchange agreements (see
Note 8 to our consolidated financial statements). Our principal financing
activities in 1998 included repayment of existing debt facilities and
borrowings on new debt facilities in connection with the merger with DCI. Our
principal financing activities in 1997 included increased borrowings,
distributions to shareholders and shareholder transactions in connection with a
recapitalization.
33
<PAGE>
As of December 31, 1999, we had borrowings of approximately $477 million. We
have a $45.0 million revolving credit facility. As of December 31, 1999, we had
no borrowings outstanding under the revolving credit facility. The minimum
principal payment obligation under the Dynamic Details senior credit facility
is $5.9 million for 2000. No other debt instruments require minimum principal
repayments during such period. We intend to use the proceeds of this offering
to repay some of our debt.
The Dynamic Details senior credit facility, the Dynamic Details senior
subordinated notes and the DDi Capital senior discount notes are described
below "Description of Indebtedness."
Based on our current level of operations, we believe that cash generated
from operations, available cash and amounts available under our senior credit
facility will be adequate to meet the debt service requirements, capital
expenditures and working capital needs of our current operations for at least
the next twelve months, although no assurance can be given in this regard. We
will require additional financing if we decide to consummate additional
acquisitions. We are highly leveraged and our future operating performance and
ability to service or refinance the DDi Capital senior discount notes, and the
Dynamic Details senior subordinated notes and to extend or refinance the
Dynamic Details senior credit facility will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control.
Quantitative and Qualitative Disclosure Relating to Market Risks
Interest Rate Risk
The Dynamic Details senior credit facility bears interest at a floating
rate; our Dynamic Details senior subordinated notes, DDi Capital senior
discount notes and DDi Intermediate senior discount notes bear interest at
fixed rates. We reduce our exposure to interest rate risks through swap
agreements. In June 1999, we terminated our then existing interest rate swap
agreements and entered into replacement agreements. At that time, we realized
$5.6 million from the termination of the existing swap agreements (which will
be amortized through January 2002 as a reduction to interest expense) and $0.5
million from entering into the new agreements (which will be amortized though
April 2005 as a reduction to interest expense). In conjunction with this
offering, we intend to evaluate our interest rate exposure from our remaining
debt and will modify the terms of our interest rate exchange agreements to
ensure they remain an effective cash flow hedge for our variable rate debt.
Under the terms of our current swap agreements, we pay a maximum annual rate
of interest applied to a notional amount equal to the principal balance of the
term facility portion of the Dynamic Details senior credit facility for the
period June 30, 1999 through August 31, 2001. During this period, our maximum
annual rate is 5.65% for a given month, unless one-month LIBOR for that month
equals or exceeds 7.00%, in which case we pay 7.00% for that month. From
September 1, 2001 through the scheduled maturity of the senior term facility in
2005, we pay a fixed annual rate of 7.35% applied to a notional amount equal to
50% of the principal balance of the senior term facility during that period.
The term loan facility portion of the Dynamic Details senior credit facility
bears interest based on one-month LIBOR. As of December 31, 1999, one-month
LIBOR was 6.50%. If one-month LIBOR increased by 10% to 7.15%, interest expense
related to the term loan facility portion would increase by approximately $1.6
million in 2000. Moreover, because the increased rate would exceed the 7.00%
cap, that increase in interest expense would be offset by approximately $0.4
million in payments we would be entitled to receive under the swap agreement.
The revolving credit facility bears interest at (1) 2.25% per annum plus the
applicable LIBOR or (2) 1.25% per annum plus the federal reserve reported
overnight funds rate plus 0.5% per annum. As of December 31, 1999, we had no
outstanding balance under our revolving credit facility. We do not anticipate
having a material outstanding balance on this facility during the year ending
December 31, 2000. Therefore, a 10% change in interest rates as of December 31,
1999 is not expected to materially affect the interest expense to be incurred
on this facility during such period.
A change in interest rates would not have an effect on the interest expense
to be incurred on the Dynamic Details senior subordinated notes, DDi Capital
senior discount notes or the DDi Intermediate senior discount notes because
each of these instruments bears a fixed rate of interest.
34
<PAGE>
Foreign Currency Exchange Risk
All of our sales are denominated in U.S. dollars, and as a result we have
relatively little exposure to foreign currency exchange risk with respect to
sales made. We do not use forward exchange contracts to hedge exposures
denominated in foreign currencies or any other derivative financial
instruments for trading or speculative purposes. Therefore, the effect of a
10% change in exchange rates as of December 31, 1999 would not have an impact
on our operating results for the year ending December 31, 2000. The actual
amount of shares issued to current investors in MCM Electronics by us in
connection with that acquisition will vary based on the exchange rate of U.S.
dollars to British pounds on or after the closing date of the acquisition,
which is expected to occur on or after the closing of this offering. Following
our planned acquisition of MCM Electronics, some of our net sales will be
denominated in British pounds, and we will consider available options to hedge
foreign currency exchange rate exposure.
Impact of Inflation
We believe that our results of operations are not dependent upon moderate
changes in the inflation rate.
Risks Associated with Intangible Assets
As of December 31, 1999, our consolidated balance sheet reflected $205.5
million of intangible assets, a substantial portion of our total assets at
such date. The intangible assets consist of goodwill and other identifiable
intangibles relating to our recent merger and our recent acquisition. The
balances of these intangible assets may increase in future periods,
principally from the consummation of further acquisitions. Amortization of
these additional intangibles would, in turn, have a negative impact on
earnings. In addition, we continuously evaluate whether events and
circumstances have occurred that indicate the remaining balance of intangible
assets may not be recoverable. When factors indicate that assets should be
evaluated for possible impairment, we may be required to reduce the carrying
value of our intangible assets, which could have a material adverse effect on
our results during the periods in which such a reduction is recognized. There
can be no assurance that we will not be required to write down intangible
assets in future periods.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes requirements for reporting and
disclosure of comprehensive income and its components. This statement became
effective for our fiscal year ending December 31, 1998. Reclassification of
prior year financial statements for comparative purposes is required. Through
December 31, 1999, we have no elements which give rise to reporting
comprehensive income.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 modifies the
disclosure requirements for reportable operating segments. This statement
became effective for our fiscal year ending December 31, 1998.
Reclassification of prior year financial statements for comparative purposes
is required unless deemed impractical. This pronouncement has had no
significant impact on our reporting practices since its adoption; and until
such time that we diversify our operations, management believes such
pronouncement will not be applicable.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No 137, issued by the FASB in July 1999,
establishes a new effective date for SFAS No. 133. This statement, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and is therefore effective for us beginning with
our fiscal quarter ending March 31, 2001. Based upon the nature of the
financial instruments and hedging activities in effect as of the date of this
filing, this pronouncement would require us to reflect the fair value of our
derivative instruments (see Note 8 to our consolidated financial statements)
on the consolidated balance sheet. Changes in fair value of these instruments
will be reflected as a component of comprehensive income.
35
<PAGE>
BUSINESS
Overview
We provide technologically advanced, time-critical electronics design,
development and manufacturing services to original equipment manufacturers and
other providers of electronics manufacturing services. Operating through our
subsidiary, Dynamic Details, Incorporated, we target the fast-growing
communications and networking equipment industries, which are characterized by
aggressive new product development programs demanding the rapid application of
advanced technology and design.
Our customers use our services to develop and produce a wide variety of end
products, including communications switching and transmission equipment,
wireless base stations, work stations, high-end computing equipment and data
networking equipment. The technologically advanced, time-critical segment of
the electronics manufacturing services industry in which we operate is
characterized by rapid growth, high margins and significant customer diversity.
We were established in 1978. In 1991, new management, led by our President
and Chief Executive Officer, Bruce D. McMaster, began to focus primarily on the
time-critical segment of the electronics manufacturing services industry. In
January 1996, we were recapitalized by Chase Manhattan Capital, LLC and its
affiliates. In October 1997, we were recapitalized again by investors led by
Bain Capital, Inc., Celerity Partners, L.L.C. and Chase Capital Partners.
In July 1998, we merged with Dynamic Circuits, Inc., or DCI. DCI, led by our
current Chairman, Charles D. Dimick, was primarily a manufacturer of complex
printed circuit boards and related components based in Silicon Valley and with
additional facilities in Texas, Georgia and Massachusetts.
On or after the completion of this offering, we expect to complete our
acquisition of MCM Electronics Limited, based in the United Kingdom. See
"Prospectus Summary--Recent Developments."
Industry Background
Electronics manufacturing services, or EMS, companies provide a range of
services to electronics original equipment manufacturers, or OEMs. The EMS
industry is growing rapidly, and industry revenues have increased from
approximately $22 billion in 1993 to approximately $73 billion in 1999.
Technology Forecasters, Inc. expects industry revenues to grow at approximately
20% annually to approximately $149 million in 2003. Industry growth is fueled
by increases in the rate of outsourcing combined with steady, underlying growth
in the electronics equipment industry. In 1998, approximately 17% of the cost
of goods sold by electronics OEMs was attributable to components and products
outsourced to EMS providers. Technology Forecasters, Inc. expects this
percentage to reach 33% by 2003.
Electronics manufacturing services were historically labor-intensive
functions outsourced by OEMs to obtain additional capacity during periods of
high demand and initially consisted mainly of printed circuit board assembly.
Early EMS providers acted essentially as subcontractors, providing production
capacity on a transactional basis. With advances in process technology, EMS
providers developed additional capabilities and were able both to improve
quality and to reduce OEMs' costs. Over time, OEMs came to rely on EMS
providers to perform a broader array of manufacturing services, including
design and development activities. In recent years, EMS providers have expanded
their range of services to encompass design, product development, packaging and
distribution and overall supply chain management.
By using EMS providers, OEMs are able to focus on their core competencies,
including product development, sales, marketing and customer service.
Outsourcing allows OEMs to take advantage of the manufacturing expertise,
advanced technology and capital investment of EMS providers, to achieve overall
cost benefits and to enhance their competitive position by:
. reducing time to market and time to volume production;
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<PAGE>
. reducing operating costs and invested capital;
. improving supply chain management;
. focusing their resources on core competencies;
. accessing advanced manufacturing capabilities and process technologies;
and
. improving access to global markets.
We believe the fast-growing communications and networking equipment
industries represent large and attractive markets for electronic manufacturing
services. These industries are characterized by increasingly rapid product
introductions driven by, among other factors, the demand for network
infrastructure to handle increased voice and data traffic created by the
Internet. Communications equipment manufacturers are at a relatively early
stage of the outsourcing trend, and Techology Forecasters, Inc. predicts these
manufacturers will increasingly utilize EMS providers, such as ourselves, for
design, development and manufacturing services.
The DDi Customer Solution
We engineer technologically advanced materials for our customers within
extremely short turnaround times, which distinguishes us from traditional
electronics manufacturing service providers and provides our customers with a
competitive advantage in delivering their new products to market quickly. Our
customers benefit from the following components of the DDi customer solution:
. Time-critical Service. Based on industry data, we believe we are one of
the largest providers of quick-turn complex printed circuit boards in
the United States. We can deliver highly complex printed circuit boards
to our customers in as little as 24 hours. Approximately 50% of our net
sales in 1999 were generated from services delivered in 10 days or less.
. Advanced Technology. Our focus on time-critical design, development and
manufacturing services requires our engineers to remain on the cutting
edge of electronics technology, and our customers benefit from the
expertise we have developed as they seek to introduce new products.
Approximately 50% of our net sales in 1999 involved the design or
manufacture of printed circuit boards with at least eight layers, an
industry-accepted measure of complexity. In addition, many of our lower
layer-count boards are complex as a result of the incorporation of other
technologically advanced features.
. Proactive Sales Force. Our knowledgeable and innovative sales force,
based in Silicon Valley, enables our current and prospective customers
to understand and exploit the wide range of services provided by our
facilities across the country. Our salespeople helped us achieve a net
increase of approximately 150 customers in 1999.
. Relationships with Research and Development Personnel. In many cases, we
have design engineers stationed on-site in our customers' product
development divisions. As a result, we help our customers develop
workable technical solutions to their concepts for next generation
products.
. Experienced and Incentivized Management. Our management team, led by
Charles D. Dimick and Bruce D. McMaster, collectively has nearly 100
years of experience in the electronics manufacturing services industry.
Our executive officers will hold approximately 9.8% of our fully diluted
stock outstanding after this offering and the completion of the MCM
Electronics acquisition.
We believe that these attributes allow us to consistently meet and exceed
our customers' expectations and that, as a result, we will continue to attract
leading original equipment manufacturers and other providers of electronics
manufacturing services as customers.
Our Strategy
Our goal is to be the leading provider of technologically advanced, time-
critical electronics manufacturing services. To achieve this goal, we will:
Continue our Focus on the Fast-Growing Communications and Networking
Equipment Industries. We focus our marketing efforts on the fast-growing
communications and networking equipment industries,
37
<PAGE>
and target established original equipment manufacturers, emerging providers of
next-generation technology and electronics manufacturing service providers
serving these industries. The communications and networking equipment
industries represented approximately 55% of our net sales for the year ended
December 31, 1999.
Capitalize on our Strong Customer Relationships and Design Expertise to
Participate in Future Product Introductions and Further Outsourcing
Programs. We have served established original equipment manufacturers for many
years, through multiple product generations. We have positioned ourselves as a
strategic partner in our customers' new product initiatives by focusing on
direct relationships with our customers' research and development personnel. As
a result, we have developed expertise and gained knowledge of our customers'
new product design programs, all of which position us as a preferred service
provider for future product generations.
Strengthen our Technology and Process Management Leadership in the Time-
Critical Segment of the Electronics Manufacturing Services Industry and
Continue to Improve Quality and Delivery Times by Incorporating Emerging
Technologies and Consistently Refining our Manufacturing Processes. We have
consistently been among the earliest users of new developments in printed
circuit board design, development and manufacturing and are continuously
incorporating new technology into our manufacturing processes in order to
further improve quality and reduce delivery times. Because we concentrate on
cutting-edge methods, we have the ability to service emerging providers of
next-generation technology. This ability allows us to build customer
relationships with companies with the potential for significant growth and
enables us to provide these cutting-edge methods to customers accustomed to
more traditional methods. We have developed process management expertise over
time and are continuously enhancing our ability to quickly adapt design and
production facilities on demand to serve time-critical customer needs. We
believe this expertise and ability position us as an industry leader in
providing flexible and responsive technologically advanced, time-critical
services.
Leverage our Leadership in Quick-Turn Design and Manufacturing Services to
Further Expand Our Assembly Operations and Other Value-Added Services. As a
quick-turn design and manufacturing service provider, we gain early access to
our customers' product development processes, giving us the opportunity to
leverage the provision of our design services into providing other value-added
services including assembly of printed circuit boards and other electronic
components and total system assembly and integration of electronics products.
We predominantly use these additional capabilities in our customers' new
product development programs to enable them to further reduce their time to
market and overall cost.
Expand our International Presence to Better Serve the Needs of Customers
Seeking to Outsource Their Worldwide Design and Manufacturing Activities. We
have a European sales office based in London supporting our growing European
sales effort. Following the completion of our acquisition of MCM Electronics,
we will be able to serve a growing number of European customers from MCM
Electronics' four U.K. facilities. We believe that the European market offers
significant growth opportunities as large electronics equipment manufacturers
are increasing their global distribution and are seeking electronics
manufacturing service providers with the ability to operate in multiple
markets. We will continue to serve our Asian customers from our U.S.
facilities.
Pursue Selected Acquisition Opportunities, Including Asset Divestitures by
Original Equipment Manufacturers. We have actively pursued acquisitions to
enhance our service offerings, expand our geographic presence and increase our
production capabilities. An increasing number of original equipment
manufacturers are divesting their production capabilities as an integral part
of their manufacturing strategy. We have completed an acquisition and a merger
since 1997, and we expect to complete the acquisition of MCM Electronics on or
after the completion of this offering. We intend to continue to selectively
pursue strategic acquisition opportunities, including asset divestitures by
original equipment manufacturers, that we believe will complement our internal
growth.
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<PAGE>
Our Services
We provide a suite of value-added, integrated services, used by our
customers predominantly in the development of new products, including:
On-campus and In-the-field Design of Complex Printed Circuit Boards. We
target our design and development engineering services primarily at the
earliest stages of the new product development process. We provide design and
engineering assistance early in new product development to ensure that both
mechanical and electrical considerations are integrated into a cost-effective
manufacturing solution. We design and develop printed circuit boards that meet
or exceed established operating parameters for new products. In doing so, we
often recommend and assist in implementing design changes to reduce
manufacturing costs and lead times, increase manufacturing yields and improve
the quality of the finished product.
Printed circuit boards are the basic platforms used to interconnect
electronic components and can be found in virtually all electronic products,
including consumer electronics, computers and automotive, telecommunications,
industrial, medical, military and aerospace equipment. Printed circuit boards
used in consumer electronic products are generally less technologically
sophisticated, employing lower layer counts and requiring less manufacturing
sophistication than printed circuit boards used in high-end commercial
equipment. Communications and networking equipment manufacturers require more
complex multi-layer interconnections with advanced materials.
Time-critical Development and Fabrication of Prototype Complex Printed
Circuit Boards. Our time-critical, or quick-turn, services are used in the
design, test and launch phases of new electronics product development and are
generally delivered within 10 to 20 days or in as little as 24 hours. Larger
volumes of printed circuit boards are needed as a product progresses past the
testing, design and pre-production phases. The advanced design, development and
manufacturing technologies we employ facilitate quick-turn production of
complex, multi-layered printed circuit boards utilizing technologically-
advanced methods. See "Technology, Development and Processes." Our ability to
provide these services on a quick-turn and longer lead-time delivery basis
involves working closely with customers from the initial design of new products
through development and launch.
Assembly of Printed Circuit Boards, Backpanels and Other Components of
Electronics Products. We assemble printed circuit boards, backpanels, card
cages and wire harnesses on a low volume, quick-turn basis. Backpanels are
large printed circuit boards, and card cages and wire harnesses integrate wires
with connectors and terminals to transmit electricity between two or more
points. As the electronics industry has worked to increase component speed and
performance, the design of these components has become more integrated. We have
responded to this trend and provide these additional assembly services to
complement our design and development capabilities.
Assembly and Integration of Our Customers' Complete Systems and Products. We
provide full system assembly services, predominantly for products in
development by original equipment manufacturers. These services require
logistical capabilities and supply chain management to rapidly acquire
components, assemble prototype products, perform complex testing and deliver
products to the customer.
Our Customers and Markets
We believe that we have one of the broadest customer bases in the
electronics manufacturing services industry. More than 1,400 original equipment
manufacturers and electronics manufacturing services companies representing a
wide range of end-user markets used our services in 1999, a net increase of
approximately 150 customers in 1999. We measure customers as those companies
that place at least two orders in a twelve-month period. Our customers
principally consist of leading communications and networking equipment and
computer companies, as well as medical, automotive, industrial and aerospace
equipment manufacturers. During 1999, sales to our largest customer, Alcatel,
accounted for less than 8% of our net sales, and sales to our ten largest
customers accounted for less than 40% of our net sales. We have been successful
at retaining customers and have worked with our three largest customers since
1991.
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Approximately 80% of our net sales are made to original equipment
manufacturers, and the remainder are to electronics manufacturing service
providers. The following table shows, for the periods indicated, the percentage
of our sales in each of the principal end-user markets we served for the years
ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
End-User Markets 1997 1998 1999
- ---------------- ------- ------- -------
<S> <C> <C> <C>
Communications and networking equipment.......... 34% 53% 55%
Computer and peripherals......................... 45 24 21
Medical, automotive, industrial and test
instruments..................................... 6 11 9
Aerospace equipment.............................. 6 3 2
Other............................................ 9 9 13
------- ------- -------
Total.......................................... 100% 100% 100%
======= ======= =======
</TABLE>
The following table indicates, for the year ended December 31, 1999, our
largest original equipment manufacturers, or OEMs, and electronics
manufacturing services, or EMS, customers in terms of net sales, in
alphabetical order, and the primary end products for which we provided our
services.
<TABLE>
<CAPTION>
OEM Customers End Products
- ------------- ------------
<S> <C>
Alcatel................... Communications switching and transmission equipment,
networking equipment
Marconi Communications.... Communications switching and transmission equipment,
networking equipment
IBM....................... Network servers
Intel..................... Personal computers
3Com...................... Networking equipment
<CAPTION>
EMS Customers End Products
- ------------- ------------
<S> <C>
Celestica................. Communications and computing equipment
Jabil..................... Communications and computing equipment
Solectron................. Communications and computing equipment
</TABLE>
Technology, Development and Processes
We maintain a strong commitment to research and development and focus our
efforts on enhancing existing capabilities as well as developing new
technologies. Our close involvement with our customers in the early stages of
their product development positions us at the leading edge of technical
innovation in the design of quick-turn and complex printed circuit boards. Our
staff of nearly 300 experienced engineers, chemists and laboratory technicians
works in conjunction with our 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 us with the opportunity to gain an in-depth
understanding of our customers' businesses and enabling us to better anticipate
and serve their future needs.
The market for our products and services is characterized by rapidly
changing technology and continuing process development. In recent years, the
trend in the electronics equipment industry has been to increase speed and
performance of components while at the same time reducing their size. This
trend requires increasingly complex printed circuit boards with higher
densities. The future success of our business will depend in large part upon
our ability to maintain and enhance our 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. In the last two years, we have made substantial investments
in equipment and technology to meet these needs and maintain our competitive
advantage.
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We believe the highly specialized equipment we use is among the most
advanced in our industry. We provide a number of advanced technologies,
including:
. Microvias. Microvias are small holes, or vias, generally created with
lasers employing depth control rather than mechanical drills, through
which printed circuit board layers are interconnected. Microvias
generally have diameters between .001 and .005 inches.
. Blind or Buried Vias. Blind or buried vias are small holes which
interconnect inner layers of high layer-count printed circuit boards.
. Ball Grid Arrays. A ball grid array is a method of mounting an
integrated circuit or other component to a printed circuit board. Rather
than using pins, also called leads, the component is attached with small
balls of solder at each contact. This method allows for greater
component density and is used in printed circuit boards with higher
layer counts.
. Flip Chips. Flip chips are structures that house circuits which are
interconnected without leads. They are utilized to minimize printed
circuit board surface area when compact packaging is required.
. Multichip Module-Laminates. Multichip module-laminates are a type of
printed circuit board design that allows for the placement of multiple
integrated circuits or other components in a limited surface area.
. Advanced Substrates. Advanced substrates are a recent generation of
printed circuit board materials that enable the use of ball grid arrays,
flip chips and multichip module laminates. They are used for products
requiring high-frequency transmission and have thermal properties
superior to standard materials.
We are qualified under various industry standards, including Bellcore
compliance for communications products and UL (Underwriters Laboratories)
approval for electronics. In addition, all of our production facilities are
ISO-9002 certified. These certifications require that we meet standards related
to management, production and quality control, among others.
Manufacturing
We produce highly complex, technologically advanced multi-layer and low-
layer printed circuit boards, backpanel assemblies, printed circuit board
assemblies, card cage and wire harness assemblies and full system assembly and
integration that meet increasingly tight tolerances and specifications demanded
by original equipment manufacturers. The manufacture of printed circuit boards
involves several steps: etching the circuit image on copper-clad epoxy
laminate, pressing the laminates together to form a panel, drilling holes and
depositing copper or other conducive material to form the inter-layer
electrical connections and, lastly, cutting the panels to shape. Our advanced
interconnect products require additional critical steps, including dry film
imaging, photoimageable soldermask processing, computer-controlled laser
drilling and routing, automated plating and process controls and achievement of
controlled impedance.
Multi-layering, which involves placing multiple layers of electrical
circuitry on a single printed circuit board or backpanel, expands the number of
circuits and components that can be contained on the interconnect product and
increases the operating speed of the system by reducing the distance that
electrical signals must travel. Increasing the density of the circuitry in each
layer is accomplished by reducing the width of the circuit tracks and placing
them closer together on the printed circuit board or backpanel.
Interconnect products having narrow, closely spaced circuit tracks are known
as fine line products. The manufacture of complex multi-layer interconnect
products often requires the use of sophisticated circuit interconnections,
called blind or buried vias, between printed circuit board layers and adherence
to strict electrical characteristics to maintain consistent circuit
transmission speeds, referred to as controlled impedance. These technologies
require very tight lamination and etching tolerances and are especially
critical for printed circuit boards with ten or more layers.
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<PAGE>
Manufacture of printed circuit boards used in backpanel assemblies requires
specialized expertise and equipment because of the larger size of the backpanel
relative to other printed circuit boards and the increased number of holes for
component mounting. We have no patents for these proprietary techniques and
rely primarily on trade secret protection.
Accomplishing these operations in time-critical situations, as we do,
requires the attention of highly-qualified personnel. Furthermore, our
manufacturing systems are managed to maximize flexibility to accommodate widely
varying projects for different customers with minimal or no turnover time. We
seek to maximize the use of our production and manufacturing capacity through
the efficient management of time-critical production schedules.
Excluding our Colorado facility, which we decided to close in December 1999,
we conduct our operations in several buildings that we own or lease. We believe
our facilities are currently adequate for our operating needs. Our principal
manufacturing facilities are as follows:
<TABLE>
<CAPTION>
Location Function Square Feet
-------- -------- -----------
<C> <S> <C> <C>
Anaheim, California Quick-turn printed circuit boards 125,000
Milpitas, California Quick-turn printed circuit boards 45,000
Milpitas, California Design and assembly 41,000
Garland, Texas Longer lead-time printed circuit 86,000
boards
Dallas, Texas Assembly 49,000
Marlborough, Massachusetts Assembly 32,500
La Grange, Georgia Assembly 30,000
</TABLE>
We lease all of the above facilities except the Garland, Texas facility.
Sales and Marketing
Our marketing strategy focuses on developing close working relationships
with our customers early in the design phase and throughout the lifecycle of
the product. Accordingly, our senior management personnel and engineering staff
advise customers with respect to applicable technology, manufacturing
feasibility of designs and cost implications through on-line computer technical
support and direct customer communication. We have focused our marketing
efforts on developing long-term relationships with research and development
personnel at key customers in high-growth segments of the electronics equipment
industry.
We employ a targeted sales effort to help optimize our market share at the
customer level. In order to establish individual salesperson accountability for
each client, each customer is assigned one member of our staff for all services
across all facilities. We have developed a comprehensive database and
allocation process to control our calling and cross-selling effort, and have a
global account program for coordinating sales to our top 20 customers. The
success of our sales strategy is demonstrated by the net addition of over
approximately 150 customers in 1999.
We market our design, development and manufacturing services through an
internal sales force of approximately 100 individuals and an expansive sales
network consisting of 14 organizations comprised of approximately 80
manufacturers' representatives across the United States. Approximately half of
our net sales in 1999 were generated through manufacturers' representatives.
For many of these manufacturers' representatives, we are the largest revenue
source and the exclusive supplier of quick-turn and pre-production printed
circuit boards. In 1997, we opened a sales office in London, England. On or
after the completion of this offering, we expect to complete the acquisition of
MCM Electronics. In addition to integrating the MCM Electronics sales force, we
plan to continue expanding our international sales efforts.
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<PAGE>
Our Suppliers
Our raw materials inventory is small relative to our sales and must be
regularly and rapidly replenished. We use just-in-time procurement practices to
maintain our raw materials inventory at low levels, and we work closely with
our suppliers to incorporate technological advances in the raw materials we
purchase. Because we provide primarily lower-volume quick-turn services, this
inventory policy does not hamper our ability to complete customer orders.
Although we have preferred suppliers for some raw materials, multiple sources
exist for all materials. Adequate amounts of all raw materials have been
available in the past and we believe this will continue in the foreseeable
future.
The primary raw materials that we use in production are core materials
(copperclad layers of fiberglass of varying thickness impregnated with bonding
materials) and chemical solutions (copper, gold, etc.) for plating operations,
photographic film and carbide drill bits.
Competition
The electronics manufacturing services industry is highly fragmented and
characterized by intense competition. We principally compete in the time-
critical segment of the industry against independent, small private companies
and integrated subsidiaries of large, broadly based volume producers, as well
as the internal capacity of original equipment manufacturers. We believe that
competition in the market segment we serve, unlike in the electronics
manufacturing services industry generally is not driven by price. Instead,
because customers are willing to pay a premium for a responsive, broad-reaching
capability to produce customized complex products in a very short time, we
compete primarily on the basis of quick turnaround, product quality and
customer service. In addition, we do not compete in the high volume production
manufacturing aspect of the industry and as a result are less exposed to
competition from low cost manufacturers who compete on price in the commodity
segment of this market.
Competition in the complex and time-critical segment of our industry has
increased due to consolidation, resulting in potentially better capitalized
competitors. Our basic technology is generally not subject to significant
proprietary protection, and companies with significant resources or
international operations may enter the market.
Backlog
Although we obtain firm purchase orders from our customers, our customers
typically do not make firm orders for delivery of products more than 30 to 90
days in advance. We do not believe that the backlog of expected product sales
covered by firm purchase orders is a meaningful measure of future sales since
orders may be rescheduled or canceled.
Governmental Regulation
Our operations are subject to certain federal, state and local regulatory
requirements relating to environmental compliance and site cleanups, waste
management and health and safety matters. In particular, we are subject to
regulations promulgated by:
. the Occupational Safety and Health Administration pertaining to health
and safety in the workplace;
. the Environmental Protection Agency pertaining to the use, storage,
discharge and disposal of hazardous chemicals used in the manufacturing
processes; and
. corresponding state agencies.
To date the costs of compliance and environmental remediation have not been
material to us. Nevertheless, additional or modified requirements may be
imposed in the future. If such additional or modified requirements are imposed
on us, or if conditions requiring remediation were found to exist, we may be
required to incur substantial additional expenditures.
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<PAGE>
Employees
As of December 31, 1999, after giving effect to the consolidation of our
Colorado operations into our Texas facility, we had approximately 1,800
employees, none of whom are represented by unions. Of these employees,
approximately 1,550 were involved in manufacturing and engineering, 100 worked
in sales and marketing and 150 worked in accounting, systems and other support
capacities. We have not experienced any labor problems resulting in a work
stoppage and believe we have good relations with our employees.
Legal Proceedings
We are a party to various legal actions arising in the ordinary course of
our business. We believe that the resolution of these legal actions will not
have a material adverse effect on our financial position or results of
operations.
44
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth our directors and executive officers, their
ages as of December 31, 1999, and the positions currently held by each person:
<TABLE>
<CAPTION>
Name Age Office
- ---- --- ------
<S> <C> <C>
President, Chief Executive Officer and
Bruce D. McMaster.................... 38 Director
Charles D. Dimick.................... 43 Chairman and Director
Joseph P. Gisch...................... 43 Chief Financial Officer
John Peters.......................... 45 Vice President, Sales and Marketing
Greg Halvorson....................... 38 Vice President, Operations
Terry L. Wright...................... 40 Vice President, Engineering
David Dominik........................ 43 Director
Edward W. Conard..................... 43 Director
Stephen G. Pagliuca.................. 44 Director
Prescott Ashe........................ 32 Director
Stephen M. Zide...................... 39 Director
Mark R. Benham....................... 48 Director
Christopher Behrens.................. 38 Director
</TABLE>
Bruce D. McMaster joined us in 1985 and has served as our President since
1991 and as a Director and our Chief Executive Officer since 1997. He has over
21 years of experience in the EMS industry. Before becoming our President, Mr.
McMaster worked in various management capacities in our engineering and
manufacturing departments.
Charles D. Dimick joined us in 1998 upon our merger with DCI. He is our
Chairman, a Director and the President of our subsidiary, Dynamic Details
Incorporated, Silicon Valley. He has over 21 years of experience in the EMS
industry. Mr. Dimick founded DCI in 1991 and served as its president and chief
executive officer until the merger. Previously, he was a senior vice president
of sales and marketing at Sigma Circuits.
Joseph P. Gisch has served as our 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
our general accounting and income tax matters. Mr. Gisch has not been
responsible for any of our audit services since 1991.
John Peters joined us in 1998 upon our merger with DCI. He has been our Vice
President, Sales and Marketing, since 1999. He was the senior vice president of
sales and marketing of our subsidiary, Dynamic Details Incorporated, Silicon
Valley from 1998 to 1999. Mr. Peters served as vice president of sales and
marketing of DCI from 1992 to 1998.
Greg Halvorson joined us in 1998 upon our merger with DCI. He is a Vice
President and the Senior Vice President of Operations of our subsidiary,
Dynamic Details Incorporated, Silicon Valley. Prior to joining us, Mr.
Halvorson served as vice president of operations of DCI from 1995 to 1998. Mr.
Halvorson spent six years at Pacific Circuits as plant manager and head of
engineering before which he was manager of computer-aided manufacturing at
Sigma Circuits.
Terry L. Wright joined us in 1991 and has served as Vice President,
Engineering since 1995. Prior to joining us, Mr. Wright was a general manager
at Applied Circuit Solutions and a quality assurance manager at Sigma Circuits.
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<PAGE>
David Dominik has served as a Director since November 1998. Mr. Dominik is a
co-founder and managing director of Convergence Capital Group and a special
limited partner of Bain Capital, Inc. He was a managing director of Bain
Capital, Inc. from 1990 until March 2000. Previously, Mr. Dominik was a general
partner of Zero Stage Capital, a venture capital firm focused on early-stage
companies, and assistant to the chairman of Genzyme Corporation, a
biotechnology firm. From 1982 to 1984, he worked as a management consultant at
Bain & Company. Mr. Dominik was elected as a director of DCI in 1996. Mr.
Dominik also serves as a director of ChipPAC, Inc., Integrated Circuit Systems,
Inc. and OneSource.
Edward W. Conard has served as a Director since 1997. He has been a managing
director of Bain Capital, Inc. since March 1993. From 1990 to 1992, Mr. Conard
was a director of Wasserstein Perella, an investment banking firm that
specializes in mergers and acquisitions. Prior to that, 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, Cambridge Industries,
Alliance Corp., ChipPAC, Inc., Medical Specialties, Inc. and U.S. Synthetic.
Stephen G. Pagliuca has served as a Director since January 2000. Mr.
Pagliuca has been a managing director of Bain Capital, Inc. since May 1993 and
a general partner of Bain Venture Capital, Inc. since 1989. Prior to joining
Bain Capital, Mr. Pagliuca was a partner at Bain & Company. Mr. Pagliuca also
worked as a senior accountant and international tax specialist for Peat Marwick
Mitchell & Company in the Netherlands. He is also a director of Gartner Group,
Coram Healthcare, Epoch Senior Living, Wesley Jessen Visioncare, Dade Behring
Inc. and Vivra Specialty Partners.
Prescott Ashe has served as a Director since 1997. Mr. Ashe has been a
principal at Bain Capital, Inc. since June 1998 and was an associate at Bain
Capital, Inc. from December 1992 to June 1998. Prior to that, he was an analyst
at Bain Capital, Inc. and a consultant at Bain & Company. Mr. Ashe also serves
as a director of ChipPAC, Inc., Integrated Circuit Systems, Inc., and SMTC
Corporation.
Stephen M. Zide has served as a Director since 1997. Mr. Zide has been a
managing director at Pacific Equity Partners since 1998. Previously he was an
associate at Bain Capital, Inc., and prior to that he was a partner at the law
firm of Kirkland & Ellis. Mr. Zide is also a director of Alliance Laundry
Systems, L.L.C.
Mark R. Benham has served as a Director since November 1998. Mr. Benham was
a co-founder of Celerity Partners, L.L.C. and has been a partner since 1992.
Previously he was a senior investment officer of Citicorp Venture Capital,
Ltd., and prior to that he was an advisor to Yamaichi UniVen Co., Ltd., the
venture capital subsidiary of Yamaichi Securities International. Mr. Benham is
a director of SubMicron Systems Corporation, Rapid Design Service, Inc., SMTC
Corporation and Starcom Holdings, Inc.
Christopher Behrens has served as a Director since 1997. He has been a
principal of Chase Capital Partners since 1994 and a general partner since
January 1999. Prior to joining Chase Capital Partners, Mr. Behrens was a vice
president in the Merchant Banking Group of The Chase Manhattan Bank from 1990
to 1994. Mr. Behrens is a director of Patina Oil & Gas, Portola Packaging and a
number of other private companies.
Board Composition
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 our board of directors set forth herein were elected by class vote
pursuant to our articles of incorporation. There are no family relationships
between any of our directors or executive officers. Our executive officers are
elected by and serve at the discretion of the board of directors.
Prior to the completion of this offering, our board will be divided into
three classes, as nearly equal in number as possible, with each director
serving a three-year term and one class being elected at each year's annual
meeting of stockholders. Messrs. Ashe, Dimick and Dominik will be in the class
of directors whose
46
<PAGE>
term expires at the 2001 annual meeting of our stockholders. Messrs. Behrens,
McMaster and Zide will be in the class of directors whose term expires at the
2002 annual meeting of our stockholders. Messrs. Benham, Conard, and Pagliuca
will be in the class of directors whose term expires at the 2003 annual meeting
of our stockholders. At each annual meeting of our stockholders, successors to
the class of directors whose term expires at such meeting will be elected to
serve for three-year terms or until their respective successors are elected and
qualified.
Director Compensation
We currently pay no compensation to our non-employee directors, and pay no
additional remuneration to our employees or executives for their service as
directors.
Committees of the Board of Directors
Prior to this offering, our board of directors had two committees, the audit
committee and the compensation committee. The board may also establish other
committees to assist in the discharge of its responsibilities.
The audit committee makes recommendations to the board of directors
regarding the independent auditors to be approved by the stockholders, reviews
the independence of the independent auditors, approves the scope of the annual
audit activities of the independent auditors, approves the audit fee payable to
the independent auditors and reviews such audit results with the independent
auditors. Following this offering, the audit committee will be comprised of
Messrs. Behrens, Benham and Dominik. PricewaterhouseCoopers LLP presently
serves as our independent auditors.
The compensation committee provides a general review of our compensation and
benefit plans to ensure that they meet corporate objectives. In addition, the
compensation committee reviews the chief executive officer's recommendations on
compensation of our officers and adopting and changing major compensation
policies and practices, and reports its recommendations to the whole board of
directors for approval and authorization. The compensation committee
administers our stock plans and will be comprised of Messrs. Ashe, Conard and
Dominik following this offering.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee do not receive compensation for
their services as directors. See "Related Party Transactions--Management
Agreement" and "--Other Related Party Payments."
47
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation for
the years ended December 31, 1999, 1998 and 1997 for our chief executive
officer and our five other most highly compensated executive officers at the
end of our last fiscal year. For ease of reference, we collectively refer to
these executive officers throughout this section as our "named executive
officers." Shares listed are shares of common stock after giving effect to the
reclassification, assuming an offering price of $16.00 per share and a closing
date of April 17, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------- ---------------------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Salary Bonus Compensation Awards Options Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce D. McMaster....... 1999 451,737 42,500 -- (1) -- -- --
President and Chief 1998 432,423 69,694 -- (1) -- -- --
Executive Officer 1997 379,326 356,188 4,580,153(2) 241,026(7) 155,598(8) 1,088,558(13)
23,735(3)
3,808(4)
Charles D. Dimick....... 1999 447,408 42,500 6,000(4) -- -- --
Chairman 5,197(5)
464,994(6)
1998 190,076 31,281 3,000(4) -- 125,912(9) 387,496(14)
39,684(5) 6,866(10) 1,815,690(15)
816,721(6) 128,704(11)
1997 -- -- -- -- -- --
Joseph P. Gisch......... 1999 272,057 20,000 -- (1) -- -- --
Chief Financial 1998 269,346 18,967 -- (1) -- 32,278(12) --
Officer 1997 262,847 62,077 651,791(2) 40,171(7) 25,933(8) 155,198(13)
3,384(3)
2,195(4)
John Peters............. 1999 329,926 42,500 6,000(4) -- -- --
Vice President, 1,411(5)
Sales and Marketing 168,439(6)
1998 126,539 22,104 3,000(4) -- 44,844(9) 315,778(14)
10,547(5) 2,445(10) 650,688(15)
126,363(6) 45,838(11)
1997 -- -- -- -- -- --
Greg Halvorson.......... 1999 271,287 20,000 6,000(4) -- -- --
Vice President, 5,848(5)
Operations 313,663(6)
1998 112,692 22,104 3,000(4) -- 167,677(9) 1,523,861(14)
48,460(5) 9,144(10) 1,992,703(15)
198,975(6) 171,395(11)
1997 -- -- -- -- -- --
Lee W. Muse, Jr*........ 1999 376,442 42,500 -- (1) -- -- --
1998 355,981 69,694 -- (1) -- -- --
1997 314,769 356,188 3,810,922(2) 187,464(7) 121,021(8) 905,802(13)
19,750(3)
891(4)
</TABLE>
- --------
* We do not expect Mr. Muse to continue his employment with us after the
expiration of his employment contract on October 28, 2000.
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<PAGE>
(1) The perquisites and other benefits paid did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus of such named
executive officer.
(2) Reflects amounts paid to such named executive officers to satisfy tax
obligations incurred in connection with the exercise of options to
purchase shares of common stock on October 28, 1997 in connection with a
recapitalization.
(3) Reflects the grant of 15,323 shares, 2,185 shares and 12,750 shares of
common stock to Mr. McMaster, Mr. Gisch and Mr. Muse, respectively, as
compensation for services rendered in their executive capacity.
(4) Reflects payments made in connection with the use of a personal
automobile.
(5) Represents payments under our cash bonus plan made at the time of the
exercise of options to purchase shares of common stock which were issued
in connection with the DCI merger.
(6) Reflects deferred cash distributions made in connection with the exchange
of options to purchase shares of common stock of DCI for options to
purchase shares of common stock.
(7) Reflects the grants of rights to purchase 163,394 shares, 27,232 shares
and 127,084 shares of restricted common stock by Mr. McMaster, Mr. Gisch
and Mr. Muse, respectively, at a purchase price of $1.55 per share in
connection with our October 28, 1997 recapitalization. These officers
purchased these shares by issuing interest-bearing notes to us. The
number of shares reflected in the table has been adjusted to reflect the
subsequent repurchase of some of the shares in 1998 in connection with
our acquisition of NTI and to reflect the subsequent forfeiture of some
of the shares by Mr. McMaster and Mr. Muse and their reissuance to other
employees, including Mr. Gisch. The outstanding notes have been adjusted
in each case to reflect the adjustment in the number of shares of
restricted stock held by these named executive officers. The restricted
stock vests in 48 equal monthly installments beginning November 28, 1997.
We have the right to repurchase any unvested restricted shares of common
stock for the original purchase price if the named executive officer
holding the shares ceases to be employed by us.
(8) The options represent the net number of options to purchase shares of
common stock at an exercise price of $18.95 per share, substantially
above the current fair market value of the common stock ($1.55 per
share), issued October 28, 1997 after accounting for the reduction in the
number of shares available upon exercise of the options as described
below. The options vest in 48 equal monthly installments beginning
November 28, 1997. In connection with the NTI acquisition, Mr. McMaster,
Mr. Gisch and Mr. Muse agreed to permit us to cancel options to purchase
7,796 shares, 1,299 shares and 6,063 shares of common stock,
respectively, at an exercise price of $18.95 per share. Additionally, in
1998 each of Mr. McMaster and Mr. Muse agreed to permit us to cancel
options to purchase 6,133 and 4,196 shares, respectively, of common stock
at an exercise price of $18.95 per share, which options were subsequently
granted by us to certain of our other employees. Additionally, each of
Mr. McMaster and Mr. Muse agreed to permit us to cancel options to
purchase 18,399 and 13,880 shares of common stock, respectively, at an
exercise price of $18.95 per share, which options were subsequently
granted by us to Mr. Gisch.
(9) The options represent options to purchase shares of common stock at an
exercise price equal to $0.49 per share issued in connection with the DCI
merger to replace options to purchase shares of DCI common stock.
(10) The options represent options to purchase shares of common stock at an
exercise price equal to $18.95 per share issued in connection with the
DCI merger to replace options to purchase shares of DCI common stock.
(11 ) The options represent options to purchase shares of common stock at an
exercise price equal to $14.01 per share issued in connection with the
DCI merger to replace options to purchase shares of DCI common stock.
49
<PAGE>
(12) The options represent options to purchase shares of common stock at an
exercise price of $18.95 issued to Mr. Gisch after each of Mr. McMaster
and Mr. Muse agreed to permit us to cancel options to purchase 18,399 and
13,880 shares of common stock, respectively, at an exercise price of
$18.95 per share.
(13) Reflects compensation earned by the named executive officer on October
28, 1997 for services rendered in their executive capacity prior to that
date that are payable on October 28, 2000 whether or not such named
executive officer is still employed by us.
(14) Reflects deferred cash distributions payable in connection with the
exchange of options to purchase shares of common stock of DCI for options
to purchase shares of common stock and common stock in connection with
the DCI merger. Each amount listed excludes the amounts of deferred
compensation actually paid to the named executive officer in 1998 and
1999. See note 6 to this table.
(15) Represents amounts payable under our cash bonus plan in connection with
the exercise of outstanding options to purchase shares of common stock
issued in connection with the DCI merger. Each amount listed excludes
amounts actually paid to the named executive officer under our cash bonus
plan in 1998 and 1999. See note 5 to this table.
Option Grants in Last Year
None of our named executive officers were granted options to purchase shares
of our common stock during the year ended December 31, 1999. We intend to grant
options to purchase 50,000 shares of our common stock to each of Messrs. Dimick
and McMaster and options to purchase 30,000 shares to each of Messrs. Gisch,
Peters and Halvorson at the closing of this offering with an exercise price
equal to the initial public offering price.
Option Exercises in Last Year and Year-End Option Values
The following table sets forth information for the named executive officers
concerning stock option exercises during our last year and options outstanding
at the end of the last year after giving effect to the reclassification,
assuming an offering price of $16.00 per share and a closing date of April 17,
2000.
AGGREGATE OPTION EXERCISES IN 1999
AND YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options At
Shares Acquired Options At Fiscal Year-End Fiscal Year-End
On Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
Name (#) ($)(2) (#) ($)(2)
---- --------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Bruce D. McMaster....... -- -- 70,994/60,072(3) 0/0
109,230/0(4) 125,866/0
Charles D. Dimick....... 10,669(1) 11,304 16,003/12,550(5) 16,956/13,297
36,449/970(6) 0/0
115,954/18,175(7) 0/0
Joseph P. Gisch......... -- -- 31,531/26,680(3) 0/0
15,572/0(4) 17,944/0
John Peters............. 2,896(1) 3,068 5,798/14,499(5) 6,144/15,363
12,771/791(6) 0/0
31,017/14,821(7) 0/0
Greg Halvorson.......... 12,005(1) 12,719 11,871/38,789(5) 12,578/41,098
7,029/2,115(6) 0/0
131,747/39,648(7) 0/0
Lee W. Muse, Jr......... -- -- 55,762/47,183(3) 0/0
90,890/0(4) 104,733/0
</TABLE>
50
<PAGE>
- --------
(1) Represents shares of common stock purchased at an exercise price of $0.49
per share.
(2) Value is based on the difference between the option exercise price and
the fair market value as of December 31, 1999. The fair market value of
the common stock ($1.55 per share) was determined by the board of
directors.
(3) Represents options to purchase shares of common stock at an exercise
price of $18.95 per share. The options vest in 48 equal monthly
installments beginning November 28, 1997.
(4) Represents options to purchase shares of common stock at an exercise
price of $2.70 per share. The options to purchase such shares of common
stock replaced other options to purchase shares of common stock that were
rolled over in connection with the recapitalization as part of the
management rollover equity and converted into options to purchase shares
of our common stock.
(5) Represents options to purchase shares of common stock at an exercise price
of $0.49 per share. The options to purchase such shares of common stock
replaced options to purchase shares of common stock of DCI that were
rolled over in connection with the DCI merger and converted into options
to purchase shares of common stock. During 1999, Mr. Dimick agreed to
permit us to cancel options to purchase 5,231 shares of common stock with
an exercise price of $0.49, options to purchase 5,347 shares of common
stock with an exercise price of $14.01 and options to purchase 285 shares
of common stock with an exercise price of $18.95 which options were
subsequently granted to another of our employees.
(6) Represents options to purchase shares of common stock at an exercise
price of $18.95 per share. The unvested options vest in 22 equal monthly
installments beginning January 28, 1999. The options to purchase such
shares of common stock replaced shares and options to purchase shares of
common stock of DCI that were rolled over in connection with the DCI
merger and converted into shares and options to purchase shares of common
stock.
(7) Represents options to purchase shares of common stock at an exercise
price of $14.01 per share. The options to purchase such shares of common
stock replaced options to purchase shares of common stock of DCI that
were rolled over in connection with the DCI merger and converted into
options to purchase shares of common stock.
Employment Contracts, Termination of Employment and Change of Control
Arrangements
Mr. McMaster is currently employed as our President and Chief Executive
Officer pursuant to an agreement dated September 1, 1995, as amended, effective
until October 28, 2000. Under this agreement, Mr. McMaster received an annual
base salary of $375,000 in 1997, $425,000 in 1998 and $450,000 in 1999. His
2000 base salary is $475,000. 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 15,323 shares of common stock, on October
28, 1997. Mr. McMaster's employment agreement contains customary
confidentiality provisions and a non-compete clause effective for the duration
of the term of the agreement. In addition, pursuant to an agreement entered
into at the time of our October 1997 recapitalization, Mr. McMaster will be
entitled to receive an additional bonus of $1,088,558 in consideration of his
services prior to October 28, 1997, which will be payable on October 28, 2000
whether or not he is still employed by us.
Mr. Dimick is currently employed as our Chairman and as President of Dynamic
Details Incorporated, Silicon Valley pursuant to an agreement dated July 23,
1998 which expires in July 2001. Under this agreement, Mr. Dimick received an
annual base salary at an annual rate of $420,000 in 1998, subject to increases
during the remainder of the contract. His 2000 base salary is $475,000. In
addition, Mr. Dimick is eligible for an annual bonus based upon the achievement
of EBITDA targets and received an award, pursuant to the agreement, of 125,912
Series A cash bonus units valued at $0.4872 per unit and 128,704 Series L cash
bonus units valued at $13.9796 per unit, which cash bonus units vest on the
same schedule applicable to the vesting of the options to purchase shares of
common stock granted in connection with the DCI merger and are payable in
accordance with the terms of the cash bonus plan. Mr. Dimick also entered into
a non-compete agreement with us which contains customary confidentiality
provisions and a non-compete clause effective for the duration of the term of
the agreement.
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<PAGE>
Mr. Gisch is currently employed as our Chief Financial Officer pursuant to
an agreement dated September 19, 1995, as amended, effective until October 28,
2000. Under this agreement, Mr. Gisch received an annual base salary of
$252,000 in 1997, $265,000 in 1998 and $275,000 in 1999. His 2000 base salary
is $287,500. 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 2,185 shares of common stock on October 28, 1997. Mr. Gisch's
employment agreement contains customary confidentiality provisions. In
addition, pursuant to an agreement entered into at the time of our October 1997
recapitalization, Mr. Gisch will be entitled to receive an additional bonus of
$155,198 in consideration of his services prior to October 28, 1997, which will
be payable on October 28, 2000, whether or not he is still employed by us.
Mr. Peters is currently employed as a Vice President and as the Senior Vice
President of Sales of Dynamic Details Incorporated, Silicon Valley pursuant to
an agreement dated July 23, 1998 which expires in October 2000. Under this
agreement, Mr. Peters received an annual base salary at an annual rate of
$280,000 in 1998, subject to increases during the remainder of the contract. In
addition, Mr. Peters is eligible for an annual bonus based upon the achievement
of EBITDA targets and received an award, pursuant to the agreement, of 44,844
Series A cash bonus units valued at $0.4872 per unit and 45,838 Series L cash
bonus units valued at $13.9796 per unit, which cash bonus units vest on the
same schedule applicable to the vesting of the options to purchase shares of
common stock granted in connection with the DCI merger and are payable in
accordance with the terms of the cash bonus plan. Mr. Peters also entered into
a non-compete agreement with us which contains customary confidentiality
provisions and a non-compete clause effective for the duration of the term of
the agreement.
Mr. Halvorson is currently employed as a Vice President and as Senior Vice
President of Operations of Dynamic Details Incorporated, Silicon Valley
pursuant to an agreement dated July 23, 1998 which expires in October 2000.
Under this agreement, Mr. Halvorson received an annual base salary at an annual
rate of $250,000 in 1998, subject to increases during the remainer of the
contract. In addition, Mr. Halvorson is eligible for an annual bonus based upon
achievement of EBITDA targets and received an award, pursuant to the agreement,
of 119,098 Tranche A Series A cash bonus units valued at $0.4872 per unit,
48,579 Tranche B Series A cash bonus units valued at $0.1909 per unit, 121,739
Tranche A Series L cash bonus units valued at $13.9796 per unit and 48,579
Tranche B Series L cash bonus units valued at $4.7864 per unit, which cash
bonus units vest on the same schedule applicable to the vesting of the options
to purchase shares of common stock granted in connection with the DCI merger
and are payable in accordance with the terms of the cash bonus plan. Mr.
Halvorson also entered into a non-compete agreement with us which contains
customary confidentiality and a non-compete clause effective for the duration
of the term of the agreement.
Mr. Muse is currently employed as a Vice President pursuant to an agreement
dated September 1, 1995, as amended, effective until October 28, 2000. Under
this agreement, Mr. Muse received an annual base 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 12,750 shares of common stock on October
28, 1997. 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, pursuant to an agreement entered into at the time
of our October 1997 recapitalization, Mr. Muse will be entitled to receive an
additional bonus of $905,802 in consideration of his services prior to October
28, 1997, which will be payable on October 28, 2000, whether or not he is still
employed by us.
Stock Plans and Related Transactions
On October 28, 1997, the board of directors adopted, and our stockholders
approved, our 1997 Details, Inc. Equity Incentive Plan, or the 1997 Plan, which
authorized the granting of stock options and the sale of common stock to our
current or future employees, directors, consultants or advisors. Our board of
directors is authorized to sell or otherwise issue common stock at any time
prior to the termination of the 1997 Plan in such quantity, at such price, on
such terms and subject to such conditions as established by it up to an
52
<PAGE>
aggregate of 758,542 shares of common stock, 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 no shares of common stock available for grant under the
1997 Plan.
In connection with the DCI merger, the board of directors adopted, and our
stockholders approved, the Details Holdings Corp.-Dynamic Circuits 1996 Stock
Option Plan and the Details Holdings Corp.-Dynamic Circuits 1997 Stock Option
Plan (together the "DCI Stock Option Plans"), which authorized the granting of
stock options and the sale of common stock in connection with the DCI merger.
The terms applicable to options issued under the DCI Stock Option Plans are
substantially similar to the terms applicable to the options to purchase shares
of DCI outstanding immediate prior to the DCI acquisition. These terms include
vesting from the date of acquisition through 2002. An optionholder's scheduled
vesting is dependent upon continued employment with us. Upon termination of
employment, any unvested options as of the termination date are forfeited.
In connection with the DCI merger, we converted each DCI stock option award
into the right to receive a cash payment and an option to purchase shares of
common stock. The options granted bear exercise prices of either $0.49, $14.01
or $18.95. Our board of directors is authorized to sell or otherwise issue
common stock at any time prior to the termination of the applicable DCI Stock
Option Plan in such quantity, at such price, on such terms and subject to such
conditions as established by it up to an aggregate of 1,453,850 shares of
common stock, in the case of the Details Holdings Corp.- Dynamic Circuits 1996
Stock Option Plan, and 300,484 shares of common stock in the case of the
Details Holdings Corp.-Dynamic Circuits 1997 Stock Option Plan (in each case,
subject to adjustment to prevent any dilution or expansion of the rights of
participants that might otherwise result from the occurrence of specified
events). There are currently 97,947 options to purchase shares of common stock
available for grant under the DCI Stock Option Plans. As of December 31, 1998,
the options outstanding under the DCI Stock Option Plans had weighted average
remaining contractual lives of approximately seven years.
In 1998, each of Mr. McMaster and Mr. Muse agreed to permit us to cancel
options to purchase 24,532 and 18,076 shares, respectively, of common stock at
an exercise price of $18.86 per share, which options were subsequently granted
by us to another of our other employees. In 1999, Mr. Dimick agreed to permit
us to cancel options to purchase 5,231 shares of common stock at an exercise
price of $0.49 per share, 5,347 shares of common stock at an exercise price of
$14.01 per share and 285 shares of common stock at an exercise price of $18.95
per share, which options were subsequently granted by us to another of our
employees.
2000 Equity Incentive Plan
The 2000 Equity Incentive Plan, or the "2000 Plan," is expected to be
adopted by our board of directors and approved by our stockholders prior to the
completion of this offering. As of the date of this prospectus, no awards have
been made under the 2000 Plan. We intend to grant to some of our executive
officers and employees options to purchase a total of approximately 1,400,000
shares of our common stock with an exercise price equal to the initial public
offering price at the closing of this offering. We also intend to grant to some
of our executive officers additional options with an exercise price equal to
the market price on the date of grant during 2000. No future grants will be
made under existing plans upon the effectiveness of the 2000 Plan.
The 2000 Plan provides for the grant of incentive stock options to our
employees (including officers and employee directors) and for the grant of
nonstatutory stock options to our employees, directors and consultants. A
nonstatutory stock option is a stock option that is not intended to qualify as
an incentive stock option under Section 422 of the Internal Revenue Code. The
holder of a nonstatutory stock option generally is taxed on the difference
between the exercise price and the fair market value when exercised. The 2000
Plan also provides for the grant of stock appreciation rights, restricted
stock, unrestricted stock, deferred stock, and securities (other than stock
options) which are convertible into or exchangeable for common stock on such
terms and conditions as our board determines.
53
<PAGE>
A total of (1) 4,100,000 shares of common stock, (2) any shares returned to
existing plans as a result of termination of options and (3) annual increases
of 1.0% of our outstanding common stock to be added on the date of each annual
meeting of our stockholders commencing in 2001, or such lesser amounts as may
be determined by the board of directors, will be reserved for issuance pursuant
to the 2000 Plan. For purposes of the preceding sentence, the following will
not be considered to have been delivered under the 2000 Plan:
. shares remaining under an award that terminates without having been
exercised in full;
. shares subject to an award, where cash is delivered to a participant in
lieu of such shares;
. shares of restricted stock that have been forfeited in accordance with
the terms of the applicable award; and
. shares held back, in satisfaction of the exercise price or tax
withholding requirements, from shares that would otherwise have been
delivered pursuant to an award.
The number of shares of stock delivered under an award shall be determined
net of any previously acquired shares tendered by the participant in payment of
the exercise price or of withholding taxes. The maximum number of incentive
stock options that may be issued pursuant to the 2000 Plan is 6,600,000.
The administrator of the 2000 Plan has the power to determine the terms of
the options granted, including the exercise price of the option, the number of
shares subject to each option, the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, our board of directors
has the authority to amend, suspend or terminate the 2000 Plan, provided that
no such action may affect any share of common stock previously issued and sold
or any option previously granted under the 2000 Plan. Cash performance grants,
intended to qualify as "performance-based compensation," may be issued under
the plan, subject to shareholder approval as required by Section 162(m) of the
Internal Revenue Code.
Options granted under the 2000 Plan are generally not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
and only by such optionee. Options granted under the 2000 Plan must generally
be exercised within 3 months after the end of an optionee's status as an
employee, director or consultant of DDi, or within 12 months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option term.
The exercise price of all incentive stock options granted under the 2000
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the 2000 Plan is determined by the administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price must be at least equal to the fair market value of the
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must be at least equal to 110% of the fair market value on the grant
date and the term of such incentive stock option must not exceed five years.
The term of all other options granted under the 2000 Plan shall be determined
by the administrator.
The 2000 Plan provides that in the event of our merger with or into another
corporation, or a sale of substantially all of our assets, each option shall be
assumed or an equivalent option substituted for by the successor corporation.
If the outstanding options are not assumed or substituted for by the successor
corporation, the administrator shall provide for the optionee to have the right
to exercise the option as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable. This may have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to gain control of us because our employees might have a reduced
incentive to remain with us following a merger or sale. If the administrator
makes an option exercisable in full in the event of a merger or sale of assets,
the administrator shall notify the optionee that the option shall be fully
exercisable for a period of fifteen days from the date of such notice, and the
option will terminate upon the expiration of such period.
54
<PAGE>
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan, or ESPP, is expected to be adopted by our
board of directors and approved by our stockholders prior to the completion of
this offering. The ESPP will be established to give eligible employees a
convenient means of purchasing shares of common stock through payroll
deductions at a discounted price. We believe ownership of stock by employees
fosters greater employee interest in our success, growth and development.
A total of 1,450,000 shares of our common stock will be reserved for
issuance under the ESPP, which is intended to qualify under Section 423 of the
Internal Revenue Code. The ESPP will allow for purchases in a series of
offering periods, each six months in duration, with new offering periods (other
than the initial offering period) commencing on January 1 and July 1 of each
year. The initial offering period is expected to commence on the date of this
offering. The ESPP will be administered by our board of directors or by a
committee appointed by the board.
Our employees, including officers and employee directors, and the employees
of any majority-owned subsidiary designated by our board of directors, are
eligible to participate in the ESPP if they have completed at least six months
of employment and are employed by us or any such designated subsidiary for at
least 20 hours per week and more than five months per year. The ESPP permits
eligible employees to purchase shares of our common stock through payroll
deductions, which may not exceed 10% of an employee's compensation, at a price
equal to 85% of the lower of the fair market value of our common stock at the
beginning or at the end of each applicable purchase period. In event of
specified changes in capitalization described in the ESPP, the purchase price
may be adjusted during an offering period. Employees may end their
participation in the offering at any time during the offering period, and
participation in the ESPP ends automatically upon termination of employment
with us. Unless terminated earlier by our board of directors, the ESPP will
have a term of ten years.
55
<PAGE>
RELATED PARTY TRANSACTIONS
The following summary of the Stockholders Agreement and the Management
Agreement is a description of the material provisions of those agreements and
is subject to, and qualified in its entirety by reference to, those agreements,
each of which has been previously filed with the Securities and Exchange
Commission.
Stockholders Agreement
All of our current stockholders and optionholders will be parties to a
stockholders agreement to be dated before the effectiveness of the registration
statement that, among other things, provides for registration rights.
Management Agreement
A management agreement among Bain Capital Partners V, L.P. ("Bain"), us and
our subsidiaries, DDi Capital Corp. and Dynamic Details, Incorporated, will be
terminated by mutual consent of the parties in connection with this offering,
and we will use some of the proceeds of this offering to pay Bain a fee of
approximately $3.25 million. We paid Bain a fee of $1.1 million in 1999. The
management agreement includes customary indemnification provisions in favor of
Bain. Investment funds associated with Bain are our largest stockholders.
Loans and Payments to Named Executive Officers
In connection with the exercise of certain options and the purchase of
certain shares of restricted stock in 1997, we accepted as payment from each
named executive officer purchasing such shares a note bearing interest at 5.57%
per annum. Mr. McMaster, Mr. Gisch, Mr. Muse and Mr. Wright had outstanding
loan balances, excluding accrued interest, at December 31, 1999 of
approximately $273,806, $44,844, $214,742, and $73,810, respectively. We have
agreed to permit these executive officers to repay their respective loan
obligations with proceeds received from the sale of stock.
Other Related Party Payments
Sankaty High Yield Asset Partners, L.P., an affiliate of the Bain Capital
funds, will receive a portion of the net proceeds from this offering from the
redemption of the DDi Intermediate senior discount notes and the repayment of
some of our indebtedness under the Dynamic Details senior credit facility. See
"Use of Proceeds."
Chase Manhattan Capital, LLC, one of our stockholders, is an affiliate of
The Chase Manhattan Bank, which serves as the administrative agent and
participates as a lender under the Dynamic Details senior credit facility and
is a counterparty to one of our interest rate exchange agreements, under terms
similar to those of the other participants and counterparties. Some of the net
proceeds of this offering will be used to repay a portion of the indebtedness
under the Dynamic Details senior credit facility.
Directors' Relationships with Principal Stockholders
Eight of our directors are affiliated with our principal stockholders.
Charles D. Dimick and Bruce D. McMaster are executive officers, stockholders
and directors. David Dominik, Edward W. Conard, Stephen G. Pagliuca and
Prescott Ashe are affiliated with the Bain Capital funds. Mark R. Benham is a
partner in Celerity Partners, L.L.C., and Christopher Behrens is a general
partner of Chase Capital Partners, an affiliate of The Chase Manhattan Bank.
Sales to Affiliate of Major Stockholders
Investment funds associated with Bain Capital, Inc. and Celerity Partners,
L.L.C. are also stockholders of SMTC Corporation, one of our customers. Our
sales to SMTC Corporation, which totaled less than $2.5 million or less than 1%
of our net sales in 1999, are on terms equivalent to those made available to
our other customers.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of January 31, 2000, information
regarding the beneficial ownership after giving effect to the reclassification,
assuming an offering price of $16.00 per share and a closing date of April 17,
2000. The table sets forth the number of shares beneficially owned, and the
percentage ownership before the offering and after the completion of the
offering and the MCM Electronics acquisition, for:
. each person who is known by us to own beneficially more than 5% of our
outstanding shares of common stock;
. each executive officer named in our summary compensation table and each
director; and
. all executive officers and directors as a group.
The actual number of shares of common stock to be issued to each holder of
Class L common stock in the reclassification is subject to change based on the
initial public offering price and the completion date of this offering. See
"The Reclassification." The percentage ownership may change based on the final
number of shares issued to holders of MCM Electronics shares in consideration
for the acquisition of MCM Electronics. See "Prospectus Summary--Recent
Developments" and "Unaudited Pro Forma Consolidated Financial Data."
As of January 31, 2000, our outstanding equity securities consisted of
24,750,000 shares of common stock after giving effect to the reclassification,
assuming an offering price of $16.00 per share and a closing date of April 17,
2000.
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock, except to the extent authority is shared by spouses under applicable
law. Unless otherwise indicated below, each entity or person listed below
maintains a mailing address of c/o DDi Corp., 1220 Simon Circle, Anaheim,
California 92806.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission and assumes
the underwriters do not exercise their over-allotment option. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting or investment power and any
shares as to which the individual or entity has the right to acquire beneficial
ownership within 60 days after January 31, 2000 through the exercise of any
stock option, warrant or other right. The inclusion in the following table of
those shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner.
57
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Shares Beneficially Owned (**) Beneficially Owned
---------------------------------- --------------------
After
Offering
Options Before and MCM
Name and Address Shares and Warrants Total Offering Acquisition
---------------- ---------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Principal Stockholders:
Bain Capital Funds (1).. 10,177,594 56,518 10,234,112 41.3% 24.7%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts
02116
Celerity Partners, 1,999,543 31,858 2,030,401 8.2 4.9
L.L.C. (2).............
11111 Santa Monica
Boulevard; Suite 1111
Los Angeles, California
90025
Chase Manhattan 3,309,825 -- 3,309,825 13.4 8.0
Entities (3)...........
c/o Chase Manhattan
Capital, LLC
380 Madison Avenue
12th Floor
New York, New York
10017
KB Mezzanine Fund II, 1,459,031 35,746 1,494,777 6.0 3.6
L.P. ..................
c/o Equinox Investment
Partners LLC
19 Olde Kings Highways
South Darien, CT 06820
Directors and Executive Officers:
Bruce D. McMaster....... 1,111,017 188,414 1,299,431 4.9 2.9
Charles D. Dimick (4)... 1,320,582 168,826 1,489,408 5.9 3.6
Joseph P. Gisch......... 193,028 50,741 243,769 * *
John Peters............. 478,250 51,589 529,839 2.1 1.3
Greg Halvorson.......... 117,016 158,995 276,011 1.1 *
Lee W. Muse, Jr. ....... 773,254 153,085 926,339 3.5 2.1
Christopher Behrens
(5).................... 3,022,120 -- 3,022,120 12.2 7.3
Edward W. Conard (6).... 2,678,844 8,870 2,687,714 10.9 6.5
David Dominik (6)....... 2,678,844 8,870 2,687,714 10.9 6.5
Stephen G. Pagliuca
(6).................... 2,678,844 8,870 2,687,714 10.9 6.5
Prescott Ashe (7)....... 2,678,844 8,870 2,687,714 10.9 6.5
Stephen Zide (7)........ 2,678,844 8,870 2,687,714 10.9 6.5
Mark R. Benham (8)...... 1,999,543 31,858 2,030,401 8.2 4.9
All Directors and execu-
tive officers
as a group (14 per-
sons) (6)(7)(8)........ 11,117,635 708,255 11,825,890 47.0 30.3
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the issued and
outstanding common stock.
** The number of shares of common stock deemed outstanding on January 31,
2000, after giving effect to the reclassification with respect to a person
or group includes (a) shares of common stock outstanding on such date and
(b) all options and warrants that are currently exercisable or will become
exercisable within 60 days of January 31, 2000 by the person or group in
question.
(1) Includes shares of common stock held by Bain Capital Fund V, L.P., ("Fund
V"); Bain Capital Fund V-B, L.P. ("Fund V-B"); BCIP Associates ("BCIP");
and BCIP Trust Associates, L.P. ("BCIP Trust" and collectively with Fund
V, Fund V-B and BCIP, the "Bain Capital Funds"). Does not include shares
owned by other stockholders that are subject to the stockholders
agreement. See "Related Party Transactions--Stockholders Agreement."
(2) Consists of shares owned by Celerity Dynamo, L.L.C., Celerity Liquids,
L.L.C. and Celerity Details, L.L.C. Celerity Partners, L.L.C. and its
managing members control each of such entities, which disclaim beneficial
ownership of any such shares in which it does not have a pecuniary
interest.
(3) Consists of shares owned by Chase Manhattan Capital, LLC, Chase Securities
Inc. and DI Investors, LLC, all of which are affiliates of The Chase
Manhattan Corporation. Chase Manhattan Capital, LLC is the managing member
of DI Investors, LLC and owns a majority of the interests therein.
Accordingly, Chase Manhattan Capital, LLC may be deemed to beneficially
own shares owned by DI Investors, LLC. Each of Chase Manhattan Capital,
LLC, DI Investors, LLC and Chase Securities Inc. disclaims beneficial
ownership of any such shares in which it does not have a pecuniary
interest.
(4) Includes 12,911 shares of common stock held by Mr. Dimick's minor child.
58
<PAGE>
(5) Mr. Behrens is a general partner of Chase Capital Partners, which is a
non-managing member of Chase Manhattan Capital, LLC and which manages the
investments of Chase Manhattan Capital, LLC and, accordingly, may be
deemed to beneficially own shares owned by Chase Manhattan Capital, LLC
and DI Investors, LLC. 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.
(6) The shares of common stock included in the table represent shares held by
BCIP and BCIP Trust. Messrs. Conard and Pagliuca are each Managing
Directors of Bain Capital, Inc. and are each general partners of BCIP and
BCIP Trust and Mr. Dominik is a general partner of BCIP and BCIP Trust and
accordingly may be deemed to beneficially own shares owned by such funds.
Each such person disclaims beneficial ownership of any such shares in
which he does not have a pecuniary interest. The address of Messrs.
Conard, Dominik and Pagliuca is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116.
(7) The shares of common stock included in the table represent shares held by
BCIP and BCIP Trust. Mr. Zide is a managing director of Pacific Equity
Partners and was formerly an associate of Bain Capital, Inc. Mr. Ashe is a
principal of Bain Capital, Inc. Each such person is a partner of BCIP and
BCIP Trust and, accordingly, may be deemed to beneficially own shares
owned by such funds. Each such person disclaims beneficial ownership of
any such shares in which he does not have a pecuniary interest. The
address of Mr. Ashe is c/o Bain Capital, Inc., Two Copley Place, Boston,
Massachusetts 02116.
(8) Mr. Benham is a Managing Member of Celerity Partners, L.L.C., and controls
each of Celerity Details, L.L.C., Celerity Liquids, L.L.C. and Celerity
Dynamo, L.L.C. and, accordingly, may be deemed to beneficially own shares
owned by Celerity Details, L.L.C., Celerity Liquids, L.L.C. and Celerity
Dynamo, L.L.C. Mr. Benham disclaims beneficial ownership of any such
shares in which he does not have a pecuniary interest. The address of Mr.
Benham is c/o Celerity Partners, 11111 Santa Monica Boulevard, Suite 1111,
Los Angeles, California 90025.
59
<PAGE>
DESCRIPTION OF INDEBTEDNESS
After giving effect to this offering, we and our subsidiaries will have
outstanding debt under the Dynamic Details senior credit facility, the Dynamic
Details senior subordinated notes and the DDi Capital senior discount notes.
We own 100% of the capital stock of DDi Intermediate Holdings Corp., which
in turn owns 100% ofthe capital stock of DDi Capital Corp., which in turn owns
100% of the capital stock of Dynamic Details, Incorporated, our primary
operating subsidiary.
Dynamic Details Senior Credit Facility
Our subsidiary, Dynamic Details, Incorporated, has entered into a credit
agreement, for which The Chase Manhattan Bank is the collateral, co-syndication
and administrative agent and for which Bankers Trust Company is the
documentation and co-syndication agent. The lenders are a syndicate comprised
of various banks, financial institutions or other entities which hold
transferable interests in the Dynamic Details senior credit facility. The
Dynamic Details senior credit facility, as of December 31, 1999 consists of:
. Tranche A term facility of up to approximately $102.6 million;
. Tranche B term facility of up to $149.1 million; and
. a revolving line of credit of up to $45.0 million, including revolving
credit loans, letters of credit and swing line loans.
We intend to use some of the proceeds of this offering to reduce the
indebtedness under the Dynamic Details senior credit facility, which was $251.7
million as of December 31, 1999.
The Dynamic Details senior credit facility is jointly and severally
guaranteed by DDi Capital and its subsidiaries and secured by the assets of all
of our subsidiaries, and future domestic subsidiaries of Dynamic Details will
guarantee the senior credit facility and secure that guarantee with their
assets. The senior credit facility requires Dynamic Details to meet financial
ratios and benchmarks and to comply with other restrictive covenants.
The Tranche A term facility amortizes in quarterly installments from June
1999 until July 2004. The Tranche B term facility amortizes in quarterly
installments from June 1999 until September 2004 at which time the remaining
outstanding loans under the Tranche B term facility becomes repayable in two
equal quarterly installments with a final payment in April 2005. The revolving
line of credit terminates in July 2004.
Our borrowings under the Dynamic Details senior credit facility bear
interest at varying rates based, at our option, on either LIBOR plus 225 basis
points or the bank rate plus 125 basis points (in the case of Tranche A) and
LIBOR plus 250 basis points or the bank rate plus 150 basis points (in the case
of Tranche B). The overall effective interest rate at December 31, 1999 was
8.90%. Dynamic Details is required to pay to the lenders under the senior
credit facility a commitment on the average unused portion of the revolving
credit facility and a letter of credit fee on each letter of credit
outstanding. It must apply proceeds of sales of debt, equity or material assets
to prepayment on its senior credit facility, subject to some exceptions, and
must also, in some circumstances, pay excess cash flow to the lenders under its
senior credit facility.
This summary of the material provisions of the Dynamic Details senior credit
facility, is qualified in its entirety by reference to all of its provisions,
which has been filed as an exhibit to the registration statement of which this
prospectus forms a part. See "Additional Information." We will enter into an
amendment to the credit agreement governing the Dynamic Details senior credit
facility prior to the effectiveness of this offering. In connection with the
amendment, we will pay our lenders a fee of 25 basis points on the outstanding
balance of borrowings under the credit agreement. The amendment will permit the
uses of proceeds described herein and will also provide that future prepayments
of the Tranche B term facility will require a premium of up to 2%, declining to
par within two years.
60
<PAGE>
Dynamic Details Senior Subordinated Notes
The Dynamic Details 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 between Dynamic Details, Incorporated, as issuer, and State Street
Bank and Trust Company, as trustee, and are senior subordinated unsecured
obligations of Dynamic Details, Incorporated. Cash interest on the senior
subordinated notes accrues at the rate of 10% per annum and is payable semi-
annually in arrears on each May 15 and November 15 of each year.
On or after November 15, 2001, the Dynamic Details senior subordinated notes
may be redeemed at the option of Dynamic Details, Incorporated, in whole at any
time or in part from time to time, at a redemption price that is greater than
the accreted value of the notes, plus accrued and unpaid interest, if any, to
the redemption date. Additionally, at any time on or prior to November 15,
2000, Dynamic Details, Incorporated may use the net proceeds of one or more
equity offerings 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, subject to some restrictions.
This summary of the material provisions of the Dynamic Details senior
subordinated notes is qualified in its entirety by reference to all of the
provisions of the indenture governing these notes, which has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
See "Additional Information."
DDi Capital Senior Discount Notes
The DDi Capital senior discount notes were issued in an aggregate principal
amount at maturity of $110,000,000 and will mature on November 15, 2007. The
senior discount notes were issued under an indenture dated as of November 18,
1997 between us, as issuer, and State Street Bank and Trust Company, as
trustee, as supplemented by the supplemental indenture dated as of February 10,
1998 between our subsidiary, DDi Capital Corp., and the trustee. The senior
discount notes are senior unsecured obligations of DDi Capital Corp. The senior
discount notes were issued at a discount to their aggregate principal amount at
maturity and will accrete in value until November 15, 2002 at a rate per annum
equal to 12.5%, compounded semi-annually. Cash interest on the senior discount
notes will not accrue prior to November 15, 2002. Thereafter, interest will
accrue at the rate of 12.5% per annum, payable semi-annually in arrears on each
May 15 and November 15 of each year commencing May 15, 2003 to the holders of
record on the immediately preceding May 1 and November 1, respectively.
On or after November 15, 2002, the senior discount notes may be redeemed at
the option of DDi Capital, in whole at any time or in part from time to time,
at a redemption price that is greater than the accreted value of the notes,
plus accrued and unpaid interest, if any, to the redemption date. Additionally,
at any time on or prior to November 15, 2000, DDi Capital may use the net
proceeds of one or more of our equity offerings to redeem up to 40% of the
senior discount notes at a redemption price (expressed as a percentage of the
accreted value thereof) equal to 112.5%, subject to some restrictions. We will
use some of the proceeds of this offering to redeem up to 40% of these notes.
See "Use of Proceeds."
This summary of the material provisions of the DDi Capital senior discount
notes is qualified in its entirety by reference to all of the provisions of the
indenture governing the senior discount notes, which has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
See "Additional Information."
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<PAGE>
MCM Electronics Facilities Agreement
In connection with our acquisition of MCM Electronics, we will assume MCM
Electronics' debt obligations under a facilities agreement dated May 27, 1999
between MCM Electronics and the Governor of the Bank of Scotland, as arranger,
agent, security trustee, term loan bank and working capital bank. This facility
consists of:
. Tranche A term loan facility of up to an aggregate principal amount of
(Pounds)17.25 million;
. Tranche B term loan facility of up to an aggregate principal amount of
(Pounds)2.5 million;
. Tranche C term loan facility of up to an aggregate principal amount of
(Pounds)3.0 million; and
. working capital facilities of an aggregate maximum principal amount of
(Pounds)4.0 million.
The term loan facilities require MCM Electronics to meet financial ratios
and to comply with other restrictive covenants.
As of December 31, 1999, an aggregate of (Pounds)18.5 million, or $29.8
million, was outstanding under the facilities.
The Tranche A term loan facility is repayable in increasing quarterly
installments beginning in June 2000 with the final payment payable in September
2006. The Tranche B term loan facility is repayable in full in June 2007. The
Tranche C term loan facility is repayable in annual installments between March
2001 and March 2006. The working capital facility is available until July 2002.
Borrowings under the facilities bear interest at varying rates, comprising
LIBOR at the dates of commencement of the relevant quarterly interest period
plus a margin of 200 basis points in the case of Tranche A, 350 basis points in
the case of Tranche B, 200 basis points in the case of Tranche C and 200 basis
points in the case of the working capital facility. The agreement requires MCM
Electronics to make interest hedging arrangements and consequently MCM
Electronics has entered into an interest rate swap agreement covering
approximately 80% of its borrowings under these facilities.
MCM Electronics is required to pay non-utilization fees on the average
unused portion of each of the facilities.
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DESCRIPTION OF CAPITAL STOCK
General Matters
Upon completion of this offering, the total amount of our authorized capital
stock will consist of 75,000,000 shares of common stock and 5,000,000 shares of
one or more series of preferred stock. As of December 31, 1999, we had
outstanding 3,522,183.0 shares of Class A common stock and 396,330.2 shares of
Class L common stock. Prior to the completion of this offering, we will
reincorporate in Delaware, and all of the outstanding shares of Class A common
stock and Class L common stock will be reclassified into a single class of
common stock. See "The Reclassification." As of December 31, 1999, we had 123
stockholders of record with respect to our Class A common stock and Class L
common stock.
After giving effect to this offering, assuming an offering price of $16.00
per share (the mid-point of the range set forth on the cover page of this
prospectus), a closing date of April 17, 2000 and our acquisition of MCM
Electronics as of December 31, 1999, we will have 41,368,750 shares of common
stock and no shares of preferred stock outstanding. The following summary of
provisions of our capital stock describes all material provisions of, but does
not purport to be complete and is subject to, and qualified in its entirety by,
our Delaware certificate of incorporation and our Delaware by-laws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable law.
The Delaware certificate and by-laws contain provisions that are intended to
enhance the likelihood of continuity and stability in the composition of the
board of directors and which may have the effect of delaying, deferring or
preventing a future takeover or change in control of our company unless such
takeover or change in control is approved by our board of directors.
Common Stock
The issued and outstanding shares of common stock are, and the shares of
common stock to be issued by us in connection with the offering will be,
validly issued, fully paid and nonassessable. Subject to the prior rights of
the holders of any series of preferred stock, the holders of outstanding shares
of common stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the board of directors
may from time to time determine. Please see "Dividend Policy." The shares of
common stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any of our securities. Upon liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to receive pro rata our assets which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of any series of preferred stock then
outstanding. Each outstanding share of common stock is entitled to one vote on
all matters submitted to a vote of stockholders. There is no cumulative voting.
Except as otherwise required by law or the restated certificate, the holders of
common stock vote together as a single class on all matters submitted to a vote
of stockholders.
We have applied to have our common stock approved for quotation on The
Nasdaq National Market under the symbol "DDIC."
Preferred Stock
Our board of directors may, without further action by our stockholders, from
time to time, direct the issuance of shares of preferred stock in a series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of preferred stock would reduce the amount of funds available for the payment
of dividends on shares of common stock. Holders of shares of preferred stock
may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of our company before any payment is
made to the holders of shares of common stock. The issuance of shares of
preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors
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then in office, the board of directors, without stockholder approval, may issue
shares of preferred stock with voting and conversion rights which could
adversely affect the holders of shares of common stock.
There are no shares of preferred stock outstanding, and we have no current
intention to issue any of our unissued, authorized shares of preferred stock.
However, the issuance of any shares of preferred stock in the future could
adversely affect the rights of the holders of common stock.
Registration Rights
As a result of the stockholders agreement to be dated prior to the
effectiveness of the registration statement between us and some of our
stockholders, some of our stockholders will be entitled to rights with respect
to the registration of some or all of their shares of common stock under the
Securities Act as described below.
Bain Capital Demand Registration Rights. At any time after 180 days
following this offering until five years from the date of this offering, the
holders of at least 25% of the aggregate number of shares of common stock held
by Bain Capital funds and their affiliates can request that we register all or
a portion of their shares. We will be required to file registration statements
in response to their demand registration rights. We may postpone the filing of
a registration statement for up to 60 days once in a 12-month period if we
determine that the filing would be seriously detrimental to us and our
stockholders.
Other Demand Registration Rights. At any time after 360 days following this
offering until five years from the date of this offering, DI Investors, LLC, or
any of its affiliates that hold at least 50% of the shares of common stock
originally issued to DI Investors, LLC, can request that we register all or a
portion of their shares. We will only be required to file two registration
statements in response to their demand registration rights. We will not be
required to file a registration statement in response to their demand
registration rights within 180 days following the effective date of any
registration statement made by us for our own account. We may postpone the
filing of a registration statement for up to 60 days once in a 12-month period
if we determine that the filing would be seriously detrimental to us and our
stockholders. Additionally, between the date that is 180 days after this
offering and the date that is one year after this offering, some of the former
shareholders of MCM Electronics may demand to register up to one-half of their
shares of our common stock in a non-underwritten offering.
Piggyback Registration Rights. If we register any securities for public
sale, some of our executive officers and other holders of shares of our common
stock will have the right to include their shares of common stock in the
registration statement. This right does not apply to a registration statement
relating to any of our employee benefit plans or a corporate reorganization.
The managing underwriter of any underwritten offering will have the right to
limit the number of shares registered by these holders due to marketing
reasons.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
Other Provisions of the Delaware Certificate of Incorporation and By-laws
Our Delaware certificate of incorporation provides for the board to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the board will be elected each
year. See "Management--Board Composition." Under the Delaware General
Corporation Law, directors serving on a classified board can only be removed
for cause. The provision for a classified board could prevent a party who
acquires control of a majority of the outstanding voting stock from obtaining
control of the board until the second annual stockholders meeting following the
date the acquiror obtains the controlling stock interest. The classified board
provision could have the effect of discouraging a potential acquiror from
making a tender offer or otherwise attempting to obtain control of us and could
increase the likelihood that incumbent directors will retain their positions.
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Our Delaware certificate of incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The Delaware certificate and the
by-laws provide that, except as otherwise required by law, special meetings of
the stockholders can only be called pursuant to a resolution adopted by a
majority of the board of directors or by our chief executive officer.
Stockholders will not be permitted to call a special meeting or to require the
board to call a special meeting.
The by-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board. Stockholders at an annual
meeting may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of the board or by
a stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to our
secretary timely written notice, in proper form, of such stockholder's
intention to bring that business before the meeting. Although the by-laws do
not give the board the power to approve or disapprove stockholder nominations
of candidates or proposals regarding other business to be conducted at a
special or annual meeting, the by-laws may have the effect of precluding the
conduct of business at a meeting if the proper procedures are not followed or
may discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of us.
The Delaware certificate and by-laws provide that the affirmative vote of
holders of at least 75% of the total votes eligible to be cast in the election
of directors is required to amend, alter, change or repeal some of their
provisions, unless such amendment or change has been approved by a majority of
those directors who are not affiliated or associated with any person or entity
holding 10% or more of the voting power of our outstanding capital stock other
than those directors who are affiliated or associated with the Bain Capital
funds. This requirement of a super-majority vote to approve amendments to the
Delaware certificate and by-laws could enable a minority of our stockholders to
exercise veto power over any such amendments.
Provisions of Delaware Law Governing Business Combinations
Following the consummation of this offering, we will be subject to the
"business combination" provisions of the Delaware General Corporation Law. In
general such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "intereested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder" unless:
. the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;
. upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by (a) persons who
are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates or
associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or
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more of a corporation's voting stock. However, our Certificate of Incorporation
provides that a stockholder affiliated or associated with the Bain Capital
funds will not be considered an "interested stockholder," notwithstanding that
stockholder's percentage ownership of our voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
Limitations on Liability and Indemnification of Officers and Directors
Our Delaware certificate of incorporation limits the liability of directors
to the fullest extent permitted by the Delaware General Corporation Law. In
addition, our Delaware certificate of incorporation provides that we will
indemnify our directors and officers to the fullest extent permitted by such
law. We expect to enter into indemnification agreements with our current
directors and executive officers prior to the completion of the offering and
expect to enter into a similar agreement with any new directors or executive
officers.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because no shares will be available for sale shortly
after this offering due to the contractual and legal restrictions on resale
described below, the sale of a substantial amount of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price of our common stock and our ability to raise equity capital in the
future.
Upon completion of this offering and our acquisition of MCM Electronics, we
expect to have outstanding an aggregate of 41,368,750 shares of our common
stock, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options. Of these shares, all of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by
"affiliates" as that term is defined in Rule 144 under the Securities Act. Any
shares purchased by an affiliate may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including an exemption under Rule 144 of the Securities Act. The remaining
shares of common stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act. These
restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act. These rules are summarized below.
Upon the expiration of the lock-up agreements described below and subject to
the provisions of Rule 144 and Rule 701, restricted shares totaling 24,698,347
will be available for sale in the public market 180 days after the date of this
prospectus. The sale of these restricted securities is subject, in the case of
shares held by affiliates, to the volume restrictions contained in those rules.
Lock-up Agreements
We, our directors and executive officers and the holders of substantially
all of our common stock will enter into lock-up agreements with the
underwriters prior to the effectiveness of this registration statement. Under
those agreements, neither we nor any of our directors or executive officers nor
any of those stockholders may dispose of or hedge any shares of common stock or
securities convertible into or exchangeable or exercisable for shares of common
stock. These restrictions will be in effect for a period of 180 days after the
date of this prospectus. At any time and without notice, Credit Suisse First
Boston Corporation may, in its sole discretion, release all or some of the
securities from these lock-up agreements. Transfers or dispositions can be made
sooner, provided the transferee becomes bound to the terms of the lockup:
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. with the prior written consent of Credit Suisse First Boston
Corporation;
. as a bona fide gift;
. to a family member or affiliate; or
. to any trust.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately 413,687 shares of common stock
immediately after this offering and our acquisition of MCM Electronics;
or
. the average weekly trading volume of the common stock on The Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common
stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years from the later of the date
such shares of common stock were acquired from us or from an affiliate of ours,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted pursuant to the lock-up agreements or otherwise,
those shares may be sold immediately upon the completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in Rule 144.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of our common stock prevailing from time to time. We are unable to
estimate the number of our shares that may be sold in the public market
pursuant to Rule 144 or Rule 701 because this will depend on the market price
of our common stock, the personal circumstances of the sellers and other
factors. Nevertheless, sales of significant amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Stock Plans
We intend to file a registration statement under the Securities Act covering
5,648,054 shares of common stock both reserved for issuance under our 2000
Equity Incentive Plan, our Employee Stock Purchase Plan and pursuant to all
previous option grants. This registration statement is expected to be filed as
soon as practicable after the closing date of this offering.
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Currently, there are no options to purchase shares outstanding under our
2000 Equity Incentive Plan. All of these shares will be eligible for sale in
the public market from time to time, subject to vesting provisions, Rule 144
volume limitations applicable to our affiliates and, in the case of some of the
options, the expiration of lock-up agreements.
Registration Rights under Stockholders Agreement
Following this offering, some of our stockholders will, under some
circumstances, have the right to require us to register their shares for future
sale. See "Description of Capital Stock--Registration Rights."
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation is acting as
representative, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation...............................
FleetBoston Robertson Stephens Inc...................................
Chase Securities Inc.................................................
Lehman Brothers Inc..................................................
----------
Total.............................................................. 14,687,500
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 2,203,125 additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotment of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.
Chase Securities Inc., one of the underwriters, may be deemed to be our
affiliate. The offering therefore is being conducted in accordance with the
applicable provisions of Rule 2720 of the National Association of Securities
Dealers, Inc. Conduct Rules. Rule 2720 requires that the initial public
offering price of the shares of common stock not be higher than that
recommended by a "qualified independent underwriter" meeting standards set
forth in the rule. Accordingly, Credit Suisse First Boston Corporation is
assuming the responsibilities of acting as the qualified independent
underwriter in pricing the offering and conducting due diligence. Credit Suisse
First Boston Corporation will be paid a fee of $10,000 for its service as
qualified independent underwriter. The initial public offering price of the
shares of common stock is no higher than the price recommended by Credit Suisse
First Boston Corporation.
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We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
Our officers and directors and the holders of substantially all of our
common stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, enter into a transaction which would have the
same effect, or enter into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of ownership of our
common stock, whether any such aforementioned transaction is to be settled by
delivery of our common stock or such other securities, in cash or otherwise, or
publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to 734,375 shares of the common stock being offered by this prospectus
for employees, directors and other persons associated with us who have
expressed an interest in purchasing common stock in the offering. The number of
shares available for sale to the general public in the offering will be reduced
to the extent these persons purchase these reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "DDIC."
In connection with the recapitalization, affiliates of Chase Securities Inc.
that, in the aggregate, hold approximately 12% of our securities prior to the
offering and Chase Securities Inc. were paid fees aggregating approximately $16
million and received common stock warrants valued at approximately
$3.4 million. Pursuant to the terms of our stockholders agreement, an affiliate
of Chase Securities Inc. that holds some of our securities has the right to
designate one of the members of our board of directors. Accordingly,
Christopher Behrens, a general partner of Chase Capital Partners, has been
elected to and is a member of our board of directors.
Also, The Chase Manhattan Bank, an affiliate of Chase Securities Inc., is a
lender and the agent for the other lending banks under the Dynamic Details
senior credit facility, and is a counterparty to one of our interest rate
exchange agreements. In its role as collateral, co-syndication and
administrative agent with regard to the establishment of the senior credit
facility, The Chase Manhattan Bank received $2.4 million in fees. Further,
Chase Securities Inc. acted as the initial purchaser (underwriter) for the sale
of the Dynamic Details senior subordinated notes and the DDi Capital senior
discount notes.
We intend to use a portion of the net proceeds from the sale of common stock
to repay indebtedness owed by us to The Chase Manhattan Bank, an affiliate of
Chase Securities Inc., and Fleet Bank and BankBoston, affiliates of FleetBoston
Robertson Stephens Inc.
We are currently in material compliance with the terms of our Dynamic
Details senior credit facility. The decision of Chase Securities Inc. to
participate in the offering was made independent of its affiliates that hold
approximately 12% of our securities and of The Chase Manhattan Bank. The
decision of FleetBoston
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Robertson Stephens Inc. to participate in the offering was made independent of
its affiliates, Fleet Bank and BankBoston. These affiliates had no involvement
in determining whether or when to distribute our common stock under this
offering or the terms of this offering. Chase Securities Inc. and FleetBoston
Robertson Stephens Inc. will not receive, exclusive of their affiliates that
will receive proceeds from this offering as described herein, any benefit from
this offering other than their portion of the underwriting commissions as paid
by us.
Prior to this offering, there was no established public trading market for
the common stock. The initial public offering price for the common stock will
be determined by negotiation between Credit Suisse First Boston Corporation and
us. The primary factors to be considered in determining the initial public
offering price include:
. the history of and the prospects of the industry in which we compete;
. the ability of our management;
. our past and present operations;
. our prospects for future earnings;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of securities of generally comparable
companies.
Credit Suisse First Boston Corporation may engage in over-allotment,
stabilizing transactions, syndicate covering transactions, and penalty bids in
accordance with Regulation M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market, subject to official notice of issuance,
or otherwise and, if commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the representatives of the underwriters on the same basis as
other allocations.
Other than the prospectus in electronic format, the information contained on
any underwriter's web site and any information contained on any other web site
maintained by an underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved or
endorsed by us or any underwriter in its capacity as an underwriter, and should
not be relied upon by investors.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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LEGAL MATTERS
The validity of the shares of common stock to be issued in this offering
will be passed upon for us by Ropes & Gray, Boston, Massachusetts. Some
partners of Ropes & Gray are members in RGIP LLC, which owned 65,776 shares of
common stock as of December 31, 1999. RGIP LLC is also an investor in the Bain
Capital funds. Legal matters in connection with this offering will be passed
upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Some partners of Skadden, Arps, Slate, Meagher & Flom LLP,
through their investment in Project Capital 1995 LLC, have a limited
partnership interest in Bain Capital Fund V, L.P. Such partners do not have the
power to vote or dispose of the shares owned by such fund. Ropes & Gray has,
from time to time, represented, and may continue to represent, some of the
underwriters in connection with various legal matters and the Bain Capital
funds and some of their affiliates, including us, in connection with various
legal matters.
EXPERTS
The financial statement of DDi Merger Co. as of April 6, 2000 included in
this prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of DDi Corp. as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Dynamic Circuits, Inc., for the
year ended December 31, 1997 included in this prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Symonds Limited as of March 31,
1999 and for the year then ended included in this prospectus have been so
included in reliance on the report of KPMG Audit Plc, independent accountants,
appearing elsewhere in this prospectus, and upon the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. With respect
to each contract, agreement or other document filed as an exhibit to the
registration statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus shall
be deemed qualified in its entirety by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in the files at the public
reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents upon payment of a duplicating fee by writing to the
SEC. You may call the SEC at 1-800-SEC-0330 for further information on the
operation of its public reference rooms. Our filings, including the
registration statement, will also be available to you on the Internet site
maintained by the SEC at http://www.sec.gov.
Our subsidiaries DDi Capital Corp. and Dynamic Details, Incorporated have,
and we will, file annual, quarterly and current reports and other information
with the SEC. You can request copies of these documents, for a copying fee, by
writing to the SEC. We intend to furnish our stockholders with annual reports
containing financial statements audited by our independent accountants.
73
<PAGE>
DDi CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DDi Merger Co.:
Report of Independent Accountants........................................ F-2
Balance Sheet as of April 6, 2000 ....................................... F-3
Notes to Financial Statement............................................. F-4
DDi Corp:
Report of Independent Accountants........................................ F-5
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............ F-6
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997..................................................... F-7
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1999, 1998 and 1997........................................ F-8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997..................................................... F-9
Notes to Consolidated Financial Statements............................... F-10
Dynamic Circuits Inc.:
Report of Independent Accountants........................................ F-35
Consolidated Statements of Income for the Year Ended December 31, 1997
and for the Six Months Ended June 30, 1998 and 1997 (unaudited)......... F-36
Consolidated Statements of Shareholders' Deficit for the Year Ended
December 31, 1997 and the Six Months Ended June 30, 1998 (unaudited).... F-37
Consolidated Statements of Cash Flows for the Year Ended December 31,
1997 and the Six Months Ended June 30, 1998 and 1997 (unaudited)........ F-38
Notes to Consolidated Financial Statements............................... F-39
Symonds Limited/MCM Electronics Limited:
Report of Independent Public Accountants................................. F-49
Consolidated profit and loss accounts.................................... F-50
Reconciliation of movements in consolidated shareholders' funds.......... F-51
Consolidated balance sheets.............................................. F-52
Consolidated cash flow statements........................................ F-53
Accounting policies...................................................... F-54
Notes to the financial statements........................................ F-57
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
DDi Merger Co.
In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of DDi Merger Co. at April 6, 2000, in
conformity with accounting principles generally accepted in the United States.
This financial statement is the responsibility of the Company's management; our
responsibility is to express an opinion on this financial statement based on
our audit. We conducted our audit of this statement in accordance with auditing
standards generally accepted in the United States which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Costa Mesa, California
April 6, 2000
F-2
<PAGE>
DDI MERGER CO.
BALANCE SHEET
April 6, 2000
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash.................................................................... $1,000
------
Total Assets............................................................ $1,000
======
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C>
Stockholder's Equity:
Preferred stock, $.01 par, 5,000,000 shares authorized, no shares
issued and outstanding $ --
Common Stock, $.001 par, 75,000,000 shares authorized, 100 shares
issued and outstanding................................................ --
Additional paid in capital............................................. 1,000
------
Total Liabilities and Stockholder's Equity............................ $1,000
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
DDI MERGER CO.
NOTES TO FINANCIAL STATEMENT
DDi Merger Co., (the "Company"), a Delaware corporation, was formed on March
22, 2000 and capitalized on April 6, 2000. Currently, the Company's only asset
is the $1,000 cash received from DDi Corp. as consideration for the issuance of
100 shares of the Company's common stock.
Immediately prior to the consummation of the initial public offering of the
Company, DDi Corp. will merge with and into the Company, with the Company being
the surviving corporation. At the time of the merger each holder of DDi Corp.
common stock will receive a percentage of the Company's common stock equal to
the percentage of DDi Corp. common stock owned by such holder immediately prior
to the merger. At the time of the merger, the Company will change its name to
DDi Corp.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
DDi Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' deficit and cash flows
present fairly, in all material respects, the financial position of DDi Corp.
("Holdings") and its subsidiaries (collectively, the "Company") at December 31,
1999 and 1998, and the results of their operations, changes in stockholders'
deficit and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
February 14, 2000
F-5
<PAGE>
DDi CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
December 31, As Adjusted
-------------------- Equity (unaudited)
1998 1999 (Note 2)
--------- --------- ------------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 2,109 $ 648
Accounts receivable, net............ 34,764 42,774
Income tax receivable............... 3,793 --
Inventories......................... 12,615 20,209
Prepaid expenses and other.......... 3,110 2,499
Deferred tax asset.................. 4,816 5,215
--------- ---------
Total current assets.............. 61,207 71,345
--------- ---------
Property, plant and equipment, net.... 61,018 63,209
Debt issue costs, net................. 15,929 13,833
Goodwill and other intangibles, net... 226,286 205,462
Other................................. 566 486
--------- ---------
$ 365,006 $354,335
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt
and capital lease obligations...... $ 4,390 $ 7,035
Current portion of deferred interest
rate swap income................... -- 1,458
Current maturities of deferred notes
payable............................ 2,788 2,514
Revolving credit facility........... 7,000 --
Accounts payable.................... 14,612 18,055
Accrued expenses ................... 17,151 22,311
Income tax payable.................. -- 894
--------- ---------
Total current liabilities......... 45,941 52,267
--------- ---------
Long-term debt and capital lease obli-
gations.............................. 462,498 469,703
Deferred interest rate swap income.... -- 3,881
Deferred notes payable................ 3,743 1,448
Deferred tax liability................ 21,913 13,420
Other................................. 686 731
--------- ---------
Total liabilities................. 534,781 541,450
--------- ---------
Commitments and contingencies (Note
13)
Stockholders' deficit:
Class L common stock, no par value,
cumulative yield of 12% per annum
compounded quarterly, liquidation
preference of $159,024 and $179,996
at December 31, 1998 and 1999,
respectively. 475,000 shares
authorized, 396,153 and 396,330
shares issued and outstanding at
December 31, 1998 and 1999,
respectively, no shares authorized,
issued or outstanding on a pro
forma basis........................ 147,157 147,216 $ --
Class A common stock, no par value,
5,175,000 shares authorized,
3,481,329 and 3,522,183 shares
issued and outstanding at December
31, 1998 and 1999, respectively, no
shares authorized, issued or
outstanding on a pro forma basis... 15,637 15,689 --
Common stock, $0.01 par value,
75,000,000 shares authorized,
24,750,000 shares issued and
outstanding after giving effect to
the reclassification on an as
adjusted basis..................... -- -- 247
Additional paid in capital.......... -- -- 162,658
Less: Stockholder receivables....... (648) (666) (666)
Accumulated deficit................. (331,921) (349,354) (349,354)
--------- --------- ---------
Total stockholders' deficit....... (169,775) (187,115) $(187,115)
--------- --------- =========
$ 365,006 $354,335
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DDi CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1998 1999
---------------------------------
<S> <C> <C> <C>
Net sales.................................. $ 78,756 $ 174,853 $ 292,493
Cost of goods sold......................... 38,675 119,559 202,387
--------- --------- -----------
Gross profit............................. 40,081 55,294 90,106
Operating expenses:
Sales and marketing...................... 7,278 12,801 23,613
General and administration............... 2,057 8,442 15,362
Amortization of intangibles.............. -- 10,899 22,262
Restructuring and other related charges.. -- -- 7,000
Stock compensation and related bonuses... 31,271 -- --
Compensation to former CEO............... 2,149 -- --
Write-off of acquired in-process research
and development......................... -- 39,000 --
--------- --------- -----------
Operating income (loss).................. (2,674) (15,848) 21,869
Interest expense (net), including interest
paid to former stockholder of $756, $781
and $723 in 1997, 1998 and 1999,
respectively.............................. 25,196 37,416 46,717
--------- --------- -----------
Loss before income taxes and
extraordinary loss...................... (27,870) (53,264) (24,848)
Income tax benefit......................... 10,858 3,566 7,415
--------- --------- -----------
Loss before extraordinary loss............. (17,012) (49,698) (17,433)
Extraordinary loss--early extinguishment of
debt, net of income tax benefit of $1,104
and $1,480 in 1997 and 1998,
respectively.............................. (1,588) (2,414) --
--------- --------- -----------
Net loss................................... (18,600) (52,112) (17,433)
Priority distribution due shares of Class L
common stock.............................. (1,075) (6,272) (14,112)
--------- --------- -----------
Net loss allocable to shares of Class A
common stock.............................. $ (19,675) $ (58,384) $ (31,545)
========= ========= ===========
Net loss per share of Class A common stock
(basic and diluted)....................... $ (10.42) $ (21.55) $ (9.01)
========= ========= ===========
Pro forma basic and diluted net loss per share (unaudited)..... $ (0.29)
===========
Pro forma weighted average shares outstanding (unaudited)...... 24,677,563
===========
Supplemental pro forma basic and diluted net loss per share
(unaudited)................................................... $ (0.20)
===========
Supplemental pro forma weighted average shares outstanding
(unaudited)................................................... 35,708,813
===========
</TABLE>
- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
DDi CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Convertible Old Common Class L Class A
Preferred Stock Stock Common Stock Common Stock Additional
---------------- --------------- ---------------- ----------------- Paid-In Stockholder
Shares Amount Shares Amount Shares Amount Shares Amount Capital Receivables
------ -------- ------ ------- ------- -------- --------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 6,601 $ 13,532 2,758 $ 5,301 -- $ -- -- $ -- $ -- $ --
Accretion of
temporary equity
to fair value... -- -- -- -- -- -- -- -- -- --
Compensation
expense on
vesting of
options......... -- -- -- -- -- -- -- -- 21,220 --
Equity
exchanges,
cancellations
and
distributions to
stockholders
(net of fees of
$3,499)......... (6,601) (13,532) (2,758) (5,301) -- -- -- -- (21,220) --
Recapitalization
(net of fees of
$1,130)......... -- -- -- -- 208,381 66,966 1,883,120 12,052 -- (634)
Issuance of
common stock in
NTI
acquisition..... -- -- -- -- 25,213 9,180 204,000 1,020 -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
------ -------- ------ ------- ------- -------- --------- ------- ------- -----
Balance, December
31, 1997......... -- -- -- -- 233,594 76,146 2,087,120 13,072 -- (634)
Issuance of common stock in
DCI merger...... -- -- -- -- 162,065 70,831 1,269,600 2,415 -- --
Issuance of
common stock
upon exercise of
stock options... -- -- -- -- -- -- 116,953 114 -- --
Issuance of
common stock.... -- -- -- -- 494 180 7,656 36 -- --
Accrued interest
on stockholder
receivables..... -- -- -- -- -- -- -- -- -- (41)
Repayment of
stockholder
receivables .... -- -- -- -- -- -- -- -- -- 27
Net loss ....... -- -- -- -- -- -- -- -- -- --
------ -------- ------ ------- ------- -------- --------- ------- ------- -----
Balance, December
31, 1998......... -- -- -- -- 396,153 147,157 3,481,329 15,637 -- (648)
Issuance of
common stock
upon exercise of
stock options... -- -- -- -- -- -- 39,455 45 -- --
Issuance of
common stock.... -- -- -- -- 177 59 1,399 7 -- --
Accrued interest
on stockholder
receivables..... -- -- -- -- -- -- -- -- -- (34)
Repayment of
stockholder
receivables..... -- -- -- -- -- -- -- -- -- 16
Net loss........ -- -- -- -- -- -- -- -- -- --
------ -------- ------ ------- ------- -------- --------- ------- ------- -----
Balance, December
31, 1999......... -- $ -- -- $ -- 396,330 $147,216 3,522,183 $15,689 $ -- $(666)
====== ======== ====== ======= ======= ======== ========= ======= ======= =====
<CAPTION>
Temporary Stockholders'
Equity
------------------------------
Redeemable Common
Accumulated Common Stock
Deficit Total Stock Warrants Total
----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... $(133,612) $(114,779) $ 38,906 $ 3,200 $ 42,106
Accretion of
temporary equity
to fair value... (41,244) (41,244) 38,094 3,150 41,244
Compensation
expense on
vesting of
options......... -- 21,220 -- -- --
Equity
exchanges,
cancellations
and
distributions to
stockholders
(net of fees of
$3,499)......... (86,353) (126,406) (77,000) (6,350) (83,350)
Recapitalization
(net of fees of
$1,130)......... -- 78,384 -- -- --
Issuance of
common stock in
NTI
acquisition..... -- 10,200 -- -- --
Net loss........ (18,600) (18,600) -- -- --
----------- ---------- ---------- --------- ---------
Balance, December
31, 1997......... (279,809) (191,225) -- -- --
Issuance of common stock in
DCI merger...... -- 73,246 -- -- --
Issuance of
common stock
upon exercise of
stock options... -- 114 -- -- --
Issuance of
common stock.... -- 216 -- -- --
Accrued interest
on stockholder
receivables..... -- (41) -- -- --
Repayment of
stockholder
receivables .... -- 27 -- -- --
Net loss ....... (52,112) (52,112) -- -- --
----------- ---------- ---------- --------- ---------
Balance, December
31, 1998......... (331,921) (169,775) -- -- --
Issuance of
common stock
upon exercise of
stock options... -- 45 -- -- --
Issuance of
common stock.... -- 66 -- -- --
Accrued interest
on stockholder
receivables..... -- (34) -- -- --
Repayment of
stockholder
receivables..... -- 16 -- -- --
Net loss........ (17,433) (17,433) -- -- --
----------- ---------- ---------- --------- ---------
Balance, December
31, 1999......... $(349,354) $(187,115) $ -- $ -- $ --
=========== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
DDi CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (18,600) $ (52,112) $(17,433)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Write-off of acquired in-process research
and development............................ -- 39,000 --
Restructuring and other related charges..... -- -- 7,000
Depreciation................................ 2,568 9,212 14,413
Amortization of debt issuance costs and
discount................................... 13,972 15,678 16,226
Amortization of goodwill and intangible
assets..................................... -- 10,899 22,262
Amortization of deferred interest rate swap
income..................................... -- -- (724)
Deferred income taxes....................... (3,834) (4,478) (8,892)
Interest income on stockholder receivables.. -- (41) (34)
Stock compensation expense.................. 21,271 -- --
Change in operating assets and liabilities,
net of acquisitions:
(Increase) decrease in accounts receivable.. (2,249) 196 (7,703)
(Increase) decrease in inventories.......... (397) 5 (9,813)
(Increase) decrease in prepaid expenses and
other...................................... (905) 2,422 (1,066)
Increase (decrease) in current income
taxes...................................... (8,757) 4,744 4,687
Increase (decrease) in accounts payable..... 1,106 (3,943) 3,227
Increase (decrease) in accrued expenses..... 4,924 (4,887) 2,662
--------- --------- --------
Net cash provided by operating
activities............................... 9,099 16,695 24,812
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment........................ (6,000) (15,925) (18,225)
Acquisition of NTI, less cash acquired........ (38,948) -- --
NTI acquisition-related expenditures.......... -- (218) --
Merger with DCI, less cash acquired........... -- (178,670) --
DCI merger-related expenditures............... -- -- (323)
--------- --------- --------
Net cash used in investing activities..... (44,948) (194,813) (18,548)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Bridge Loans.... 140,000 -- --
Repayment of Bridge Loans..................... (140,000) -- --
Proceeds from issuance of long-term debt...... 276,455 288,425 --
Payments on long-term debt.................... (99,300) (106,089) (3,263)
Net borrowings (repayments) on the revolving
credit facility.............................. -- 7,000 (7,000)
Payments of debt issuance and capital costs... (19,469) (8,324) --
Payments of deferred note payable............. -- (1,611) (2,569)
Principal payments on capital lease
obligations.................................. (459) (809) (1,016)
Cash dividends paid........................... (128) -- --
Redemption of Old Common Stock................ (188,143) -- --
Issuance of common stock...................... 72,101 217 --
Payments of escrow payable to redeemed
stockholders................................. -- (4,100) --
Repayment of stockholder receivables.......... -- 27 16
Proceeds from interest rate swaps............. -- -- 6,062
Proceeds from exercise of stock options....... -- 114 45
--------- --------- --------
Net cash provided by (used in) financing
activities............................... 41,057 174,850 (7,725)
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................... 5,208 (3,268) (1,461)
Cash and cash equivalents, beginning of year... 169 5,377 2,109
--------- --------- --------
Cash and cash equivalents, end of year......... $ 5,377 $ 2,109 $ 648
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The consolidated financial statements include the accounts of DDi Corp.
(formerly known as Details Holdings Corp.) ("Holdings" or "Parent") and
subsidiaries. As used herein, the "Company" means Holdings and its
subsidiaries.
In connection with the Recapitalization (as defined below), Holdings changed
its name to Details Holdings Corp., incorporated Details, Inc. (now Dynamic
Details, Incorporated ("Details" or "DDi")) as a wholly-owned subsidiary and
contributed substantially all of its assets, subject to certain liabilities, to
Details. In November 1997, Holdings organized Details Capital Corp. (now DDi
Capital Corp.) ("DDi Capital") as a wholly-owned subsidiary and, in February
1998, contributed substantially all its assets (including the shares of common
stock of Details), subject to certain liabilities, including discount notes (as
described in Note 6, the "Capital Senior Discount Notes"), to Details Capital.
In July 1998, Holdings organized Details Intermediate Holdings Corp. (now DDi
Intermediate Holdings Corp.) ("Intermediate") as a wholly-owned subsidiary and
contributed all of the shares of common stock of Details Capital to
Intermediate. Other than the Intermediate Senior Discount Notes (as described
in Note 6) and the Capital Senior Discount Notes, related debt issue costs and
deferred tax balances, all significant assets and liabilities of Holdings are
those of DDi. DDi, in conjunction with Dynamic Details Design, LLC, a wholly-
owned subsidiary of Intermediate formed in 1998, represent the operating
divisions of Holdings.
The consolidated financial statements include the accounts of Holdings'
wholly-owned subsidiaries Colorado Springs Circuits Inc. ("NTI") (d/b/a Dynamic
Details, Inc.-Colorado Springs) commencing on December 22, 1997 (date of
acquisition) and Dynamic Circuits, Inc. ("DCI") (d/b/a Dynamic Details, Inc.-
Silicon Valley) commencing on July 23, 1998 (date of merger). All intercompany
transactions have been eliminated in consolidation.
Recapitalization--On October 28, 1997, the Recapitalization of Holdings took
place as follows: (i) DI Acquisition Corp. ("DIA"), a transitory merger
corporation, was capitalized with a $62.4 million investment from (a)
investment funds associated with Bain Capital, Inc. ($46.3 million), (b) Chase
Manhattan Capital, L.P. and its affiliates ("CMC") ($11.2 million) and
(c) other investors ($4.9 million); (ii) DIA, which had no operations and was
formed solely for the purpose of effecting the Recapitalization, merged with
and into Holdings with Holdings surviving the merger; (iii) certain
stockholders and option holders of Holdings received an aggregate amount of
cash equal to approximately $184.3 million (plus future escrow payments of
approximately $8.6 million); (iv) CMC retained approximately 7.7% of the fully-
diluted equity of Holdings, and certain other stockholders of Holdings retained
approximately 2.8% of the fully-diluted equity of Holdings (in each case after
giving effect to the Recapitalization and related transactions); (v) management
retained approximately 17.1% (including certain options to acquire shares of
common stock of Holdings) of the fully-diluted equity of Holdings and acquired
additional shares and options to acquire additional shares representing 10.4%
of the fully-diluted equity of Holdings (in each case after giving effect to
the Recapitalization and related transactions); (vi) the Company obtained $140
million of bridge loans; and (vii) the Company obtained borrowings under DDi's
senior term facility (as described in Note 6, the "Senior Term Facility") of
$91.4 million. The existing shareholders prior to the Recapitalization retained
in excess of 20% of the fully diluted common stock of Holdings after the
Recapitalization and, accordingly, push-down accounting was not reflected in
the accompanying consolidated financial statements as permitted by Staff
Accounting Bulletin No. 54 of the Securities and Exchange Commission. The
merger of DIA referred to above was reflected in the accompanying consolidated
financial statements as a Recapitalization and, accordingly, the historical
bases of the Company's assets and liabilities were not affected.
F-10
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Nature of Business
The Company is a leading provider of time-critical, technologically advanced
design, development and manufacturing services to original equipment
manufacturers and electronics manufacturing service providers, primarily
involving complex printed circuit boards. The Company serves over 1,400
customers, primarily in the United States, in the telecommunications, computer
and networking industries.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents--Management defines cash and cash equivalents as
highly liquid deposits with a remaining maturity of 90 days or less. The
Company maintains cash and cash equivalents balances at certain financial
institutions in excess of amounts insured by federal agencies. Management does
not believe that as a result of this concentration it is subject to any unusual
financial risk beyond the normal risk associated with commercial banking
relationships.
Inventories--Inventories include freight-in, materials, labor and
manufacturing overhead costs and are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) method.
Property, plant and equipment--Property, plant and equipment are stated at
cost or in the case of property, plant and equipment acquired through business
combinations, at fair value based upon allocated purchase price at the
acquisition date. Depreciation is provided over the estimated useful lives of
the assets using both the straight-line and accelerated methods. For leasehold
improvements, amortization is provided over the shorter of the estimated useful
lives of the assets or the lease term and included in the caption depreciation
expense. See Note 5 for additional information.
Debt issue costs and debt discounts--The Company deferred certain debt issue
costs relating to the establishment of its various debt facilities and the
issuance of its debt instruments (see Note 6). These costs are capitalized and
amortized over the expected term of the related indebtedness using the
effective interest method.
The Company issued both the Capital Senior Discount Notes and the
Intermediate Senior Discount Notes (both as defined in Note 6) at a discount.
Discounts are reflected in the accompanying balance sheets as a reduction of
face value and are amortized over the expected term of the related indebtedness
using the effective interest method. Amortization included as interest expense
amounted to approximately $0.9 million, $9.9 million and $14.1 million for the
years ended December 31, 1997, 1998 and 1999, respectively.
Goodwill and identifiable intangibles--The Company amortizes the goodwill
recorded as a result of the acquisition of NTI and the merger with DCI (see
Note 14) on a straight-line basis over 25 years and 20 years, respectively,
from the date of each transaction. Management believes that the estimated
useful lives established at the dates of each transaction were reasonable based
on the economic factors applicable to each of the businesses. Identifiable
intangibles represent assets acquired through business combinations, and are
stated at their fair values based upon purchase price allocations as of the
transaction date. At December 31, 1998 and 1999, these assets are primarily
comprised of developed technologies, customer relationships/tradenames, and
assembled workforce. The developed technology assets are being charged to
income over their estimated useful lives of 10 years, using an accelerated
method of amortization, reflective of the relative contribution of each
developed technology in periods following the transaction date. The customer
relationships/tradenames and assembled workforce assets are being amortized on
a straight-line basis over their estimated useful lives of 18 years and 4
years, respectively. As of December 31, 1998 and 1999, the accumulated
amortization related to goodwill and identifiable intangibles was approximately
$10.9 million and $33.1 million, respectively.
F-11
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Revenue recognition--The Company recognizes revenue from the sale of its
products upon shipment to its customers. The Company provides a normal warranty
on its products and accrues an estimated amount for this expense at the time of
the sale.
Concentration of credit risk--Financial instruments which potentially expose
the Company to concentration of credit risk consist principally of trade
accounts receivable. To minimize this risk, the Company performs ongoing credit
evaluations of customers' financial condition and maintains reserves; the
Company, however, generally does not require collateral. In 1999, no individual
customer accounted for 10% or more of the Company's net sales. As of December
31, 1999, one individual customer accounted for 10% of the Company's total
receivables. On a pro forma basis (assuming the merger with DCI occurred at the
beginning of 1998) for the year ended December 31, 1998, no individual customer
accounted for 10% or more of the Company's net sales; and as of December 31,
1998, no individual customer accounted for 10% or more of the Company's total
accounts receivable. In 1997, a significant portion of the Company's sales were
made to two customers. One of these customers accounted for 13% of the
Company's total sales in 1997, with the second customer accounting for 10%.
Environmental matters--The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations and
from which no current or future benefit is discernible. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Company determines its
liability on a site by site basis and records a liability at the time when it
is probable and can be reasonably estimated. To date, such costs have not been
material (see Note 13).
Income taxes--The Company records on its balance sheet deferred tax assets
and liabilities for expected future tax consequences of events that have been
recognized in different periods for financial statement purposes versus tax
return purposes. Management provides a valuation allowance for net deferred tax
assets when it is more likely than not that a portion of such net deferred tax
assets will not be recovered through future operations (see Note 12).
Long-lived assets--The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires that long-
lived assets, including goodwill, be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluates potential impairment by comparing the
carrying amount of the assets with the estimated undiscounted cash flows
associated with them. If an impairment exists, the Company measures the
impairment utilizing discounted cash flows.
Derivative financial instruments--The Company has only limited involvement
with derivative financial instruments. As of December 31, 1998, the Company had
entered into interest rate exchange agreements ("Swap Agreements") to reduce
the risk of fluctuations in interest rates applicable to its Senior Term
Facility (see Note 6). In January 1999, the Company elected to modify the terms
of its Swap Agreements, resulting in no gain or loss. In June 1999, the Company
elected to terminate and concurrently replace its Swap Agreements (as
modified). The gain recognized from the termination of the Swap Agreements,
along with the proceeds received from the execution of the new interest rate
exchange agreements ("New Swap Agreements") will be amortized over the term of
the respective Swap Agreements using the effective interest method. Amounts to
be paid to/(received from) counterparties under its interest rate exchange
agreements are reflected as increases/(decreases) to periodic interest expense
(see Note 8).
F-12
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Stock options--The Company has adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which establishes a fair value based method of accounting
for compensation cost related to stock option plans and other forms of stock-
based compensation plans. The Company has elected to provide the pro forma
disclosures as if the fair value based method had been applied. In accordance
with SFAS No. 123, the Company applies the intrinsic value based method of
accounting defined under Accounting Principles Board Opinion No. 25 ("APB
Opinion No. 25"), and accordingly, does not recognize compensation expense for
its plans to the extent employee options are issued at exercise prices equal to
or greater than the fair market value at the date of grant.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and their reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basic and diluted earnings per share--The Company has adopted the provisions
of SFAS No. 128 "Earnings Per Share." SFAS 128 requires the Company to report
both basic net income (loss) per share, which is based on the weighted average
number of common shares outstanding, excluding contingently issuable shares
such as the Class L common shares that contingently convert into common stock
upon certain events, and diluted net income (loss) per share, which is based on
the weighted average number of common shares outstanding and dilutive potential
common shares outstanding. Class A and Class L common stock share ratably in
the net income (loss) remaining after giving effect to the 12% yield on the
Class L common stock. As a result of the losses incurred by the Company during
1997, 1998 and 1999, all potential common shares were anti-dilutive and
excluded from the diluted net income (loss) per share calculation. For the
years ended December 31, 1997, 1998 and 1999, contingently issuable shares of
353,000, 3,015,000, and 3,914,000 and options of 116,000, 216,000, and 273,000,
respectively, were excluded from the calculation as their effect is anti-
dilutive.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net loss per share of Class A common
stock.................................. $(18,600) $(52,112) $(17,433)
Priority distribution due shares of
Class L common stock................... (1,075) (6,272) (14,112)
--------- --------- ---------
Net loss allocable to shares of Class A
common stock........................... $(19,675) $(58,384) $(31,545)
========= ========= =========
Denominator:
Weighted average shares of Class A
common stock outstanding............... 1,887,591 2,709,440 3,501,582
========= ========= =========
</TABLE>
Unaudited as adjusted equity--The as adjusted equity at December 31, 1999
adjusts the historical equity at December 31, 1999 to give effect to the
anticipated Reclassification (defined below) based on an initial public
offering price of $16.00 per share to be effective prior to the closing of the
anticipated initial public offering and an assumed closing date of April 17,
2000.
Unaudited pro forma loss per share--Unaudited pro forma basic and diluted
net loss per share for the year ended December 31, 1999 have been calculated
based on net loss allocable to all classes of common stock and assuming the
reclassification of the Company's Class A and L common stock prior to the
completion of this
F-13
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
offering, as if such reclassification had occurred at the beginning of the
period or the date of issuance of the stock, if later. Each share of Class L
common stock will be converted into one share of Class A common stock plus an
additional number of shares of Class A common stock (determined by dividing the
preference amount of such share by the assumed initial public offering price of
$16.00 per share). Each share of Class A common stock will then convert into
shares of new common stock. These events are herein defined as the
"Reclassification".
Unaudited supplemental pro forma loss per share--Some of the proceeds of the
Company's anticipated public offering will be used to retire indebtedness under
its Intermediate Senior Discount Notes, Capital Senior Discount Notes, and
Senior Term Facility (see Note 6). Accordingly, the supplemental pro forma net
loss assumes these retirements had taken place at the beginning of the period,
and the amount of interest expense eliminated, net of income tax, is $10,380
for the year ended December 31, 1999. The pro forma weighted average shares
outstanding assumes that the proceeds of the sale of 11,031,250 shares of
common stock were used to retire debt.
Reclassifications--Certain prior year amounts have been reclassified to
conform with the 1999 presentation.
Recently issued accounting standards-- In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes requirements for reporting and
disclosure of comprehensive income and its components. This statement became
effective for the Company's fiscal year ending December 31, 1998. For 1998 and
1999, the Company has no elements which give rise to reporting comprehensive
income.
In June 1997, the FASB also issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 modifies the disclosure
requirements for reportable operating segments. This statement became effective
for the Company's fiscal year ending December 31, 1998. This pronouncement
currently has had no significant impact on the reporting practices of the
Company since its adoption. Until such time as the Company diversifies its
operations, management believes such pronouncement will not be applicable.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 137, issued by the FASB in July 1999,
establishes a new effective date for SFAS No. 133. This statement, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000 and is therefore effective for the Company beginning with
its fiscal quarter ending March 31, 2001. Based upon the nature of the
financial instruments and hedging activities in effect as of the date of this
filing, this pronouncement would require the Company to reflect the fair value
of its derivative instruments (see Note 8) on the consolidated balance sheet.
Changes in fair value of these instruments will be reflected as a component of
comprehensive income. The Company will adopt SFAS No. 133 effective January 1,
2001.
3. ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Accounts receivable...................................... $36,192 $44,358
Less: Allowance for doubtful accounts.................... (1,428) (1,584)
------- -------
$34,764 $42,774
======= =======
</TABLE>
F-14
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Raw materials.............................................. $ 6,628 $11,828
Work-in-process............................................ 4,406 5,601
Finished goods............................................. 1,581 2,780
------- -------
$12,615 $20,209
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Buildings and leasehold improvements................... $ 17,255 $ 18,245
Machinery and equipment................................ 61,441 73,092
Office furniture and equipment......................... 8,352 11,538
Vehicles............................................... 240 250
Land................................................... 2,235 2,235
Deposits on equipment.................................. 2,712 3,902
-------- --------
92,235 109,262
Less: Accumulated depreciation......................... (31,217) (46,053)
-------- --------
$ 61,018 $ 63,209
======== ========
</TABLE>
The depreciable lives assigned to buildings are 30-40 years. Existing
leaseholds are depreciated over 7-15 years. Machinery, office furniture,
equipment and vehicles are each depreciated over 3-7 years. Deposits are not
depreciated as the related asset has not been placed into service.
Buildings and leasehold improvements include capital leases of approximately
$5.1 million with related accumulated depreciation of approximately $1.5
million and $2.0 million at December 31, 1998 and 1999, respectively. Machinery
and equipment includes capital leases of approximately $4.2 million with
related accumulated depreciation of approximately $1.1 million and $1.6 million
at December 31, 1998 and 1999, respectively.
F-15
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Senior Term Facility.................................... $255,000 $251,738
10.0% Senior Subordinated Notes......................... 100,000 100,000
12.5% Capital Senior Discount Notes, face amount
$110,000 net of unamortized discount of $41,195 and
$32,283 at December 31, 1998 and 1999, respectively.... 68,805 77,717
13.5% Intermediate Senior Discount Notes, face amount
$66,810 net of unamortized discount of $31,267 and
$26,051 at December 31, 1998 and 1999, respectively.... 35,543 40,759
Capital lease obligations............................... 7,540 6,524
-------- --------
466,888 476,738
Less: current maturities................................ (4,390) (7,035)
-------- --------
$462,498 $469,703
======== ========
</TABLE>
Senior Credit Facility
In connection with the merger with DCI (see Note 14), DDi entered into an
agreement with a co-syndication of banks, including Chase Manhattan Bank, N.A.
and Bankers Trust Company. Borrowings under this agreement consist of the
Senior Term Facility and the Revolving Credit Facility (collectively, the
"Senior Credit Facility"). Under the terms of this agreement, DDi must comply
with certain restrictive covenants, which include the requirement that DDi meet
certain financial tests. In addition, DDi is restricted from making certain
payments, including dividend payments to its stockholders. The Senior Credit
Facility is jointly and severally guaranteed by Intermediate and DDi Capital,
and is collateralized by a pledge of substantially all of the capital stock of
DDi and certain of its subsidiaries. The Senior Credit Facility expires in
April 2005.
Senior Term Facility
Under the Senior Term Facility, $255 million ($105 million under Tranche A
and $150 million under Tranche B) was advanced to DDi in connection with the
merger with DCI (see Note 14) on July 23, 1998. Scheduled principal and
interest payments are due quarterly beginning June 30, 1999 (other than with
respect to the last installment, which is due on July 22, 2004 and April 22,
2005 for Tranche A and Tranche B, respectively). Borrowings under the Senior
Term Facility bear interest at a floating rate at DDi's option at a rate equal
to either (1) 2.25%, for Tranche A, and 2.50%, for Tranche B, per annum plus
the applicable LIBOR rate or (2) 1.25%, for Tranche A, and 1.50%, for Tranche
B, per annum plus the higher of (a) the applicable prime lending rate of The
Chase Manhattan Bank (8.5% at December 31, 1999) or (b) the federal reserve
reported overnight funds rate plus 1/2 of 1% per annum (the "Index Rate"). The
applicable margin of 2.25% for Tranche A is subject to reduction in accordance
with an agreed upon pricing grid based on decreases in the Company's
consolidated leverage ratio, defined as consolidated total debt to consolidated
EBITDA (earnings before net interest expense, income taxes, depreciation,
amortization and extraordinary or non-recurring expenses). As of December 31,
1999, the Company elected the LIBOR rate (6.5% at December 31, 1999), reset
monthly.
F-16
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Revolving Credit Facility
DDi also has a $45.0 million Revolving Credit Facility for revolving credit
loans, letters of credit and swing line loans which expires on July 22, 2004.
Advances under the Revolving Credit Facility bear interest at DDi's option at a
rate equal to either (1) 2.25% per annum plus the applicable LIBOR rate or (2)
1.25% per annum plus the Index Rate. In addition, DDi is required to pay a fee
of 1/2 of 1% per annum on the average unused commitment under the Revolving
Credit Facility. At December 31, 1998, DDi had borrowings outstanding of $7.0
million on this Revolving Credit Facility. At December 31, 1999, DDi had no
borrowings outstanding on this Revolving Credit Facility and had $0.7 million
reserved against the Revolving Credit Facility for a letter of credit. The
Company intends to paydown the balance from time-to-time, therefore it is
classified as current in the accompanying consolidated balance sheets. As of
December 31, 1999, the Company elected the LIBOR rate (6.5% at December 31,
1999), reset monthly.
Senior Subordinated Notes
Subsequent to the Recapitalization, on November 18, 1997, DDi issued $100
million of Senior Subordinated Notes. The Senior Subordinated Notes bear
interest at 10% per annum, payable semi-annually in arrears on each May 15 and
November 15 of each year, through the maturity date on November 15, 2005.
Except as described below, DDi may not redeem the Senior Subordinated Notes
prior to November 15, 2001. Prior to November 15, 2000, however, up to 40% of
the Senior Subordinated Notes, at a redemption price of 110% of the principal
amount thereof, plus accrued and unpaid interest, may be redeemed at DDi's
option with the net proceeds of the sale in public offerings of common stock of
Holdings (provided that at least 60% of the original principal amount of the
Subordinated Notes remains outstanding immediately after such redemption). On
or after November 15, 2001, the Senior Subordinated Notes may be redeemed at
the option of DDi, in whole or in part from time to time, at redemption prices
ranging from 105% of principal amount in the year ended November 15, 2001 to
100% of principal amount subsequent to November 15, 2004, plus accrued and
unpaid interest.
The Senior Subordinated Notes are guaranteed, on a senior subordinated
basis, jointly and severally, by DDi Capital and its wholly-owned subsidiaries
(the "Guarantors"). The Senior Subordinated Note indenture also contains
covenants that restrict the Guarantors from incurring additional indebtedness
and from making certain payments, including dividend payments to its
stockholders.
Capital Senior Discount Notes
In 1997, subsequent to the Recapitalization, Holdings issued $110 million
face amount at maturity (net proceeds of $60.1 million) of senior discount
notes ("Capital Senior Discount Notes"), and DDi Capital later succeeded to
Holdings obligations under the Capital Senior Discount Notes. The Capital
Senior Discount Notes are unsecured, senior obligations and will be effectively
subordinated to all future indebtedness and liabilities of DDi Capital's
subsidiaries. The Capital Senior Discount Notes begin bearing cash interest of
12.5% at November 15, 2002, payable each May 15 and November 15 in arrears,
through the maturity date of November 15, 2007.
Except as described below, DDi Capital may not redeem the Capital Senior
Discount Notes prior to November 15, 2002. Prior to November 15, 2000, however,
up to 40% of the Capital Senior Discount Notes, at a redemption price of 112.5%
of the accreted principal amount thereof, plus accrued and unpaid interest, may
be redeemed at DDi Capital's option with the net proceeds of the sale in public
offerings of common stock of Holdings (provided that at least 60% of the
original principal amount of the Capital Senior Discount Notes
F-17
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
remains outstanding immediately after such redemption). On or after November
15, 2002, the Capital Senior Discount Notes may be redeemed at the option of
DDi Capital, in whole or in part from time to time, at redemption prices
ranging from 106.25% of accreted principal amount in the year ended November
15, 2002 to 100% of accreted principal amount subsequent to November 15, 2005,
plus accrued and unpaid interest.
The Capital Senior Discount Note indenture also contains covenants that
restrict the Company from incurring additional indebtedness and from making
certain payments, including dividend payments to its stockholders.
Intermediate Senior Discount Notes
In July 1998, Intermediate issued senior discount notes ("Intermediate
Senior Discount Notes") in conjunction with the merger with DCI (see Note 14),
the proceeds of which amounted to approximately $33 million. The Intermediate
Senior Discount Notes are unsecured, senior obligations and will be effectively
subordinated to all future indebtedness and liabilities of Intermediate's
subsidiaries. These notes accrete in value at a rate of 13.5%, compounded
semi-annually and have a stated maturity of June 30, 2008. These notes have a
stated principal at maturity of approximately $67 million, although
approximately 43% of the stated principal amount of the debt is due December
2003. Cash interest begins accruing as of June 30, 2003 and will be payable
each June 30 and December 31, in arrears, commencing December 31, 2003 through
the maturity date. This debt is redeemable at Intermediate's option, in whole
or in part, at any time, at redemption prices which decrease throughout the
life of the debt. Prior to June 30, 2003, the redemption price is an amount
sufficient to generate, to the holders of this debt, an internal rate of return
per annum on the initial offering price ranging from 18% to 20%. Subsequent to
June 30, 2003, the redemption prices range from 106.75% of accreted principal,
decreasing 2.25% per annum to 100% of accreted principal subsequent to June 30,
2006, plus accrued but unpaid interest.
The Intermediate Senior Discount Note indenture also contains covenants
limiting, among other things, dividends, asset sales, and transactions with
affiliates. These restrictions apply both to Intermediate and its subsidiaries.
Debt Issue Costs
In connection with establishing its various debt facilities and the issuance
of its debt instruments, the Company incurred approximately $17.3 million in
fees which have been capitalized as debt issue costs. Accumulated amortization
as of December 31, 1998 and 1999 was approximately $1.4 million and $3.5
million, respectively. During 1997, certain debt was retired and the net
carrying amount of the related debt issue costs was written off, resulting in
an extraordinary loss of $1.6 million, net of related income tax of $1.1
million. During 1998, certain debt was retired and the net carrying amount of
the related debt issue costs was written off, resulting in an extraordinary
loss of $2.4 million, net of related income taxes of $1.5 million.
Change of Control
Upon a change in control, as defined in the Senior Subordinated Note and the
Capital Senior Discount Note indentures, DDi or DDi Capital may redeem the
Senior Subordinated Notes or the Capital Senior Discount Notes, respectively,
in whole, but not in part, before November 15, 2002 at 100% of principal in the
case of the Senior Subordinated Notes, or 100% of the accreted value in the
case of the Capital Senior Discount Notes, plus the applicable premium, as
defined in the Senior Subordinated Note and the Capital Senior Discount Note
indentures, and accrued and unpaid interest as of the date of redemption. In
the event the Company does not elect to redeem the notes prior to such date,
each holder of the Subordinated Notes and
F-18
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Capital Senior Discount Notes may require DDi or DDi Capital, respectively, to
repurchase all or a portion of such holder's notes at a cash purchase price
equal to 101% of the principal amount or the accreted value, plus accrued and
unpaid interest if any, to the date of repurchase. The Intermediate Senior
Discount Note indenture provides that in the event of such a change in control,
each holder of the Intermediate Senior Discount Notes will have the right to
have Intermediate redeem all or any part of the portion of the Intermediate
Senior Discount Notes then outstanding, at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest (or accreted
value), if any to the date of purchase. The Senior Credit Facility provides
that the occurrence of such a change in control constitutes an event of
default, which could require the immediate repayment of the Senior Credit
Facility.
Exchange Offer
On March 24, 1998, the Company consummated exchange offers of previously
unregistered Capital Senior Discount Notes and Senior Subordinated Notes for
registered notes (with terms identical in all material respects) on Form S-4
under the Securities Act of 1933, as amended.
Related Party Transactions
In connection with the Recapitalization and related transactions subsequent
thereto, CMC, a shareholder, and its affiliates The Chase Manhattan Bank, N.A.
("Chase") and Chase Securities Inc. were paid fees and expenses aggregating
approximately $16 million and CMC and Chase received common stock warrants
valued at approximately $3.4 million (see Note 11).
In conjunction with the merger with DCI in 1998 (see Note 14), Chase acted
as collateral, co-syndication, and administrative agent with regard to the
establishment of the Senior Credit Facility. In this capacity, Chase received
$2.4 million in fees. Chase also participates as a lender in the syndication,
and is a counterparty to one of the Company's interest rate exchange
agreements, under terms similar to those of the other participants and
counterparties.
The Company has a management agreement with Bain Capital Partners V, L.P.
("Bain"), an affiliate of Bain Capital Funds, the controlling shareholders,
under which Bain is entitled to management fees (see Note 13).
Future Payments
As of December 31, 1999, the scheduled future annual principal payments of
long-term debt are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
2000............................................................ $ 5,925
2001............................................................ 19,838
2002............................................................ 25,875
2003............................................................ 60,713
2004............................................................ 72,225
Thereafter...................................................... 343,972
--------
$528,548
========
</TABLE>
F-19
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Accrued salaries and related benefits..................... $ 4,253 $ 7,347
Accrued interest payable.................................. 1,438 1,307
Accrued restructuring charges............................. -- 2,600
Other accrued expenses.................................... 7,560 7,157
Escrow payable to redeemed stockholders................... 3,900 3,900
------- -------
$17,151 $22,311
======= =======
</TABLE>
8. DERIVATIVES
Pursuant to its interest rate risk management strategy and to certain
requirements imposed by the Company's Senior Credit Facility (see Note 6), the
Company entered into two interest rate exchange agreements ("Swap Agreements"),
effective October 1, 1998. Together these agreements represented an effective
cash flow hedge of the variable rate of interest (1-month LIBOR) paid under the
Senior Term Facility, minimizing exposure to increases in interest rates
related to this debt over its scheduled term. Under the Swap Agreements, the
Company received a variable rate of interest (1-month LIBOR) and paid a fixed
rate of interest (blended annual rate of 5.27%). These rates were applied to a
notional amount ($255 million from October 1 through December 31, 1998) which
decreases at such times, and in such amounts, as to conform with the principle
outstanding under the Senior Term Facility through its scheduled maturity in
2005. In January 1999, the Company and each counterparty agreed to modify
certain features of the Swap Agreements. In return for a reduction in the
blended fixed rate of interest paid by the Company (to 4.96% per annum), the
counterparties were granted the option to terminate their respective agreements
on January 31, 2002.
In June 1999, the Company elected to terminate and concurrently replace the
Swap Agreements. The Company received cash proceeds of approximately $6.1
million from these transactions which will be recognized as a reduction to
interest expense. Of this amount, approximately $5.6 million represents the
gain from the termination of the Swap Agreements and will therefore be
amortized using the effective interest method through January 2002, the
original scheduled maturity of the Swap Agreements. The remaining $0.5 million
represents proceeds from the execution of the new interest rate exchange
agreements ("New Swap Agreements") and will be amortized into interest expense
using the effective interest method through April 2005, over the term of the
New Swap Agreements. It is anticipated that the impact of this amortization
will not materially affect interest expense in any period.
The New Swap Agreements represent an effective cash flow hedge, consistent
with the nature of the Swap Agreements. Under the terms of the New Swap
Agreements, the Company pays a maximum annual rate of interest applied to a
notional amount equal to the principal balance of the Senior Term Facility for
the period June 30, 1999 through August 31, 2001. During this period, the
Company's maximum annual rate is 5.65% for a given month, unless 1-month LIBOR
for that month equals or exceeds 7.00%, in which case the Company pays 7.00%
for that month. From September 1, 2001 through the scheduled maturity of the
Senior Term Facility in 2005, the Company pays a fixed annual rate of 7.35%
applied to a notional amount equal to 50% of the principal balance of the
Senior Term Facility during that period.
As a result of the termination and replacement of the Swap Agreements, the
maximum rate of interest to be paid has increased through January 31, 2002. The
New Swap Agreements, however, provide the Company
F-20
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
with greater protection against increases in interest rates from January 31,
2002 through the maturity of the Senior Term Facility in 2005, since the New
Swap Agreements do not contain an option, which was available to the
counterparties of the Swap Agreements, to terminate the agreements on January
31, 2002. Counterparty risk is limited to amounts to be reflected in the
Company's consolidated balance sheet. This risk is minimized and is expected to
be immaterial to the Company's consolidated results of operations as the New
Swap Agreements provide for monthly settlement of the net interest owing.
Further, each counterparty to the New Swap Agreements carries at least a
"single-A" credit rating. The impact of the interest rate exchange agreements
on the Company's interest expense was not material.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments including cash, accounts
receivable, accounts payable, accrued liabilities and variable rate debt
approximate book value as of December 31, 1998 and 1999. The carrying value for
the fixed rate Intermediate Senior Discount Notes was established based upon
market conditions at the time the debt was issued and through December 31,
1998, such market conditions had not changed significantly. As of December 31,
1999, the fair value of the Intermediate Senior Discount Notes is based on the
calculated premium to redeem the debt in accordance with the Intermediate
Senior Discount Notes indenture. Use of this basis reflects the Company's
anticipated redemption of the Intermediate Senior Discount Notes in connection
with the initial public offering of the Company's common stock during 2000. As
of December 31, 1998 and 1999, the fair value of the Company's Senior
Subordinated Notes, Capital Senior Discount Notes and Swap Agreements were
different from their carrying values. The fair values of the Company's Senior
Subordinated Notes and Capital Senior Discount Notes are estimated based on
their quoted market prices. The fair value of the Company's Swap Agreements as
of December 31, 1998 and 1999 is based on the difference between the Company's
interest rate as determined by the Swap Agreements and the market interest rate
for swaps with the same contractual terms as of December 31, 1998 and 1999,
respectively.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Variable rate debt:
Revolving Credit Facility................ $ 7,000 $ 7,000 $ -- $ --
Senior Term Facility..................... $255,000 $255,000 $251,738 $251,738
Fixed rate debt:
10% Senior Subordinated Notes............ $100,000 $ 96,000 $100,000 $ 92,500
Capital Senior Discount Notes............ $ 68,805 $ 61,600 $ 77,717 $ 57,200
Intermediate Senior Discount Notes....... $ 35,544 $ 35,544 $ 40,759 $ 43,408
Swap Agreements.......................... $ -- $ (1,081) $ -- $ 1,346
</TABLE>
10. CAPITAL LEASE OBLIGATIONS
The Company leases certain facilities and equipment under capital lease
obligations bearing implicit interest rates ranging from 8% to 12%. The terms
of the lease require monthly payments of approximately $152 including interest
at December 31, 1999. Certain leases contain an option for the Company to renew
for an additional term at the end of the initial term and an option to purchase
the facilities and equipment at their fair values at the end of the initial
term and at the end of the second term.
F-21
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Future Payments
Aggregate annual maturities of capital lease obligations (for periods
subsequent to December 31, 1999) are as follows:
<TABLE>
<CAPTION>
Present
Total Less Amount Value of Net
Minimum Lease Representing Minimum Lease
Payments Interest Payments
------------- ------------ -------------
<S> <C> <C> <C>
Year Ending December 31,
2000.............................. $1,835 $ 726 $1,109
2001.............................. 1,831 606 1,225
2002.............................. 1,522 481 1,041
2003.............................. 1,298 371 927
2004.............................. 1,298 253 1,045
Thereafter........................ 1,298 121 1,177
------ ------ ------
$9,082 $2,558 $6,524
====== ====== ======
</TABLE>
11. STOCKHOLDERS' EQUITY
Old Common Stock, Preferred Stock and Additional Paid-in Capital
At December 31, 1996 and immediately prior to the Recapitalization, the
Company's stockholders' equity consisted of the following: (i) 100,000
authorized shares of no par value common stock ("Old Common") with
approximately 9,717 shares outstanding; (ii) 100,000 authorized shares of no
par value convertible preferred stock with approximately 6,601 shares
outstanding. Due to the existence of a put option for 6,959 common shares, the
estimated fair value of these shares was accreted to estimated fair value and
was classified as temporary stockholders' equity. The estimated fair value of
the Old Common at December 31, 1996 was approximately $5,590 per share and at
the date of the Recapitalization was approximately $11,308. The Old Common,
preferred stock and common stock purchase warrants were canceled as part of the
Recapitalization.
Recapitalization
In connection with the Recapitalization, the Company accelerated the vesting
of all outstanding options to purchase shares of its Old Common and made such
options immediately exercisable. Certain members of management then exercised
approximately 1,374 options granted under the Company's 1996 Performance Stock
Option Plan (the "1996 Stock Option Plan"), to purchase an equal number of
shares of Old Common. In addition, the convertible preferred stock and the Old
Common purchase warrants were converted into 565 shares of Old Common. Holdings
then: (i) redeemed and canceled approximately 16,232 shares of Old Common and
options to purchase 64 shares of Old Common options granted under the Company's
1996 Employee Stock Option Plan (the "1996 Employee Plan") at a redemption
price of approximately $11,308 per share, plus future escrow payments estimated
at $508 per share or $8.6 million in the aggregate at December 31, 1997,
payable by March 31, 1999; (ii) canceled all remaining options authorized but
ungranted under the 1996 option plans; (iii) converted the remaining
approximately 1,938 shares of Old Common into approximately 438,326 shares and
approximately 54,175 shares of Class A common and Class L common, respectively,
and (iv) converted the remaining approximately 513 unexercised options to
purchase shares of Old Common into options to purchase approximately 116,158
shares and approximately 14,357 shares of Class A common and Class L common,
respectively. The escrow payment described above represents the distribution by
the Company to all shareholders of record as of the Recapitalization date, of
the income tax benefit received by the Company as a result of the compensation
expense recorded for the accelerated vesting of options to purchase shares of
Old Common. At December 31, 1999, approximately 41,817 options to purchase
shares of Class A common stock at $0.96 per share and approximately 14,357
options to purchase shares of Class L common stock at $70.19 per share remain
outstanding and fully vested.
F-22
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Common Stock Warrants
As part of the financing associated with the Recapitalization, warrants were
granted to affiliates of The Chase Manhattan Bank (Note 6) to purchase 70,211
shares of Class A common stock and 8,678 shares of Class L common stock. Each
warrant entitled the holder thereof to purchase a unit, at $.09 per unit,
consisting of 8.09 shares of Class A common stock and one share of Class L
common stock. Such warrants are exercisable through October 2007. A fair value
of $3,420 was ascribed to the warrants and recorded as a debt discount.
In connection with the DCI merger (Note 14), warrants were granted to
purchase 69,599 shares of Class A common stock at $61.17 per share. Such
warrants are exercisable through July 22, 2008.
Common Stock
The Company has seven authorized classes of no par Class A common stock,
Class A-1 to Class A-7, which aggregate 5,175,000 authorized shares. The
separate classes of Class A common have different rights with respect to
election of directors. All Class A shares are voting, except for Class A-7,
which is nonvoting. The Company also has 475,000 authorized shares of no par
Class L common stock.
The Class L common stock is identical to the Class A common stock, except
that each share of Class L common stock is entitled to a preferential payment
upon any distribution by the Company equal to the original cost of such share
($364.09) plus an amount which accrues from the original issuance date on a
daily basis at 12% per annum, compounded quarterly. After payment of this
preference amount, each share of Class A common stock and Class L common stock
shares equally in all distributions. The Class L common stock is convertible
into Class A common stock upon a majority vote of the holders of the
outstanding Class L common stock at the time of our initial public offering or
other specified realization events.
Each outstanding share of Class L common stock is convertible into one share
of Class A common stock plus an additional number of shares of Class A common
stock determined by dividing the preference amount of such share of Class L
common stock by the value of a share of Class A common stock.
Stock Options
Prior to the Recapitalization, the Company had two stock option plans, the
1996 Stock Option Plan and the 1996 Employee Plan together the "1996 Option
Plans." The term of the options under these plans is ten years from the date of
grant. Under the 1996 Option Plans, the Board granted options to acquire
approximately 1,950 shares of Old Common, at an exercise price of approximately
$2,179 per share. Immediately prior to the Recapitalization, the Company
accelerated the vesting of all outstanding options (totaling approximately
1,950 shares) to purchase shares of its Old Common making all such options
immediately exercisable. In connection therewith, the Company recorded $21.3
million of compensation expense in 1997 based on the difference between the
estimated fair value of underlying Old Common and the option exercise price and
$10 million of compensation expense for bonuses payable to employees to cover
the employees' taxes upon the exercise of these options in conjunction with the
Recapitalization.
During 1997, 1998 and 1999 there were no grants, exercises, forfeitures, or
expirations of options under either the 1996 Stock Option Plan or the 1996
Employee Plan. As of December 31, 1999, the options outstanding under both of
these plans had remaining weighted-average contractual terms of approximately
seven years.
In 1997, Holdings adopted its 1997 Details, Inc. Equity Incentive Plan (the
"1997 Employee Stock Option Plan"), authorizing the grant of options to certain
management of the Company to purchase 235,000 shares of Class A common stock.
The term of the options under this plan is ten years from the date of grant.
Options granted under this plan vest in equal monthly amounts over four years,
with immediate vesting upon a change
F-23
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
in control or sale of all of the assets of the Company. Of the total shares
authorized under the plan, options to purchase half of the shares (117,500)
have an exercise price of $5.00 ("$5 Options"), with the other half having an
exercise price of $61.17 ("$61 Options"). For all options granted under this
plan, the exercise prices approximated the estimated fair value at the date of
grant, resulting in no compensation expense. As of December 31, 1999, the
options outstanding under this plan had a remaining weighted-average
contractual term of approximately eight years.
Stock option activity under the 1997 Employee Stock Option Plan is:
<TABLE>
<CAPTION>
$5 Options $61 Options
----------------- ----------------
Number Number
Exercise of Exercise of
Price Shares Price Shares
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Granted............................... $5.00 116,145 $61.17 116,145
Exercised............................. $5.00 (116,145) -- --
Forfeited............................. -- -- -- --
-------- -------
Balance at December 31, 1997.......... -- -- $61.17 116,145
Granted............................... -- -- -- --
Exercised............................. -- -- -- --
Forfeited............................. -- -- -- --
-------- -------
Balance at December 31, 1998.......... -- -- $61.17 116,145
Granted............................... $5.00 9,775 $61.17 12,031
Exercised............................. -- -- -- --
Forfeited............................. $5.00 (6,767) $61.17 (9,023)
-------- -------
Balance at December 31, 1999.......... $5.00 3,008 $61.17 119,153
======== =======
Options exercisable as of December 31,
1999................................. 1,625 58,547
======== =======
</TABLE>
Had compensation costs for the stock options issued under the 1996 Stock
Option Plan, 1996 Employee Plan and the 1997 Employee Stock Option Plan been
determined based on the grant date fair values as required by SFAS No. 123,
there would have been no significant effect on the Company's reported net loss
for the periods presented. Fair value was estimated using the minimum-value
method, a risk-free interest rate of 6.5% and 6.0% for 1997 and 1999,
respectively, and an expected life of five years for the grants in 1997 and
3 months for the grants in 1999. No dividends were assumed to be declared. The
weighted average fair value per option (computed using the minimum-value method
as the Company was a non-public entity when the options were granted) of the
stock options granted in 1997 and 1999 was nil.
In connection with the DCI merger (see Note 14), the Board of Directors
adopted, and the stockholders of Holdings approved, the Details Holdings Corp.-
Dynamic Circuits 1996 Stock Option Plan ("DCI 1996 Plan") and the Details
Holdings Corp.-Dynamic Circuits 1997 Stock Option Plan ("DCI 1997 Plan"),
together the "DCI Stock Option Plans", which authorized the granting of stock
options and the sale of Class A common stock and Class L common stock in
connection with the merger with DCI. The terms applicable to options issued
under the DCI Stock Option Plans are substantially similar to the terms
applicable to the options to purchase shares of DCI outstanding immediately
prior to the merger with DCI. These terms include vesting from the date of
merger through 2002 for those options outstanding as of the date of the merger
with DCI. Options granted under these plans subsequent to the merger will
typically vest in equal monthly amounts over four years. An optionholder's
scheduled vesting is dependent upon continued employment with the Company. Upon
termination of employment, any unvested options as of the termination date are
forfeited.
F-24
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
In connection with the DCI merger, the Company converted each DCI stock
option award into the right to receive a cash payment and an option to purchase
shares of Class A common stock and shares of Class L common stock. The options
granted in 1998 bear exercise prices of either $1.58 ("$1.58 Options") or
$61.17 ("$61 Options") for the purchase of Class A shares, and $364.09 for
Class L Shares ("Class L Options"). During 1999, options to purchase shares of
Class A common stock were also granted with an exercise price of $5.00 ("$5
Options"). The Board is authorized to sell or otherwise issue Class A common
stock and Class L common stock at any time prior to the termination of the
applicable DCI Stock Option Plan in such quantity, at such price, on such terms
and subject to such conditions as established by the Board up to an aggregate
of 222,600 shares of Class A common stock and 28,300 shares of Class L common
stock, in the case of the DCI 1996 Plan, and 46,000 shares of Class A common
stock and 5,850 shares of Class L common stock in the case of the DCI 1997 Plan
(in each case, subject to adjustment upon the occurrence of certain events to
prevent any dilution or expansion of the rights of participants that might
otherwise result from the occurrence of such events). As of December 31, 1999,
there are options to purchase 3,458 shares of Class A common stock and 3,340
shares of Class L common stock available for grant under the DCI Stock Option
Plans. The maximum term of the options under the DCI 1996 Plan is August 2006
and under the DCI 1997 Plan is March 2008. As of December 31, 1999, all options
outstanding under the DCI Stock Option Plans had weighted average remaining
contractual lives of approximately seven years.
Stock option activity since July 23, 1998 (date of DCI merger) is as
follows:
<TABLE>
<CAPTION>
$1.58 Options $61 Options $5 Options Class L Options
------------------ ------------------ ------------------ ------------------
Exercise Number of Exercise Number of Exercise Number of Exercise Number of
Price Shares Price Shares Price Shares Price Shares
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 23,
1998................... $1.58 255,778 $61.17 13,948 -- -- $364.09 32,479
Granted................. -- -- -- -- -- -- -- --
Exercised............... $1.58 (116,953) -- -- -- -- -- --
Forfeited............... $1.58 (3,318) $61.17 (190) -- -- $364.09 (442)
-------- ------ ----- ------
Balance at December 31,
1998................... $1.58 135,507 $61.17 13,758 -- -- $364.09 32,037
Granted................. $1.58 1,621 $61.17 88 $5.00 9,000 $364.09 206
Exercised............... $1.58 (39,455) -- -- -- -- -- --
Forfeited............... $1.58 (11,168) $61.17 (615) -- -- $364.09 (1,433)
-------- ------ ----- ------
Balance at December 31,
1999................... $1.58 86,505 $61.17 13,231 $5.00 9,000 $364.09 30,810
======== ====== ===== ======
Options exercisable as
of December 31, 1999... 24,379 9,851 563 22,938
======== ====== ===== ======
</TABLE>
F-25
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
For all options granted under the DCI Stock Option Plans in 1998 and 1999,
the exercise prices approximated the estimated fair value at the date of grant,
resulting in no compensation expense. Pro forma information regarding net loss
has been determined for the Company as if compensation costs for the stock
options issued under the DCI Stock Option Plans had been determined based upon
the grant date fair values. Fair value was estimated using the minimum-value
method as the Company was a non-public entity when the options were granted, a
risk-free interest rate of 5.6% for 1998 and 6.0% for 1999 and an expected life
of 3 months for both $1.58 Options and $5 Options or two years for both $61
Options and Class L Options. No dividends were assumed to be declared. The
weighted-average fair value per option of the stock options granted under the
DCI Stock Option Plans in 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
Value per
Option
----------
Option category 1998 1999
--------------- ---- -----
<S> <C> <C>
$1.58 Options................................................. Nil Nil
$5 Options.................................................... -- $0.10
$61 Options................................................... Nil Nil
Class L Options............................................... $39 $ 41
</TABLE>
The Company's 1998 and 1999 pro forma loss before extraordinary items is as
follows (amounts in millions):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
As reported.............................................. $(49.7) $(17.4)
Pro forma................................................ $(50.1) $(17.5)
</TABLE>
12. INCOME TAX
The provision (benefit) for income taxes in 1997, 1998 and 1999 consists of
the following:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................. $ (5,224) $ -- $ 1,302
State............................... -- 666 158
Foreign............................. 150 -- 17
-------- ------- -------
(5,074) 666 1,477
-------- ------- -------
Deferred:
Federal............................. (3,657) (3,288) (7,391)
State............................... (2,127) (944) (1,501)
Foreign............................. -- -- --
-------- ------- -------
(5,784) (4,232) (8,892)
-------- ------- -------
$(10,858) $(3,566) $(7,415)
======== ======= =======
</TABLE>
In connection with the acquisition of NTI and the merger with DCI, the
Company acquired certain net deferred tax assets of approximately $1.2 and $1.3
million, respectively.
F-26
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 5,243 $ 1,098
Trade receivables................................ 1,930 1,859
Deferred compensation............................ 5,485 4,867
Tax credits...................................... 327 956
Accrued liabilities.............................. 6,347 9,628
Amortization..................................... 27 1,726
Other............................................ 174 101
-------- --------
19,533 20,235
Deferred tax liabilities:
Property, plant and equipment.................... (2,289) (1,027)
Intangible assets................................ (34,341) (26,639)
-------- --------
(36,630) (27,666)
Valuation allowance................................ -- (774)
-------- --------
Net deferred tax liabilities................... $(17,097) $ (8,205)
======== ========
</TABLE>
The tax effect related to the extraordinary item (see Notes 6 and 14) is
deferred U.S. and state taxes.
The income tax benefit differs from the amount of income tax determined by
applying the U.S. Federal statutory income tax rate to loss before income taxes
due to the following:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax benefit......... $ (9,476) $(18,639) $(8,697)
Increase (decrease) in income taxes
resulting from:
State taxes, net of credits and
federal tax benefit.................. (1,591) (181) (1,343)
Goodwill amortization................. -- 1,320 2,456
In-process research and development
write-off............................ -- 13,650 --
Other................................. 209 284 169
-------- -------- -------
$(10,858) $ (3,566) $(7,415)
======== ======== =======
</TABLE>
The Company has Federal, California and Colorado net operating loss ("NOL")
carryforwards of approximately $0.2 million, $6 million and $12 million,
respectively, at December 31, 1999. The Federal NOL carryforwards begin to
expire in 2012, the California NOL carryforwards begin to expire in 2002, and
the Colorado NOL carryforwards begin to expire in 2012. A valuation allowance
has been established for deferred income tax benefits related to the Colorado
NOL carryforwards. Management belives it is more likely than not that these NOL
carryforwards may not be realized as a result of the closure of the Colorado
facility in December 1999 (see Note 15).
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the carryforwards which
can be utilized.
F-27
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
13. COMMITMENTS AND CONTINGENCIES
Environmental matters--The Company's operations are regulated under a number
of federal, state, and local environmental laws and regulations, which govern,
among other things, the discharge of hazardous materials into the air and water
as well as the handling, storage and disposal of such materials. Compliance
with these environmental laws are major considerations for all printed circuit
board manufacturers because metals and other hazardous materials are used in
the manufacturing process. In addition, because the Company is a generator of
hazardous wastes, the Company, along with any other person who arranges for the
disposal of such wastes, may be subject to potential financial exposure for
costs associated with an investigation and remediation of sites at which it has
arranged for the disposal of hazardous wastes, if such sites become
contaminated. This is true even if the Company fully complies with applicable
environmental laws. In addition, it is possible that in the future new or more
stringent requirements could be imposed. Management believes it has complied
with all applicable environmental laws and regulations. There have been no
claims asserted nor is management aware of any unasserted claims for
environmental matters.
Employment agreements--Pursuant to certain employment agreements dated
September 1, 1995, as amended, effective until October 28, 2000, certain
members of senior management received base salaries in the aggregate amount of
$1.3 million in 1999. The base salaries on or after January 1, 2000 will be
established by the Company at a level that equals or exceeds base salaries for
1999. These employees are eligible for annual bonuses based upon the
achievement of EBITDA targets. These employees also received an aggregate of
10,367 shares of Class A common stock on the Recapitalization closing date. In
connection with this stock bonus, the Company recorded compensation expense of
approximately $52 based upon a fair market value per share of Class A common
stock of $5 per share. In addition, these employees will be entitled to receive
an additional bonus in the aggregate amounts of $2.4 million in consideration
of prior services which will be payable in October 2000, whether or not such
employees are still employed by the Company. The Company accrued these bonuses
at their present value and the charge was included in the results of operations
during the year ended December 31, 1997.
In addition, pursuant to an employment agreement dated July 23, 1998, a
certain key employee received a base salary of approximately $445 in 1999. In
addition, this key employee is eligible to receive an annual bonus based upon
achievement of EBITDA targets. During 1998, this key employee received an
award, pursuant to the agreement, of 39,008 Class A Cash Bonus units valued at
$1.5725 per unit and 4,953.3 Class L Cash Bonus units valued at $363.2381 per
unit. As this award was made to an employee of DCI for services rendered prior
to the merger with DCI (see Note 14), the obligation existed as of the merger
date and was treated as an acquired liability in accordance with purchase
accounting. Post-merger salary and other compensation are recorded as period
costs.
Management agreement--Pursuant to a management agreement between Bain
Capital Partners V, L.P. ("Bain") and the Company (the "Management Agreement"),
Bain is entitled to a management fee when, and if, it provides advisory
services to the Company in connection with potential business acquisitions.
Beginning on the first anniversary of the Recapitalization, Bain may, upon the
request of the Company, perform certain management consulting services at
Bain's customary rates plus reimbursement for reasonable out-of-pocket
expenditures. In addition, Bain is entitled to receive a fee equal to
approximately 1% of the gross purchase price of any senior financing
transaction in connection with an acquisition, recapitalization or refinancing
transaction (including assumed debt). In connection with the Recapitalization,
NTI acquisition and DCI merger, Bain was paid fees of approximately $3.1
million, approximately $0.4 million, and approximately $2.7 million,
respectively. In 1999, Bain was paid fees of approximately $1.1 million for
advisory services. The Management Agreement continues until terminated by
mutual consent of the parties, or until terminated as a result of a breach of
the Management Agreement. The Management Agreement includes customary
indemnification provisions in favor of Bain.
F-28
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Operating leases--The Company has entered into various operating leases
principally for office space and equipment that expire at various dates through
2006. Future annual minimum lease payments under all non-cancelable operating
leases with initial or remaining terms of one year or more consist of the
following at December 31, 1999:
<TABLE>
<S> <C>
Year Ending December 31,
2000............................................................. $2,109
2001............................................................. 1,808
2002............................................................. 1,084
2003............................................................. 452
2004............................................................. 321
Thereafter....................................................... 389
------
Future minimum lease payments...................................... $6,163
======
</TABLE>
Rent expense for 1998 and 1999 was approximately $1.5 million and $3.0
million, respectively, and was not significant in 1997.
Litigation--The Company is a party to various legal actions arising in the
ordinary course of its business. The Company believes that the resolution of
these legal actions will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Retirement plans--The Company has adopted a 401(k) plan which became
effective January 1997. All employees of the Company over the age of 21 and
having at least one year of service, are eligible to participate in the plan.
The eligible employees may contribute 1% to 15% of their annual compensation.
In 1997, no employer matching contributions were required to be made by the
Company. In 1998, the Company amended the plan to match employee contributions
at $0.25 per $1.00 contributed, subject to a maximum per employee participant.
For plan year ended December 31, 1998 and 1999, employer contributions totaled
$145 and $394, respectively.
14. MERGERS AND ACQUISITIONS
On December 22, 1997, the Company acquired all of the outstanding shares of
common stock of NTI and on July 23, 1998, pursuant to a Stock Contribution and
Merger Agreement, the Company consummated the merger with DCI ("DCI Merger").
Both transactions were accounted for as purchases in accordance with Accounting
Principles Board Opinion No. 16 and accordingly, the results of operations
since the dates of acquisition are included in the accompanying consolidated
financial statements.
NTI
NTI was purchased for approximately $38.9 million including the assumption
of approximately $7.4 million of NTI's debt. The acquisition was funded, in
part, through the issuance of additional equity 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 and the $25 million Senior Acquisition Facility
borrowing under the Senior Term Facility in place at that time. The outstanding
borrowing under this facility was retired in connection with the DCI Merger.
The NTI purchase price was allocated to assets acquired and liabilities assumed
and the excess purchase price of approximately $27 million was allocated to
goodwill. Accumulated amortization as of December 31, 1998 and 1999 was
$1.1 million and $2.2 million, respectively.
F-29
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
DCI
The DCI Merger was completed for aggregate consideration of approximately
$250 million, including the assumption of approximately $72.3 million of DCI's
debt, and consisted of a partial redemption, by way of a merger, of DCI's
outstanding capital stock for cash with the remaining capital stock being
contributed to Holdings in exchange for shares, options and warrants to
purchase shares of the voting common stock (estimated value of approximately
$73 million). The DCI Merger was financed with a new $300 million senior bank
facility (Senior Credit Facility) and by $33 million of newly issued
Intermediate Senior Discount Notes. In connection with the new financing, the
Company used $106 million of the proceeds to retire all of its existing senior
term debt, which resulted in an extraordinary loss of $2.4 million, net of
related income taxes of $1.5 million.
The DCI merger consideration was allocated to tangible assets (aggregating
approximately $65 million) acquired and liabilities assumed (aggregating
approximately $30 million), with the remaining merger consideration consisting
primarily of goodwill, identifiable intangible assets, and acquired in-process
research and development ("in-process R&D").
Significant portions of the DCI merger consideration were identified as
intangible assets. Valuation techniques were employed which reflect recent
guidance from the Securities and Exchange Commission on approaches and
procedures to be followed in developing allocations to in-process R&D. At the
date of the merger, technological feasibility of the in-process R&D projects
had not been reached and the technology had no alternative future uses.
Accordingly, the Company expensed the portion of the purchase price allocated
to in-process R&D of $39 million, in accordance with generally accepted
accounting principles, in the year ended December 31, 1998.
The in-process R&D is comprised of a number individual technological
development efforts, focusing on the discovery of new, technologically advanced
knowledge and more complete solutions to customer needs, the conceptual
formulation and design of possible alternatives, as well as the testing of
process and product cost improvements. Specifically, these technologies include
efforts to: increase maximum printed circuit board layer count, reduce line and
space tolerances, develop specialty surface finishes and materials, use new and
innovative applications of micro blind vias, embedded circuitry, and flexible
circuit applications, develop "intelligent" (active) backpanels, and develop
automation to integrate and automate the entire workflow process.
The amount of the merger consideration allocated to in-process R&D was
determined by estimating the stage of completion of each in-process R&D project
at the date of the merger, estimating cash flows resulting from the future
release of products employing these technologies, and discounting the net cash
flows back to their present values.
The weighted average stage of completion for all projects, in aggregate, was
approximately 75% as of the merger date. As of that date, the estimated
remaining costs to bring the projects under development to technological
feasibility were over $2 million. The cash flow estimates from sales of
products incorporating those technologies commence in the year 1999, with
revenues increasing for several years following the merger, followed by
declines in subsequent periods as other new products are expected to be
introduced and represent a larger proportion of the total product offering.
Revenues forecasted in each period are reduced by related expenses, capital
expenditures, the cost of working capital, and an assigned contribution to the
core technologies serving as a foundation for the research and development. The
discount rates applied to the individual technology's net cash flows ranged
from 18% to 24%, depending on the level of risk associated with a particular
technology and the current return on investment requirements of the market.
These discount rates reflect "risk premiums" of 20% to 60% over the estimated
weighted average cost of capital of 15% computed for DCI.
F-30
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
As discussed above, a portion of the DCI merger consideration premium was
allocated to identifiable intangibles and goodwill. The identifiable
intangibles consist primarily of developed technologies, customer
relationships/tradenames, and assembled workforce. The fair value of the
developed technology assets at the date of acquisition was $60 million and
represents the aggregate fair value of individually identified technologies
that were fully developed at the time of the merger. As with the in-process
R&D, the developed technologies were valued using a future income approach, in
context of the business enterprise value of DCI. The customer
relationships/tradenames and assembled workforce assets were assigned values as
of the acquisition date of approximately $21 million and $4 million,
respectively.
Goodwill generated in the merger with DCI has an assigned value of
approximately $120 million. As of December 31, 1998 and 1999, the accumulated
amortization related to this goodwill and identifiable intangibles acquired in
the merger with DCI was approximately $9.8 million and $32.9 million,
respectively.
Certain investment funds associated with Bain Capital Funds, the controlling
shareholders, were shareholders of DCI prior to the Company's July 1998 merger
with of DCI. In conjunction with the merger, the Bain Capital Funds received
$22.9 million for the redemption of the DCI common stock they held prior to
consummation of the merger.
In connection with the DCI Merger and related transactions, Celerity
Partners, L.L.C. and its affiliates were paid fees and expenses aggregating
approximately $1.7 million. Celerity Partners, L.L.C. is the general partner of
Celerity Partners I, L.P., which is the managing member of Celerity Details,
L.L.C., Celerity Liquids, L.L.C. and Celerity Circuits, L.L.C., which are each
stockholders of the Company.
The accompanying unaudited condensed consolidated statements of operations
include: (a) the accounts of NTI which was acquired in December 1997, and the
effects of the Recapitalization for the year ended December 31, 1997 and (b)
the accounts of DCI for the period July 24, 1998 thorugh December 31, 1998. The
following unaudited pro forma information for the years ended December 31, 1998
and 1997 presents net sales and net loss before extraordinary item for each of
these periods as if these transactions were consummated at the beginning of
each period. In addition, the actual results of operations for the year ended
December 31, 1998 include a $39 million write-off of acquired in-process
research and development related to the merger with DCI. This one-time charge
has been excluded from the unaudited pro forma results.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
December 31, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Net Sales.......................................... $261,000 $254,000
Loss Before Extraordinary Item..................... $(16,000) $(14,000)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the actual
results which have been realized had the transactions actually occurred at the
beginning of each respective periods.
15. RESTRUCTURING AND OTHER RELATED CHARGES
In December 1999, management and the Company's Board of Directors approved a
plan to consolidate its Colorado operations into its Texas facility, resulting
in the closure of the Colorado facility. By combining its Colorado and Texas
operations, the Company anticipates eliminating its lower-margin product lines
and decreasing its overhead costs, gaining efficiency through better capital
utilization and streamlining management. Accordingly, such decision is not
anticipated to adversely impact the Company's results of operations in future
periods. The Company anticipates substantial completion of this consolidation
plan by March 2000. Revenues and EBITDA (earnings before income taxes,
depreciation, amortization and net interest expense) for the Colorado facility
were approximately $30 million and $(1.7) million, respectively, for the year
ended December 31, 1999. Net income/(loss) for this facility is not readily
determinable.
F-31
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
In conjunction with the planned closure of the Colorado facility, the
Company recorded charges in the fourth quarter of 1999 totaling $7.0 million,
consisting of $4.5 million for severance and other exit costs and $2.5 million
related to the impairment of net property, plant and equipment. Both the exit
costs and asset impairment costs are classified as "Restructuring and other
related charges" in the 1999 Consolidated Statement of Operations.
Of the $4.5 million recorded as restructuring costs, approximately $2.0
million relates to severance and related expenses associated with the
involuntary termination of the 275 staff and management employees of this
plant. The remaining charges are comprised of $1.9 million of inventory-related
losses and $0.6 million in expenses principally related to minimum lease
payments through the scheduled maturities of the real property operating
leases. No amounts related to the accrual for either the $2.0 million in
severance and related expenses or the $0.6 million related to the operating
leases were expended as of December 31, 1999.
The inventory losses are due entirely to the plan to consolidate the
Colorado facility into the Texas facility. Such losses arose from management's
decision to cease all production operations in Colorado immediately following
the notification to employees of the plant closure in late December 1999. This
decision was primarily made to ensure that the Company's quality standards were
met with respect to work in-process at the Colorado facility. To expedite the
transfer of production from the Colorado facility to the Company's other
facilities, nearly all work in-process was scrapped, as were certain production
materials that could not be utilized in the Company's other operations. All
inventory to be retained and utilized by the Company is reflected at its lower
of cost or market, in accordance with the Company's accounting policies (See
Note 2).
The calculated impairment of net property, plant and equipment was
determined in accordance with SFAS No. 121, based upon a detailed review of the
individual long-lived assets in the Colorado facility. Management determined
that most of these assets would be utilized by the Company's other operations
and are not impaired. Other assets, however, are anticipated to be transferred
to the Company's other operations, from where they will be sold or otherwise
disposed, as in the case of obsolete or redundant equipment. The carrying
amount of such assets was reduced to estimated fair value, less estimated
selling costs. Some assets are neither to be utilized in the Company's other
operations, nor are they saleable. Accordingly, these assets were written-down
to zero value. The impairment to assets to be sold or otherwise disposed
comprises approximately $1.7 million of the total write-down of net property,
plant and equipment. The remaining $0.8 million charge represents the loss on
assets possessing no remaining value. Management anticipates that the sale or
other disposition of impaired assets will have occurred by June 2000. The
impact of suspending depreciation on the assets to be sold or otherwise
disposed through their expected disposition dates is not anticipated to be
significant to the Company's results of operations.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
CASH PAYMENTS FOR:
Income taxes..................................... $ -- $ 1,743 $ 1,141
======= ======= =======
Interest......................................... $11,552 $25,773 $30,603
======= ======= =======
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred for acquisi-
tion of property and equipment.................. $ 646 $ 1,864 $ --
------- ------- -------
Value of warrants issued in connection with debt
financing....................................... $ 3,420 $ -- $ --
------- ------- -------
Equity issued in mergers and acquisitions (see
Note 14)........................................ $10,200 $73,246 $ --
------- ------- -------
</TABLE>
F-32
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
Recapitalization--As part of the Recapitalization (see Notes 1, 6 and 11): (i)
the existing shareholders of the Pre-Recapitalization Company exchanged their
shares of Old Common (recorded value of $8.0 million) for Class A and L common
stock (aggregate fair value of $21.9 million), and (ii) certain executives of
the Pre-Recapitalization Company exchanged their options to purchase shares of
Old Common (recorded value of $5.0 million) for replacement options to purchase
Class A and L common stock (aggregate fair value of $5.0 million).
17. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL DATA
Subsequent to the Recapitalization, on November 15, 1997, Dynamic Details,
Incorporated, issued $100 million aggregate principal amount of 10% Senior
Subordinated Notes due in 2005 (see Note 6). The Senior Subordinated Notes are
fully and unconditionally guaranteed on a senior subordinated basis, jointly
and severally, by Dynamic Details, Incorporated (the "Issuer") and all of its
wholly-owned subsidiaries (the "Subsidiary Guarantors"). As the Issuer is a
wholly-owned subsidiary of Holdings, the accounts of the Issuer are included in
the consolidated financial statements of Holdings.
The condensed financial data of the Issuer is presented below. Separate
financial data of the Subsidiary Guarantors are not presented because (i) the
Guarantors are wholly-owned and have fully and unconditionally guaranteed the
Notes on a joint and several basis and (ii) the Company's management has
determined such separate financial data are not material to investors and
believes the condensed financial data of the Issuer presented is more
meaningful in understanding the financial position of the Company.
F-33
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
SUPPLEMENTAL DYNAMIC DETAILS, INCORPORATED CONDENSED FINANCIAL DATA
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Current assets............................................. $ 20,755 $ 22,472
Non-current assets......................................... 287,619 329,490
-------- --------
Total assets............................................. $308,374 $351,962
======== ========
Current liabilities........................................ $ 37,372 $ 29,089
Non-current liabilities.................................... 348,950 354,397
-------- --------
Total liabilities........................................ $386,322 $383,486
-------- --------
Total stockholders' deficit.............................. $(77,948) $(31,524)
-------- --------
Total liabilities and stockholders' deficit.............. $308,374 $351,962
======== ========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $ 77,988 $ 83,560 $ 96,441
Cost of sales................................... 37,929 43,759 50,879
-------- -------- --------
Gross profit.................................... 40,059 39,801 45,562
Operating expenses.............................. 42,770 9,682 16,250
-------- -------- --------
Income (loss) from operations................... (2,711) 30,119 29,312
Interest expense, net........................... (17,738) (27,216) (32,414)
-------- -------- --------
Income (loss) before taxes and extraordinary
loss........................................... (20,449) 2,903 (3,102)
Income tax benefit.............................. 8,030 280 1,260
-------- -------- --------
Income (loss) before extraordinary loss......... (12,419) 3,183 (1,842)
Extraordinary loss, net of income tax benefit... (1,588) (2,414) --
Equity in loss of subsidiaries.................. (77) (46,714) (6,637)
-------- -------- --------
Net loss...................................... $(14,084) $(45,945) $ (8,479)
======== ======== ========
</TABLE>
18. SUBSEQUENT EVENT (UNAUDITED)
On March 22, 2000, the Company signed a Share Purchase Agreement to purchase
100% of the outstanding stock of MCM Electronics Limited ("MCM") for total
consideration of approximately $86 million payable in a combination of cash,
common stock, and assumption of outstanding indebtedness of MCM. This
transaction will be accounted for as a purchase and no adjustments have been
made in the accompanying historical consolidated financial statements for this
transaction.
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Dynamic Circuits Inc.:
We have audited the accompanying consolidated statements of income,
shareholders' deficit and cash flows of Dynamic Circuits Inc. and subsidiary
for the year ended December 31, 1997. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Dynamic Circuits Inc. for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
February 20, 1998
F-35
<PAGE>
DYNAMIC CIRCUITS INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended June
Year Ended 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
Sales................................. $86,098,472 $33,027,588 $77,220,707
Cost of sales......................... 54,201,347 18,800,664 54,232,387
----------- ----------- -----------
Gross profit........................ 31,897,125 14,226,924 22,988,320
----------- ----------- -----------
Operating expenses:
Sales and marketing................. 4,431,214 2,346,215 4,704,663
General and administrative.......... 13,839,364 5,108,248 6,270,853
----------- ----------- -----------
18,270,578 7,454,463 10,975,516
----------- ----------- -----------
Operating income.................... 13,626,547 6,772,461 12,012,804
Other income.......................... 63,151 55,608 176,045
Interest expense, net................. (3,872,450) (1,585,356) (3,138,375)
----------- ----------- -----------
Income before taxes and
extraordinary item................. 9,817,248 5,242,713 9,050,474
Income tax expense.................... 4,112,315 2,206,903 4,280,782
----------- ----------- -----------
Income before extraordinary item...... 5,704,933 3,035,810 4,769,692
Extraordinary loss on retirement of
debt, net of tax..................... (633,013) -- --
----------- ----------- -----------
Net income before accretion........... 5,071,920 3,035,810 4,769,692
Accretion of mandatorily redeemable
preferred stock and put warrants..... 2,800,318 1,042,723 2,584,269
----------- ----------- -----------
Net income available to common
shareholders......................... $ 2,271,602 $ 1,993,087 $ 2,185,423
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
DYNAMIC CIRCUITS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
For the year ended December 31, 1997, and the six months ended June 30, 1998
<TABLE>
<CAPTION>
Notes Distribution Retained
Common Stock Additional Receivable in Excess Earnings
------------- Paid-In from Deferred of Net (Accumulated) Shareholders'
Shares Amount Capital Shareholder Compensation Book Value (Deficit) Deficit
------ ------ ---------- ----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... 50,283 $50 $5,371,606 $ -- $(697,937) $(36,877,611) $(2,131,854) $(34,335,746)
Options exercised...... 1,480 1 7,399 -- -- -- -- 7,400
Deferred compensation.. -- -- 198,237 -- (198,237) -- -- --
Amortization of de-
ferred compensation... -- -- -- -- 239,286 -- -- 239,286
Issuance of common
stock in connection
with acquisition of
Cuplex................ 1,314 2 763,147 -- -- -- -- 763,149
Issuance of restricted
stock................. 777 1 202,123 (202,124) -- -- -- --
Accretion and dividends
on mandatorily redeem-
able preferred stock.. -- -- -- -- -- -- (1,812,912) (1,812,912)
Accretion of put
warrants.............. -- -- -- -- -- -- (987,406) (987,406)
Net income............. -- -- -- -- -- -- 5,071,920 5,071,920
------ --- ---------- --------- --------- ------------ ----------- ------------
Balances, December 31,
1997................... 53,854 54 6,542,512 (202,124) (656,888) (36,877,611) 139,748 (31,054,309)
Amortization of de-
ferred compensation
(unaudited)........... -- -- -- -- 114,492 -- -- 114,492
Options exercised
(unaudited)........... 1,496 1 1,289,991 -- -- -- -- 1,289,992
Accretion of
mandatorily redeemable
preferred stock (unau-
dited)................ -- -- -- -- -- -- (872,904) (872,904)
Accretion of put war-
rants (unaudited)..... -- -- -- -- -- -- (1,711,364) (1,711,364)
Net income (unau-
dited)................ -- -- -- -- -- -- 4,769,692 4,769,692
------ --- ---------- --------- --------- ------------ ----------- ------------
Balance, June 30, 1998
(unaudited)............ 55,350 $55 $7,832,503 $(202,124) $(542,396) $(36,877,611) $ 2,325,172 $(27,464,401)
====== === ========== ========= ========= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
DYNAMIC CIRCUITS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 5,071,920 $ 3,035,810 $ 4,769,692
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation........................ 3,510,940 1,222,474 2,527,972
Amortization........................ 388,816 117,639 614,479
Allowance for doubtful accounts..... 235,051 363,096 142,072
Recovery of excess and obsolete
inventory.......................... (76,090) -- --
Deferred compensation expense....... 239,286 124,794 114,492
Gain on disposal of fixed asset..... (47,123) (47,123) --
Extraordinary loss, gross........... 1,055,023 -- --
Changes in current assets and
liabilities:
Accounts receivable................. (2,696,804) (2,682,898) 234,191
Inventories......................... 58,031 (100,000) (1,307,172)
Prepaid expenses and other assets... (1,706,091) (611,679) 865,903
Deferred taxes...................... (364,568) -- --
Book overdrafts..................... 2,524,984 84,051 (3,224,677)
Accounts payable.................... (3,809,862) 3,647 293,415
Accrued liabilities................. 1,188,639 175,293 506,447
------------ ----------- -----------
Net cash provided by operating
activities....................... 5,572,152 1,685,104 5,536,814
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment............................ (6,523,064) (3,782,823) (3,465,141)
Disposal of property and equipment.... 193,544 193,544 --
Acquisition of other assets........... -- (116,465) 675,364
Acquisition of subsidiary, net of
cash acquired........................ (28,902,494) -- (660,000)
------------ ----------- -----------
Net cash used in investing
activities....................... (35,232,014) (3,705,744) (3,449,777)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in restricted cash........... (50,000) (50,000) --
Proceeds from issuance of common
stock................................ 7,400 3,700,000 857,508
Proceeds from long-term debt.......... 67,400,000 (1,750,000) 200,000
Repayment of notes payable, long-term
debt and capital leases.............. (33,712,492) -- (1,175,000)
Payment of financing costs............ (1,639,127) -- (1,187,500)
Dividends on mandatorily redeemable
preferred stock...................... (1,904,480) -- (688,000)
------------ ----------- -----------
Net cash provided by (used in)
financing activities............. 30,101,301 1,900,000 (1,992,992)
------------ ----------- -----------
Net increase (decrease) in cash........ 441,439 (120,640) 94,045
Cash and cash equivalents, beginning of
period................................ 125,311 125,311 566,750
------------ ----------- -----------
Cash and cash equivalents, end of
period................................ $ 566,750 $ 4,671 $ 660,795
============ =========== ===========
Supplemental cash flows information
Cash payments for:
Interest............................ $ 3,619,625
Taxes............................... $ 6,096,000
Supplemental disclosure of noncash
transactions:
Shares of common stock issued in
exchange for note.................... $ 202,124
Accretion of mandatorily redeemable
preferred stock...................... $ 1,812,912
Accretion of put warrants............. $ 987,406
Issuance of shares for the
acquisition of Cuplex................ $ 763,149
Issuance of mandatorily redeemable
Series B preferred stock for the
acquisition of Cuplex................ $ 1,057,953
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Dynamic Circuits Inc. (DCI) manufactures double-sided and multi-layer
printed circuit boards to customer specifications and drawings. The Company's
fiscal year-end is December 31.
Recapitalization:
In August 1996 DCI formed a subsidiary, Dynamic Circuits Inc., a Delaware
Corporation (the "Company"). On August 19, 1996, DCI effected a reincorporation
merger (the "merger") with the Company, with the Company surviving the merger.
Contemporaneous with the merger, the Company redeemed 170,911 shares of common
stock and 4,557 options to purchase common stock at a total cost of
$45,997,248. Additionally, 8,553 shares of common stock were issued to an un-
related party for a purchase price of $2,222,743. In connection with the
transaction the Company issued 120,000 shares of mandatorily redeemable
preferred stock, and warrants to purchase 15,392 shares of common stock for
$12,000,000, of which $10,076,000 was allocated to mandatorily redeemable
preferred stock and $1,924,000 was allocated to warrants. In addition, the
Company borrowed $35,100,000 under a term loan.
The transaction was accounted for as a recapitalization, and accordingly, no
change in the accounting basis of DCI's assets was made in the accompanying
financial statements. The amount paid to the stockholders of DCI of $45,997,248
exceeded DCI's net assets of approximately $9,119,637 on the date of the
transaction by $36,877,611. This amount was recorded as a distribution in
excess of net book value.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned operating subsidiary Cuplex, Inc. ("Cuplex")
since its acquisition on October 7, 1997 and its 80% owned subsidiary
DCI/Design Plus L.L.C. ("DCI/Design Plus") since its acquisition on June 24,
1998. All significant intercompany balances and transactions have been
eliminated in consolidation.
Unaudited Interim Information:
The financial information presented as of and for the periods ending June
30, 1998 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 any interim periods 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
period is also unaudited.
Revenue Recognition:
The Company recognizes revenue upon product shipment.
Use of Estimates:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate the continued
existence of the Company. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
F-39
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value.
Property and Equipment:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization is calculated using the declining balance method
over the assets' useful life.
When property and equipment are retired or otherwise disposed of, the
related cost and accumulated depreciation or amortization are removed and a
gain or loss is recognized in operations. Maintenance, repairs and minor
expenditures are expensed as incurred.
Intangible Assets:
Goodwill recorded in connection with the acquisition of Cuplex (see Note 2)
is amortized on a straight-line basis over 25 years. Debt financing costs are
amortized using the sum of the digits method over the term of the related
loans. Goodwill amortization amounted to $78,897 for the year ended December
31, 1997 and $614,479 for the six months ended June 30, 1998 (unaudited). The
Company periodically evaluates the recoverability of goodwill based upon
estimated discounted cash flows from the acquired business.
Income Taxes:
The Company is organized as a Delaware corporation. Subsequent to the
merger, the Company accounts for taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using current tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Prior to the merger, the Company was organized as a
California Subchapter S corporation and as such was not a tax paying entity for
federal income tax purposes, but was required to pay the state of California a
reduced rate based on taxable income.
Concentration of Credit Risk:
The Company sells printed circuit boards to customers in a wide variety of
industries. The Company's customers are geographically dispersed throughout the
United States.
Financial Instruments:
The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be cash
equivalents.
Amounts reported for cash and cash equivalents, accounts receivable,
accounts payable and other accrued liabilities are considered to approximate
fair value primarily due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its long term debt, and mandatorily redeemable preferred stock
approximate fair value.
Stock Split:
In January 1998, the stockholders approved an increase in the Company's
authorized shares of common stock to nine million concurrently with a one-
hundred-for-one stock split. All shares, common stock and capital in excess of
par value have been restated to reflect the effect of this split.
F-40
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of
comprehensive income and becomes effective for the Company for fiscal years
beginning after December 15, 1997, with reclassification of earlier financial
statements for comparative purposes. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments or
contributions by shareholders. The Company is evaluating alternative formats
for presenting this information, but does not expect this pronouncement to
materially impact the Company's results of operations.
In June 1997, The Financial Standards Board issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business Enterprise."
The new standard becomes effective for fiscal years beginning after December
15, 1997, and requires that comparative information from earlier years be
restated to conform to the requirements of this standard. The Company is
evaluating the requirements of SFAS 131 and the effects, if any, on the
Company's current reporting and disclosures.
2. ACQUISITIONS:
Cuplex:
On October 9, 1997, the Company completed the acquisition of Cuplex Inc., a
Delaware corporation, for a purchase price of $12,470,000. Cuplex, located in
Garland, Texas, with facilities in Dallas and Garland, TX, and in Marlboro, MA,
fabricates advanced high-density multilayer boards and assembles high-density
backpanel and electromechanical systems. The transaction has been accounted for
as a purchase and therefore the results of Cuplex's operations for the period
subsequent to the acquisition date to December 31, 1997 have been included in
the Company's results of operations for the year ended December 31, 1997.
Consideration for the acquisition was allocated as follows:
<TABLE>
<S> <C>
Cash consideration paid....................................... $ 12,470,000
Repayment of debt on acquisition.............................. 15,498,118
Acquisition costs............................................. 934,376
Issuance of common stock...................................... 763,149
Issuance of Series B mandatorily redeemable Preferred Stock... 1,057,953
Fair value of assets acquired................................. (6,551,531)
Debt assumed on acquisition................................... (15,498,118)
------------
Goodwill...................................................... $ 8,673,947
============
</TABLE>
Pro forma information (unaudited)
If the acquisition had occurred on January 1, 1997, the results of operation
of the Company would have been as follows:
<TABLE>
<S> <C>
Revenue........................................................ $145,498,000
============
Income before taxes and extraordinary item..................... $ 12,229,000
============
Net income..................................................... $ 6,613,000
============
</TABLE>
F-41
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DCI/Design Plus:
On June 24, 1998, the Company acquired 80% of a newly formed Company,
DCI/Design Plus. Coincident with the acquisition, Design Plus, a sole
proprietorship which was engaged in printed circuit board design, contributed
all of its assets to DCI/Design Plus for consideration of $660,000 and a 20%
interest in DCI/Design Plus. Goodwill of $533,182 arose on this transaction.
3. EXTRAORDINARY ITEMS:
Early Extinguishment of Debt:
In October 1997, in connection with the acquisition of Cuplex, the Company
entered into a new credit agreement to retire its outstanding term and
revolving credit loans (total of $33,125,000 at December 31, 1996). The
transaction constituted an early retirement of debt, and accordingly the write-
off of unamortized debt financing costs was accounted for as an extraordinary
charge.
4. CREDIT AGREEMENT:
Long Term Debt:
The Company, in connection with the acquisition of Cuplex, entered into a
Credit Agreement which provided for an A term loan facility of $30,000,000, a B
term loan facility of $35,000,000, a revolving loan facility of up to
$30,000,000. The Credit Agreement is collateralized by all assets of the
Company and all outstanding stock of its Subsidiary. The Credit Agreement also
has various restrictive covenants which limit the Company's ability to incur
debt or grant a security interest in its assets, dispose of assets, merge, or
consolidate with another entity, make capital expenditures, enter into
operating leases, or issue or dispose of the Company's capital stock. The
Company is required to meet certain minimum consolidated EBITDA (earnings
before interest, income taxes, depreciation and amortization expense as defined
in the agreement) and financial ratio requirements.
Borrowings under the Credit Agreement as of December 31, 1997 are summarized
as follows:
<TABLE>
<S> <C>
A Term Loan...................................................... $29,500,000
B Term Loan...................................................... 35,000,000
Revolving Loan................................................... 2,400,000
-----------
$66,900,000
===========
</TABLE>
A Term Loan:
The A term loan bears interest at the Base Rate or Eurodollar Rate, as
defined in the agreement, plus 1.25% or 2.25%, respectively, per annum (8.1875%
at December 31, 1997). The loan is due on September 30, 2002 and is payable in
quarterly installments for principal beginning December 31, 1997. Interest is
due monthly. Quarterly installments are $500,000 for quarters one through four,
$1,000,000 for quarters five through eight, $1,500,000 for quarters nine
through twelve, $2,000,000 for quarters thirteen through sixteen and $2,500,000
for quarters seventeen through twenty. In addition, subject to certain
conditions, the Credit Agreement permits optional prepayments without premium
or penalty.
B Term Loan:
The B term loan bears interest at the Base Rate or Eurodollar Rate, as
defined in the agreement, plus 1.50% or 2.25%, respectively, per annum (8.4375%
at December 31, 1997). The loan is due on September 30,
F-42
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2002 and is payable in quarterly installments for principal beginning March 31,
1998. Interest is due monthly. Quarterly installments are $87,500 for quarters
one through twenty, $11,083,333 for quarters twenty-one and twenty-two and
$11,083,334 for quarter twenty-three. In addition, subject to certain
conditions, the Credit Agreement permits optional prepayments without premium
or penalty.
Revolving Loan:
The revolving loan facility permits borrowings up to $30,000,000 at the Base
Rate or Eurodollar Rate, as defined in the agreement, plus 1.25% or 2.25%,
respectively, per annum (9.75% at December 31, 1997). Its collateral
arrangements are the same as the A and B term loans and it matures on September
30, 2002. Interest on borrowings under the revolving loan facility is payable
quarterly with mandatory principal payments to the extent that Borrowings, as
defined in the agreement, exceed the Total Revolving Loan Commitment, as
defined in the agreement. As of December 31, 1997, $2,400,000 was outstanding
under the revolving loan facility.
Under the Credit Agreement, the Company has committed to pay annual fees of
$75,000 and facility fees of $593,500 on January 1, 1998 and April 1, 1998,
provided that the debt has not been refinanced.
5. SHAREHOLDERS EQUITY:
Preferred Stock Series A:
In connection with the merger the Company issued shares of Series A
preferred stock on August 19, 1996. Each share is entitled to a $12 per annum
dividend, which is payable quarterly, in arrears and is cumulative in nature.
Unpaid dividends accrue at 12% per annum until September 1, 1999 after which a
penalty accrual rate applies. Unpaid dividends rank in preference over those of
common shares. The shares of preferred stock have a liquidation preference of
$100 per share plus accrued but unpaid dividends.
The Company may redeem shares of preferred stock at any time after
appropriate notice and must redeem all shares of preferred stock by December
31, 2003. In both cases the redemption value is the liquidation preference plus
any accrued and unpaid dividends.
The holders of Series A preferred stock do not have voting rights except in
the event of Series A preferred stock not being redeemed by December 31, 2003.
In addition, the consent of the holders of at least 51% of Series A preferred
stock is required for certain changes to the Company's capital structure or
raising of additional debt finance.
Preferred Stock Series B:
In connection with acquisition of Cuplex, the Company issued shares of
Series B preferred stock. Each share is entitled to a $0.90 per annum dividend,
which is payable quarterly, in arrears if and when declared by the Board of
Directors. Unpaid dividends rank in preference over those of common shares. The
shares of preferred stock have a liquidation preference of $10 per share plus
accrued and unpaid dividends.
The Company may redeem shares of preferred stock at any time after
appropriate notice and must redeem all shares of preferred stock by October 9,
2000. In both cases the redemption value is the liquidation preference plus
accrued and unpaid dividends.
The holders of Series B preferred stock do not have any voting rights.
F-43
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants:
The Company granted warrants to holders of Series A preferred stock to
purchase common stock as part of the merger on August 19, 1996. Each warrant
entitles the holder to receive from the Company a fully paid common share after
payment of the warrant exercise price of $0.01. The warrant holder may at any
time after the fifth anniversary of the warrant put them to the Company at fair
market value. The put terminates if an Initial Public Offering (IPO) occurs
prior to the put date. The Company accretes the carrying value of the put
warrants over five years such that the carrying value on the fifth anniversary
will be equal to the fair market value of the put on that date. Changes in
estimates of the fair market value are accounted for prospectively on the
remaining term of the put. Stock warrant activity is as follows:
<TABLE>
<CAPTION>
Number
of Exercise Aggregate
Shares Price Price
------ -------- ---------
<S> <C> <C> <C>
Balance, December 31, 1996......................... 15,392 $0.01 $154
------ ----- ----
Balance, December 31, 1997......................... 15,392 $0.01 $154
====== ===== ====
</TABLE>
The Company has reserved 15,392 shares of common stock for the exercise of
warrants.
Stock Option Plans:
1996 Stock Option Plan:
In June 1996, the Company adopted the 1996 Stock Option Plan. Under the
plan, options to purchase common stock may be granted to directors, executive
officers and other key employees of the Company. The Company has reserved 9,805
shares of common stock for issuance under the Plan, at December 31, 1997.
Options generally expire ten years from the date of grant. Options vest over
either a four or eight year period. Certain option grants are subject to
accelerated vesting based upon the achievement of certain specified performance
goals.
Activity under the 1996 plan is as follows:
<TABLE>
<CAPTION>
Number Exercise Aggregate
of Shares Price Price
--------- -------- ---------
<S> <C> <C> <C>
Balance, December 31, 1996...................... 10,325 $5.00 $51,625
Options exercised............................. (1,480) $5.00 (7,400)
------ ----- -------
Balance, December 31, 1997...................... 8,845 $5.00 $44,225
====== ===== =======
</TABLE>
At December 31, 1997, 3,872 options were exercisable.
1997 Stock Option Plan:
In August 1997, the Company adopted the 1997 Stock Option Plan. Under the
plan, options to purchase common stock may be granted to any executive or other
key employee of the Company or of any Subsidiary. The Company has reserved
2,202 shares of common stock for issuance under the Plan. The exercise price
shall not be less than 85% of the fair market value, except that the exercise
price shall be 110% of the fair market value of such share in the case of any
participant who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its subsidiaries.
Options vest over five years and expire ten years from the date of grant.
F-44
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Activity under the 1997 stock option plan was as follows:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------
Weighted
Average
Available Number Aggregate Price
for Grant of Shares Exercise Price Price per Share
--------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Authorized.............. 2,202
Options granted......... (1,152) 1,152 $425-$500 $561,600 $487
------ ----- --------- -------- ----
Balances, December 31,
1997................... 1,050 1,152 $425-$500 $561,600 $487
====== ===== ========= ======== ====
</TABLE>
At December 31, 1997, 230 options were exercisable.
Holders of 960 options under the 1997 option plan are entitled to
participate in the Company's Cash Bonus Plan. Under the Bonus Plan employees
are allocated bonus units which vest on an annual basis over five years. The
bonus is only payable in the event of exercise of options to purchase shares of
the Company's Common Stock. The Company is accruing for the cost of the Bonus
Plan over the vesting period.
In October 1997, the Company granted 4,102 options at an exercise price of
$575 under a new stock option plan. At December 31, 1997, 1,230 such options
were exercisable.
The Company recognized compensation expense of $239,286 and $1,358,541, in
1997 and 1996, respectively, representing the difference between exercise price
and the fair market value of options and restricted stock at the date of grant.
The Company has continued to account for its stock based compensation in
accordance with APB 25 and has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation." Accordingly, no compensation expense has been
recognized under the plans, except for the amounts disclosed in the above
paragraph.
Had compensation cost been determined based on the fair value at the date of
grant date for awards in 1997 consistent with the provisions of SFAS No. 123,
the Company's net income for the year ended December 31, 1997 would have been
reduced to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1997
------
<S> <C>
Net income-as reported............................................ $5,072
Net income-pro forma.............................................. $5,038
</TABLE>
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made
each year.
In accordance with the provisions of SFAS 123, the fair value of each option
is estimated using the following assumptions used for option grants during the
years ended December 31, 1996 and 1997; dividend yield of 0%, volatility of 0%,
risk-free interest rates of between 5.42% and 6.00% at the date of grant and an
expected term of three to five years.
The weighted-average grant date fair value of options were $71.12, $0.75 and
$0.30 per option for the years ended December 31, 1997 and 1996, respectively.
F-45
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Number Contractual Exercise Number Exercise
Price of Shares Life Price of Shares Price
-------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$5.................. 8,845 8.50 years $ 5 3,872 $ 5
$425-$575........... 5,254 9.68 years $556 1,460 $561
------ -----
14,099 8.94 years $210 5,332 $157
====== =====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company leases various facilities under non-cancelable operating leases
expiring through 2006.
Total future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1998........................................................ $1,275,404
1999........................................................ 1,103,030
2000........................................................ 1,090,084
2001........................................................ 1,084,667
2002 and thereafter......................................... 1,604,810
----------
$6,157,995
==========
</TABLE>
Rent expense amounted to $648,136 for the year ended December 31, 1997.
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these matters, if any, management believes
that the ultimate outcome of these matters will not have a material adverse
effect on the Company's financial condition, results of operations, or cash
flows.
The Company's operations are regulated under a number of federal, state and
local environmental laws and regulations, which govern, among other things, the
discharge of hazardous materials into the air and water as well as the
handling, storage, and disposal of such materials. Compliance with these
environmental laws is a major consideration for the Company, and there can be
no assurances that environmental laws and regulations will not become more
stringent in the future or that the Company will not incur significant costs in
the future to comply with such laws and regulations.
F-46
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. INCOME TAXES:
The provision for income taxes for the year ended December 31, 1997 included
the following:
<TABLE>
<S> <C>
Federal:
Current...................................................... $3,680,401
Deferred..................................................... (101,103)
----------
3,579,298
----------
State:
Current...................................................... 631,092
Deferred..................................................... (98,075)
----------
533,017
----------
$4,112,315
==========
</TABLE>
The provision for taxes differed from that expected by applying the basic
rate of federal tax due primarily to the change of tax status of the Company as
a result of the recapitalization (see Note 1) and that certain transaction
related charges are not deductible for tax purposes.
8. RELATED PARTIES:
Management Fees:
The Company has an agreement dated August 19, 1996 for financial advisory
services with Celerity Partners, L.L.C. (Celerity) and Bain Capital, Inc.
(Bain) who hold a partnership interest in Celerity Circuits L.L.C., the
majority shareholder of the Company. The agreement provides for annual
management fees of $150,000 to be paid to Celerity and/or Bain for so long as
Celerity and/or Bain own, either directly or through an affiliated entity, an
equity interest in the Company. The management fees are payable in quarterly
installments. The agreement also provides for the reimbursement of certain
allowed expenses. In connection with entering into the Credit Agreement in
1997, the Company paid specific advisory fees to Celerity and Bain. Management
fees and expense reimbursements under the agreement amounted to approximately
$359,272 in December 31, 1997. Specific advisory fees amounted to approximately
$706,092, for the year ended December 31, 1997. The Company is required to pay
a management fee of $56,250 per quarter to Celerity and Bain, respectively,
effective January 1, 1998.
Receivable from Related Party:
In connection with the Acquisition, Cuplex's 50% interest in Cumex SA de CV,
a Mexican corporation (Cumex) was sold to certain former shareholders of
Cuplex. On October 9, 1997, Cuplex and Cumex signed an Operating Agreement by
which Cuplex agrees to provide management and technical services to Cumex.
Cumex agrees to provide manufacturing services to Cuplex for a period of two
years and a repayment schedule was agreed for the amount due by Cumex to
Cuplex. The balance outstanding at October 9, 1997 was $3.2 million. On October
9, 1997, DCI and the shareholders of Cumex entered into an Option Agreement by
which it was agreed that DCI could purchase 100% of Cumex until termination of
the Operating Agreement.
On the acquisition of Cuplex the receivable from Cumex was valued at its net
present value determined by applying appropriate discount rates. This resulted
in an adjustment in the fair value of the receivable of $1.1
F-47
<PAGE>
DYNAMIC CIRCUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
million. At December 31, 1997, the gross and net amounts receivable from Cumex
are $3.6 million and $2.5 million, respectively.
9. EMPLOYEE BENEFIT PLANS:
The Company and its subsidiary have established defined contribution
retirement plans that are intended to qualify under Section 401 of the Internal
Revenue Code ("the Plan"). The Plans cover substantially all officers and
employees of the Company and its subsidiary. Contributions to the Plans are
determined at the discretion of the Board of Directors. No contributions were
made to the Plans for the year ended December 31, 1997.
10. SUBSEQUENT EVENT:
On July 23, 1998, DDi Holdings Corporation and the Company executed a stock
contribution and merger agreement. In connection with this agreement, DDi
Holdings Corporation acquired all of the outstanding capital stock of the
Company for aggregate merger consideration of approximately $247 million.
F-48
<PAGE>
Report of Independent Public Accountants
To the shareholders of
Symonds Limited
We have audited the accompanying consolidated balance sheet of Symonds
Limited as of 31 March 1999, and the related consolidated profit and loss
account, reconciliation of movements in consolidated shareholders' funds and
consolidated cash flow statement for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom, which are substantially consistent with
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Symonds Limited as of 31 March 1999, and the consolidated results of its
operations and its consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles in the United Kingdom.
Accounting practices used by the Company in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the United Kingdom, but do not conform with accounting principles generally
accepted in the United States. A description of these differences and a
reconciliation of consolidated net income and shareholders' equity to generally
accepted accounting principles in the United States is set forth in Note 30.
KPMG Audit Plc
Chartered Accountants
Birmingham, England
28 October 1999
(except with respect to the matters
discussed in Note 29 and 30, as to
which the date is 22 March 2000)
F-49
<PAGE>
SYMONDS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
Notes Unaudited Unaudited
(relating to Nine months Unaudited Six months
year ended Year ended ended Three months ended
31 March, 31 March 31 December ended 31 December
1999) 1999 1998 30 June 1999 1999
------------ ----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Turnover 1
Continuing operations... 41,056 30,949 8,636 17,299
Discontinued
operations............. 4,486 3,650 160 --
------- ------- ------ -------
45,542 34,599 8,796 17,299
Operating costs......... 2 (42,627) (31,534) (8,361) (15,590)
------- ------- ------ -------
Operating profit before
goodwill and
exceptional items:
Continuing operations... 4,290 3,019 957 2,601
Discontinued
operations............. (57) 46 (4) --
------- ------- ------ -------
4,233 3,065 953 2,601
------- ------- ------ -------
Operating exceptional
items:
Continuing operations... 1 (570) -- (518) (378)
Discontinued
operations............. (748) -- -- --
------- ------- ------ -------
(1,318) -- (518) (378)
------- ------- ------ -------
Goodwill amortization... -- -- -- (514)
------- ------- ------ -------
Operating profit 1
Continuing operations... 3,720 3,019 439 1,709
Discontinued
operations............. (805) 46 (4) --
------- ------- ------ -------
Total operating
profit............. 2,915 3,065 435 1,709
Exceptional items 3
Continuing operations:
Provision for loss on
termination of a
business............. (4,000) -- -- --
Discontinued operations:
(Loss)/profit on
disposal of a
business............. (2,435) -- 48 --
------- ------- ------ -------
(Loss)/profit on
ordinary activities
before interest........ (3,520) 3,065 483 1,709
Interest receivable..... 119 112 25 54
Interest payable and
similar charges........ 6 (442) (373) (65) (1,553)
------- ------- ------ -------
(Loss)/profit on
ordinary activities
before taxation........ (3,843) 2,804 443 210
Tax on (loss)/profit on
ordinary activities.... 7 (495) (965) (278) (166)
------- ------- ------ -------
(Loss)/profit on
ordinary activities
after taxation......... (4,338) 1,839 165 44
Dividends............... 8 (416) (416) -- --
------- ------- ------ -------
Retained (loss)/profit
for the period......... 20 (4,754) 1,423 165 44
======= ======= ====== =======
(Loss)/earnings per
share.................. 9 (6.2p) 2.6p 0.2p 3.7p
======= ======= ====== =======
</TABLE>
The Group has no recognised gains and losses other than those reflected in
the group profit and loss account.
There is no difference between the result as disclosed in the group profit
and loss account and the result on an unmodified historical cost basis.
All periods presented are of Symonds Limited except at and for the six
months ended 31 December 1999 which are of MCM Electronics Limited--see
Accounting Policies--Interim financial statements.
F-50
<PAGE>
SYMONDS LIMITED
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Unaudited Unaudited
Nine months Three months Unaudited
Year ended ended ended Six months ended
31 March 31 December 30 June 31 December
1999 1998 1999 1999
----------- ----------- ------------ ----------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
(Loss)/profit for the
period................. (4,338) 1,839 165 44
Dividends............... (416) (416) -- --
Issue of shares......... 12 12 -- 1,267
Goodwill written back... 4,537 -- 281 --
------ ------ ----- -----
Net movement in
shareholders' funds.... (205) 1,435 446 1,311
Equity shareholders'
funds at beginning of
period................. 9,311 9,311 9,106 --
------ ------ ----- -----
Equity shareholders'
funds at end of
period................. 9,106 10,746 9,552 1,311
====== ====== ===== =====
</TABLE>
All periods presented are of Symonds Limited except at and for the six
months ended 31 December 1999 which are of MCM Electronics Limited--see
Accounting Policies--Interim financial statements.
F-51
<PAGE>
SYMONDS LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
31 March 31 December 30 June 31 December
Notes 1999 1998 1999 1999
----- ----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets......... 10 8,671 8,853 8,944 7,863
Goodwill................ -- -- -- 20,062
------- ------- ------- -------
8,671 8,853 8,944 27,925
Current assets
Stocks.................. 12 3,780 4,303 3,778 3,791
Debtors................. 13 9,385 11,524 9,437 9,159
Cash at bank and short
term deposits.......... 3,568 1,372 2,059 4,066
------- ------- ------- -------
16,733 17,199 15,274 17,016
------- ------- ------- -------
Creditors: amounts
falling due within one
year................... 14 (14,292) (12,792) (14,279) (11,438)
------- ------- ------- -------
Net current assets...... 2,441 4,407 995 5,578
------- ------- ------- -------
Total assets less
current liabilities.... 11,112 13,260 9,939 33,503
------- ------- ------- -------
Creditors: amounts
falling due after more
than one year 15 (1,865) (2,083) (246) (31,852)
Provisions for
liabilities and
charges................ 17 (141) (431) (141) (340)
------- ------- ------- -------
Net assets.............. 9,106 10,746 9,552 1,311
======= ======= ======= =======
Capital and reserves
Called up share
capital................ 19 3,473 3,473 3,473 12
Share premium account... 20 19,887 19,887 19,887 1,255
Capital redemption
reserve................ 20 50 50 50 --
Merger reserve.......... 20 5,474 5,474 5,474 --
Profit and loss
account................ 20 (19,778) (18,138) (19,332) 44
------- ------- ------- -------
Equity shareholders'
funds.................. 9,106 10,746 9,552 1,311
======= ======= ======= =======
</TABLE>
All periods presented are of Symonds Limited except at and for the six
months ended 31 December 1999 which are of MCM Electronics Limited--see
Accounting Policies--Interim financial statements.
F-52
<PAGE>
SYMONDS LIMITED
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
Nine months Three months Six months
Year ended ended ended ended
31 March 31 December 30 June 31 December
Notes 1999 1998 1999 1999
----- ----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Net cash flow from
operating activities... 21 7,882 4,305 (446) 1,884
------ ------ ------ -------
Returns on investments
and servicing of fi-
nance
Interest received....... 119 112 25 54
Interest paid........... (354) (307) (45) (10)
Interest element of
finance lease
payments............... (88) (66) (20) (45)
------ ------ ------ -------
(323) (261) (40) (1)
------ ------ ------ -------
Tax paid................ (643) (232) (108) (66)
------ ------ ------ -------
Capital expenditure
Purchase of tangible
fixed assets........... (3,603) (3,356) (878) (193)
Sale of tangible fixed
assets................. 770 770 33 --
------ ------ ------ -------
(2,833) (2,586) (845) (193)
------ ------ ------ -------
Acquisitions and
disposals
Net cash payable in
respect of
acquisitions........... -- -- -- (30,581)
Net cash consideration
in respect of business
disposals.............. 200 -- 249 1,044
------ ------ ------ -------
200 -- 249 (29,537)
------ ------ ------ -------
Equity dividends paid... (1,249) (833) -- --
------ ------ ------ -------
Cash flow before
financing and
management of liquid
resources.............. 3,034 393 (1,190) (27,913)
------ ------ ------ -------
Financing and management
of liquid resources
Issue of shares......... 22 12 12 -- 1,267
Movement in debt........ (2,288) (1,843) (319) 28,626
Movement in liquid
resources.............. (1,002) 998 624 500
------ ------ ------ -------
(3,278) (833) 305 30,393
------ ------ ------ -------
(Decrease)/increase in
cash in the period 23 (244) (440) (885) 2,480
====== ====== ====== =======
</TABLE>
All periods presented are of Symonds Limited except at and for the six
months ended 31 December 1999 which are of MCM Electronics Limited--see
Accounting Policies--Interim financial statements.
F-53
<PAGE>
SYMONDS LIMITED
ACCOUNTING POLICIES
The accompanying consolidated financial statements for the year ended 31
March 1999 do not comprise statutory accounts within the meaning of Section 240
of the Companies Act 1985 of England and Wales, but have been extracted from
the company's statutory accounts for the fiscal year to 31 March 1999 which
have been delivered to the Registrar of Companies in England and Wales, upon
which an unqualified audit report has been given.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United Kingdom (UK GAAP). UK
GAAP and accounting principles adopted by the Company differ in certain
respects from accounting principles generally accepted in the United States (US
GAAP). See Note 30 for a discussion of the principal differences that would
affect the Company's consolidated net income and shareholders' equity if US
GAAP had been applied instead of UK GAAP in the preparation of the consolidated
financial statements. The financial statements have been prepared under the
historical cost convention and comply with applicable accounting standards.
Under UK GAAP companies are permitted, in certain circumstances, to value their
assets and liabilities using a basis different from original cost. This has not
been the case in these financial statements.
Basis of consolidation
The Group accounts consolidate the accounts of Symonds Limited and all its
subsidiary undertakings made up to 31 March 1999.
The results of businesses acquired or sold during the year are included in
the Group financial statements from the date of acquisition or to the date of
disposal.
Interim financial statements--unaudited
The interim financial statements as of 31 December 1998, 30 June 1999 and 31
December 1999 have been prepared without audit and reflect, in the opinion of
the Group, all adjustments necessary to present fairly the financial
information for the Group. All such adjustments are of a normal recurring
nature.
The interim financial statements have been prepared on a basis which is
consistent with the accounting policies adopted for the year ended 31 March
1999.
Taxation for the interim financial statements has been calculated in line
with the estimated effective tax rate for the relevant financial years.
The exceptional operating items incurred by the Symonds Group in the period
to 30 June 1999 were acquisition advisory costs incurred by the company in
respect of its acquisition by MCM Electronics Limited.
The results for the six months ended 31 December 1999 are those of MCM
Electronics Limited and its subsidiary undertakings. MCM Electronics Limited
acquired Symonds Limited, and its subsidiary undertakings on 5 July 1999. The
accounting period commencing 1 July 1999 has been used to reflect the results
of MCM Electronics Limited and its subsidiary undertakings as there is no
material difference between the results for this period and those for the
period commencing 5 July 1999, the date of acquisition. MCM Electronics Limited
is a company owned by the executive directors of Symonds Limited together with
external investors. No adjustments to the book value of the assets and
liabilities of Symonds Limited at acquisition were necessary to reflect their
fair value for acquisition purposes. At that date MCM Electronics issued
1,200,000 ordinary shares of 1p each and obtained medium term debt to finance
the acquisition of the entire ordinary share capital of Symonds Limited.
Goodwill of (Pounds)21,002,000 arose on the acquisition which has been
capitalised and is being amortised over 20 years. There have been no
significant changes to the Group since that date.
The exceptional operating item in the period to 31 December 1999 is a
material bad debt incurred by a subsidiary of MCM Electronics Limited in this
period.
F-54
<PAGE>
SYMONDS LIMITED
ACCOUNTING POLICIES--(Continued)
Goodwill
UK Financial Reporting Standard 10 was adopted in the Company's consolidated
financial statements effective 1 April 1998. Goodwill arising on acquisition
subsequent to 1 April 1998 has been capitalised and amortised through the
profit and loss account over its useful economic life which is generally not
expected to exceed 20 years. Goodwill related to acquisitions made prior to 31
March 1998 was charged directly to reserves in accordance with UK accounting
standards in effect at that date.
Turnover
Turnover represents the total amount receivable in the ordinary course of
business for goods sold excluding value added tax. Turnover is recognised upon
despatch.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost or valuation, less depreciation.
Deprecation is provided on all tangible fixed assets, other than freehold land,
at rates calculated to write off the cost or valuation, less residual value,
over the estimated useful life in each company of each asset as follows:
<TABLE>
<S> <C> <C>
Freehold buildings.......... 2% On straight line
Leasehold property.......... Over the term of the lease
Plant and equipment......... 10-25% On straight line or reducing balance
Computer equipment.......... 17-25% On straight line or reducing balance
Office furniture and
equipment.................. 15-25% On straight line or reducing balance
Motor vehicles.............. 25% On straight line or reducing balance
</TABLE>
Stocks and work in progress
Stocks and work in progress are stated at the lower of cost and net
realisable value on a first-in, first-out basis, including attributable
production overheads.
Net realisable value is based on estimated selling price less further costs
expected to be incurred to completion and disposal.
Trade debtors
Trade debtors are recorded at the invoiced amount, including value added
tax, less a provision for doubtful debts. Management considers current
information and events regarding the debtors' ability to repay their
obligations, and makes a provision against amounts due when it is probable that
the full amount will not be collected. Changes in the level of provision are
charged to the bad debt expense.
Liquid resources
Included within cash balances are liquid resources of (Pounds)2,710,000 at
31 March 1999, consisting of cash deposits to secure loan notes, and treasury
deposits. For the purposes of the group cashflow statement all highly liquid
debt instruments with original maturities of three days or less are considered
to be cash.
Pension costs
The Group operates a number of defined contribution pension schemes. The
assets of the schemes are held separately from those of the Group in
independently administered funds. Contributions are paid to the schemes at the
defined contribution levels and are charged to the profit and loss account in
the year to which they relate.
F-55
<PAGE>
SYMONDS LIMITED
ACCOUNTING POLICIES--(Continued)
Leases
Assets held under finance leases are capitalised at their fair value on the
inception of the leases and depreciated over their estimated useful lives. The
finance charges are allocated over the period of the lease in proportion to
the capital amount outstanding.
Rentals paid under operating leases are charged against income on a
straight line basis over the lease term.
Under UK GAAP, the gain arising on a sale-leaseback transaction may be
recognised in full at the date of the transaction provided that it can be
demonstrated that a market rent is being paid under the lease agreement.
Deferred taxation
Provision is made for deferred taxation using the liability method to take
account of timing differences between the incidence of income and expenditure
for taxation and accounting purposes to the extent that it is probable that a
liability or asset will crystallise in the future.
Foreign currency translation
Transactions in foreign currencies are recorded at the rate ruling at the
date of transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance
sheet date. All differences are taken to the profit and loss account.
F-56
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. TURNOVER, OPERATING PROFIT AND NET ASSETS
The destination of the Group's turnover by geographical market is:
<TABLE>
<CAPTION>
Year ended
31 March
1999
-----------
(Pounds)000
<S> <C>
United Kingdom................................................... 41,137
Europe........................................................... 2,481
USA.............................................................. 540
Rest of World.................................................... 1,384
------
45,542
======
</TABLE>
The Group's turnover, operating profit, and net operating assets for the
year ended 31 March 1999 can be analysed by business segment as follows:
<TABLE>
<CAPTION>
Net
Operating operating
Turnover profit assets
----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Continuing operations:
PCB manufacture........................ 19,963 3,580 5,064
Electronic manufacturing services...... 21,999 406 1,730
Group.................................. -- (266) 2,344
------ ------ -----
41,692 3,720 9,138
Discontinued operations................ 4,486 (805) 134
------ ------ -----
46,448 2,915 9,272
Less: inter-segmental turnover......... (906)
------
45,542
======
Exceptional items (note 3)............. (6,435)
Net interest........................... (323)
------
Profit on ordinary activities before
taxation.............................. (3,843)
======
Net indebtedness....................... (166)
-----
Net assets............................. 9,106
=====
</TABLE>
Discontinued operations comprise Finishing Services Limited disposed of in
March 1999, and Finishing Technology Limited disposed of in June 1999. The
operating loss of the discontinued operations includes a provision for
impairment of Finishing Technology Limited's goodwill of (Pounds)748,000. The
disposal of Finishing Services Limited is analysed in Note 25.
The Electronic Manufacturing Services operating profit includes an
exceptional operating loss of (Pounds)570,000. This relates to vacant property
costs recognised in the year. A related tax credit of (Pounds)171,000 has been
recognised in respect of these costs.
F-57
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
2. OPERATING PROFIT
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Operating profit is stated after charging/(crediting):
Depreciation--owned fixed assets............................... 1,552
--finance leased assets................................... 248
Operating lease rentals--plant and machinery................... 611
--land and buildings................................. 702
Loss on sale of fixed assets................................... 28
Gain on foreign exchange....................................... (8)
=====
</TABLE>
Operating costs are analysed as follows:
<TABLE>
<CAPTION>
31 March
1999
Continuing Discontinued
operations operations Total
----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Change in work in progress and
finished goods...................... (363) (54) (417)
Raw materials and consumables........ (17,397) (2,170) (19,567)
Other external charges............... (2,940) (604) (3,544)
Staff costs.......................... (10,907) (1,115) (12,022)
Depreciation......................... (1,732) (68) (1,800)
Other operating charges.............. (3,997) (532) (4,529)
Provision for goodwill impairment.... -- (748) (748)
------- ------ -------
(37,336) (5,291) (42,627)
======= ====== =======
</TABLE>
3. EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
31 March 1999
-----------------------------------
Gross Tax Net
----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Continuing operations:
Provision for loss on termination
of a business (a)................. (4,000) 606 (3,394)
Discontinued operations:
Loss on disposal of a business
(b)............................... (2,435) -- (2,435)
------ --- ------
(6,435) 606 (5,829)
====== === ======
</TABLE>
(a) The provision for loss on termination of a business arises following
the decision of the board to close the operations of Osborne
Electronics Limited. The provision includes debtor, stock and fixed
asset write-downs arising from the closure, redundancy costs, and
goodwill of (Pounds)1,800,000 previously eliminated when Osborne
Electronics Limited was acquired.
(b) The loss on disposal of a business represents the loss on sale of
Finishing Services Limited of (Pounds)2,435,000 (after charging
(Pounds)1,989,000 of goodwill previously eliminated).
F-58
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
4. AUDITORS' REMUNERATION
Amounts payable to the auditors of all Group undertakings in respect of
audit services were (Pounds)60,000. Amounts payable to KPMG Audit Plc and their
associates by the Company and its subsidiary undertakings in respect of non
audit services were (Pounds)112,000.
5. EMPLOYEES
(a) Number of employees
The average number of persons employed during the year was as follows:
<TABLE>
<CAPTION>
31 March
1999
-----------
Number
<S> <C>
Production....................................................... 527
Office and administration........................................ 115
------
642
======
(b) Staff costs
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Wages and salaries............................................... 10,755
Social security.................................................. 1,032
Other pension costs.............................................. 235
------
12,022
======
</TABLE>
The Group operates a number of defined contribution pension schemes. The
assets of the schemes are held in separate trustee administered funds and are
invested with insurance companies. The pension costs shown above represent
contributions payable to these schemes.
6. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
On bank loans and overdrafts..................................... (277)
On finance leases................................................ (88)
On loan notes.................................................... (77)
----
(442)
====
</TABLE>
F-59
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
7. TAXATION
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
UK corporation tax payable at 31%............................... (604)
Deferred tax.................................................... 173
Adjustment to prior years' provisions--deferred tax............. (64)
----
(495)
====
The charge includes tax credits on FRS3 exceptional items of (Pounds)606,000
as detailed in Note 3.
8. DIVIDENDS
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Ordinary--interim paid 0.6p per share........................... (416)
--final nil p per share...................................... --
----
Total equity dividends.......................................... (416)
====
</TABLE>
9. LOSS PER SHARE
The loss per ordinary share as at 31 March 1999 has been calculated by
reference to the weighted average of 69,467,222 ordinary shares in issue during
the year and the Group loss after taxation for the financial year of
(Pounds)4,338,000.
10. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Land and Plant and
buildings machinery Other Total
----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Cost
1 April 1998................. 1,088 10,644 2,375 14,107
Reclassification............. 361 -- (361) --
Additions.................... 821 2,408 652 3,881
Disposals.................... (506) (379) (131) (1,016)
Sale of subsidiary........... -- (129) (235) (364)
----- ------ ----- ------
31 March 1999.............. 1,764 12,544 2,300 16,608
===== ====== ===== ======
Depreciation
1 April 1998................. 107 5,417 1,122 6,646
Reclassification............. 153 -- (153) --
Charge for the year.......... 161 1,284 355 1,800
Disposals.................... (9) (190) (75) (274)
Sale of subsidiary........... -- (89) (146) (235)
----- ------ ----- ------
31 March 1999.............. 412 6,422 1,103 7,937
===== ====== ===== ======
Net book value
31 March 1999.............. 1,352 6,122 1,197 8,671
===== ====== ===== ======
</TABLE>
F-60
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Analysis of land and buildings
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Freehold......................................................... 297
Short leasehold.................................................. 1,055
-----
Net book value................................................... 1,352
=====
</TABLE>
Hire purchase and finance leased assets
Plant, equipment and motor vehicles include assets with a net book value of
(Pounds)1,064,000 which are subject to finance leases.
11. INVESTMENTS
Principal subsidiaries at 31 March 1999
<TABLE>
<CAPTION>
Company Principal activity % equity held
------- ------------------ -------------
<S> <C> <C>
Zlin Manufacture of printed circuit boards *100
Electronics
Limited
Classical Manufacture of printed circuit boards *100
Circuits
Limited
Garner Manufacture of printed circuit boards 100
Osborne
Circuits
Limited
Zlin Supply of high volume printed circuit boards *100
International
Limited
Calne Manufacture and assembly of electronic and electrical equipment *100
Electronics
Limited
Pretan Sheet metal fabrication 100
Limited
Integrated Design of electronic and electrical equipment 100
Designs &
Systems
Limited
Osborne Assembly of printed circuit boards 100
Electronics
Limited
Symonds Precision sheet metal fabrication *100
Precision
Limited
Osborne Precision sheet metal fabrication 100
Precision
Sheetmetals
Limited
Finishing Manufacture of vertical plating systems *100
Technology
Limited
</TABLE>
All of the company's subsidiary undertakings are incorporated and operate in
Great Britain.
Shareholdings marked * are directly owned by Symonds Limited and the
remainder are held through subsidiary undertakings.
12. STOCKS
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Raw materials and consumables.................................... 1,615
Work in progress................................................. 1,975
Finished goods................................................... 190
-----
3,780
=====
</TABLE>
F-61
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
13. DEBTORS
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Trade debtors.................................................... 8,005
Other debtors.................................................... 984
Prepayments and accrued income................................... 396
-----
9,385
=====
</TABLE>
Included within other debtors above are amounts totalling (Pounds)315,000
which fall due after more than one year.
14. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Bank overdrafts and loans........................................ 730
Other loans...................................................... 28
Obligations under finance leases................................. 309
Trade creditors.................................................. 6,128
Corporation tax.................................................. 507
Advance corporation tax payable.................................. 104
Other creditors.................................................. 650
Other taxation and social security............................... 960
Accruals and deferred income..................................... 4,074
Loan notes....................................................... 802
------
14,292
======
At 31 March 1999, loan notes consist of loan notes previously issued to the
vendors of Calne Electronics and one of the vendors of the Osborne Group. Both
are repayable at the holders' option. The Calne loan notes are secured by a
bank guarantee. All the loan notes carry interest at 0.5% below base rate.
It has been assumed for the purposes of presentation in these financial
statements that the loan notes will be repaid at the earliest possible time.
15. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Bank loans....................................................... 1,465
Other loans...................................................... 65
Obligations under finance leases................................. 335
------
1,865
======
</TABLE>
F-62
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
16. BORROWINGS
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Bank loans....................................................... 2,195
Loan notes....................................................... 802
Obligations under finance leases................................. 644
Other loans...................................................... 93
-----
3,734
=====
Due within one year.............................................. 1,869
Due after more than one year..................................... 1,865
-----
3,734
=====
Analysis of repayments:
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Bank loans
Within one year................................................ 730
Within one to two years........................................ 730
Within two to five years....................................... 735
Other loans
Within one year................................................ 28
Within one to two years........................................ 31
Within two to five years....................................... 34
Loan notes
Within one year................................................ 802
Finance leases
Within one year................................................ 309
Within one to two years........................................ 230
Within two to five years....................................... 105
-----
3,734
=====
</TABLE>
Amounts due under finance leases are secured on the related items of plant
and equipment.
Bank loans and overdrafts are secured by fixed and floating charges over the
Group's assets.
Bank loans comprise two loans, one of which is repayable in full by 31
October 2002 by quarterly instalments commencing 31 October 1996 and the other
which is repayable in full by 31 October 2001 by quarterly instalments
commencing 31 January 1997. Both loans carry interest at 1/3///8/% over base
rate.
17. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
Deferred Other
tax provisions Total
----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
1 April 1998........................... 259 300 559
Transfer to the profit and loss
account............................... (109) (300) (409)
Sale of subsidiary..................... (9) -- (9)
---- ---- ----
At 31 March 1999..................... 141 -- 141
==== ==== ====
</TABLE>
Other provisions relate to the costs of relocation of Calne Electronics.
F-63
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
18. DEFERRED TAX
Deferred tax provided and unprovided at a rate of 30% are:
<TABLE>
<CAPTION>
Provided Unprovided
31 March 31 March
1999 1999
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C>
Accelerated capital allowances....................... 516 (40)
Other timing differences............................. (453) (34)
Held over gain....................................... 78 --
---- ---
141 (74)
==== ===
</TABLE>
19. SHARE CAPITAL
<TABLE>
<CAPTION>
31 March 31 March
1999 1999
---------- -----------
Number (Pounds)000
<S> <C> <C>
5p ordinary shares
Authorised............................................ 80,000,000 4,000
Allotted, called up and fully paid.................... 69,472,208 3,473
========== =====
</TABLE>
Changes in the year
5p ordinary shares
The authorised share capital remained unchanged during the year. During the
year 40,000 shares were issued under the Executive Share Option Scheme; the
proceeds were (Pounds)11,600.
Share options
At 31 March 1999, options have been granted and remain outstanding under the
Symonds Executive Share Option Scheme to subscribe for 5p ordinary shares of
the Company, as follows:
<TABLE>
<CAPTION>
Date of grant Number Exercise price Exercise period
------------- ------- -------------- ---------------
<S> <C> <C> <C>
20 May 1994............. 274,000 30.5p 20 May 1997 to 20 May 2007
21 May 1996............. 240,000 71.0p 21 May 1999 to 21 May 2009
30 January 1997......... 40,000 59.5p 30 January 2000 to 30 January 2010
27 February 1997........ 75,000 58.5p 27 February 2000 to 27 February 2010
28 July 1997............ 700,000 34.5p 28 July 2000 to 28 July 2010
7 January 1998.......... 250,000 34.0p 7 January 2001 to 7 January 2011
21 July 1998............ 110,000 38.0p 21 July 2001 to 21 July 2011
1 September 1998........ 275,000 31.0p 1 September 2001 to 1 September 2011
</TABLE>
Following the offer for the entire share capital of the Company by MCM
Electronics Limited, these options were either exercised by the holders for a
total payment of (Pounds)84,000, given up by the holders in lieu of cash
cancellation payments totalling (Pounds)120,000, or lapsed. These transactions
occurred subsequent to 30 June 1999, the last date consolidated accounts were
prepared for Symonds Limited and its subsidiary undertakings.
F-64
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
20. RESERVES
<TABLE>
<CAPTION>
Capital Goodwill Profit and
Share redemption Merger write off loss
premium reserve reserve reserve account
----------- ----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
1 April 1998............ 19,877 50 5,474 (22,505) 2,944
Goodwill adjustments on
disposal/closure of
subsidiary
undertakings........... -- -- -- 3,789 --
Issue of shares......... 10 -- -- -- --
Provision for impairment
of subsidiary
undertaking goodwill... -- -- -- 748 --
Retained loss for the
year................... -- -- -- -- (4,754)
Transfer................ -- -- -- 17,968 (17,968)
------ --- ----- ------- -------
At 31 March 1999........ 19,887 50 5,474 -- (19,778)
====== === ===== ======= =======
</TABLE>
Goodwill movements in the year comprise the write back of goodwill following
the disposal of Finishing Services Limited and the decision to close Osborne
Electronics Limited, and the provision for the anticipated impairment of
goodwill on the sale of Finishing Technology Limited.
Following implementation of FRS10, the goodwill reserve has been offset
against the profit and loss account.
21. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Operating profit................................................. 2,915
Non cash exceptional operating items............................. 1,318
Depreciation..................................................... 1,800
Loss on disposal of tangible fixed assets........................ (28)
Movement in stocks............................................... 899
Movement in debtors.............................................. 2,342
Movement in creditors............................................ (1,064)
Reorganisation costs paid........................................ (300)
------
Net cash inflow from operating activities........................ 7,882
======
</TABLE>
22. ANALYSIS OF CASH FLOWS FROM FINANCING AND MANAGEMENT OF LIQUID RESOURCES
<TABLE>
<CAPTION>
31 March 1999
----------------------- -------
(Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Issue of ordinary share capital............. 12
Debt due within one year
Bank loans repaid.......................... (730)
Other loans repaid......................... (25)
Loan notes repaid........................... (1,106)
Capital element of finance lease rentals.... (427)
------
Net cash outflow from financing............. (2,276)
Movement in cash deposits to secure loan
notes...................................... 998
Movement in treasury deposits............... (2,000)
------
Net cash outflow from management of liquid
resources.................................. (1,002)
------
Net cash outflow from financing and
management of liquid resources............. (3,278)
======
</TABLE>
F-65
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
23. ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
At Other At
31 March non-cash 31 March
1998 Cash flow changes 1999
----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Cash at bank and in hand... 1,102 (244) -- 858
Cash deposits to secure
loan notes................ 1,708 (998) -- 710
Treasury deposits.......... -- 2,000 -- 2,000
Debt due within one year... (2,662) 1,861 (759) (1,560)
Debt due after more than
one year.................. (2,289) -- 759 (1,530)
Finance leases............. (841) 427 (230) (644)
------ ----- ---- ------
(2,982) 3,046 (230) (166)
====== ===== ==== ======
</TABLE>
24. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Decrease in cash in the period................................... (244)
Cash outflow from movement in debt and lease financing........... 2,288
Cash outflow from management of liquid resources................. 1,002
------
Change in net debt resulting from cash flows..................... 3,046
New finance leases............................................... (230)
------
Decrease in net debt in the period............................... 2,816
Net debt 1 April 1998............................................ (2,982)
------
Net debt 31 March 1999........................................... (166)
======
</TABLE>
25. DISPOSALS DURING THE FINANCIAL YEAR
Finishing Services Limited
The whole of the issued share capital of Finishing Services Limited was sold
on 31 March 1999 for (Pounds)200,000.
The transaction can be summarised as follows:
<TABLE>
<CAPTION>
(Pounds)000
<S> <C>
Net assets disposed of:
Tangible assets.................................................. 129
Stocks........................................................... 266
Debtors.......................................................... 658
Creditors........................................................ (528)
------
Net assets disposed of........................................... 525
Goodwill adjusted on disposal.................................... 1,989
Costs of disposal................................................ 121
Loss on disposal................................................. (2,435)
------
200
======
Satisfied by: Cash 200
======
</TABLE>
F-66
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
26. CONTINGENT LIABILITIES
Bank loans and overdrafts of the Group are secured by fixed and floating
charges over the Group's assets and by a composite cross-guarantee between all
Group companies. The Company's contingent liability under this composite
cross-guarantee at 31 March 1999 was (Pounds)2,712,000.
27. FINANCIAL COMMITMENTS
Operating leases
At 31 March 1999 the Group had annual commitments under non-cancellable
operating leases as follows:
<TABLE>
<CAPTION>
Land and
buildings Other
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C>
Expiry date:
Within one year...................................... 74 154
Between one and two years............................ -- 120
Between two and five years........................... 209 349
In over five years................................... 735 7
----- ---
1,018 630
===== ===
</TABLE>
Capital commitments
At 31 March 1999 the directors had authorised capital expenditure as
follows:
<TABLE>
<CAPTION>
(Pounds)000
<S> <C>
Contracted but not provided for................................ 91
===
28. DIRECTORS' EMOLUMENTS
(a) Emoluments of the directors of the company were:
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Fees........................................................... 70
Remuneration................................................... 250
Pension contributions.......................................... 34
Bonuses........................................................ 25
Benefits in kind............................................... 23
---
402
===
The emoluments of the highest paid director were:
<CAPTION>
31 March
1999
-----------
(Pounds)000
<S> <C>
Remuneration................................................... 154
Pension contributions.......................................... 9
---
163
===
Number of directors who were members of a defined contribution
pension scheme................................................ 4
===
</TABLE>
F-67
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The fees in respect of SG Mills were paid to Directing Success Limited, a
company controlled by Mr. Mills.
(b) Share options
The company operates a share option scheme for executives. Options issued
under this scheme may be exercised between three and thirteen years after the
date granted. Details of options held by Directors and former Directors under
the company's Executive Share Option Scheme are as follows:
<TABLE>
<CAPTION>
Expiry date At 31 Granted Exercised Lapsed At 31
of exercise Exercise March during during during March
Date of grant period price 1998 year year year 1999
---------------- ---------------- -------- ------- ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MHG Malone 28 July 1997 28 July 2010 34.5p 250,000 -- -- -- 250,000
MJ Glanfield 1 September 1998 1 September 2011 31.0p -- 250,000 -- -- 250,000
JA Calvert 28 July 1997 28 July 2010 34.5p 250,000 -- -- -- 250,000
</TABLE>
Following the offer for the entire share capital of the Company by MCM
Electronics Limited, these options were either exercised by the holders or
given up by the holders in lieu of cash cancellation payments as detailed in
note 19.
29. POST BALANCE SHEET EVENTS
On 30 June 1999 the whole of the issued share capital of Finishing
Technology Limited was disposed of.
On 5 July 1999 the offer made by MCM Electronics Limited for the entire
issued share capital of the Company was declared unconditional and
consequently MCM Electronics Limited, a company incorporated in Great Britain,
became the ultimate parent company.
On 22 March 2000 an agreement was reached whereby MCM Electronics Limited
would be acquired by DDi Corp.
30. SUMMARY OF RELEVANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED KINGDOM AND UNITED STATES
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United Kingdom
(UK GAAP) which differ in certain significant respects from those generally
accepted in the United States (US GAAP). Set forth below is a summary of
certain significant differences between UK and US GAAP which management
believes are relevant to the Company.
Goodwill
UK Financial Reporting Standard 10 was adopted in the Company's
consolidated financial statements effective 1 April 1998. Goodwill arising on
acquisitions subsequent to 1 April 1998 has been capitalised and amortised
through the profit and loss account over its useful economic life which is
generally not expected to exceed 20 years. Goodwill related to acquisitions
made prior to 31 March 1998 was charged directly to reserves in accordance
with UK accounting standards in effect at that date. On disposal of a
business, the historic goodwill previously eliminated is charged in
determining the profit or loss arising on disposal. Impairment is recognised
upon a commitment by the Company to dispose of the underlying assets relating
to the goodwill.
Under US GAAP, goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is recorded as an intangible asset and is
amortised on a straight-line basis over the expected periods to
F-68
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
be benefited, not to exceed 40 years. The Company assesses the recoverability
of this intangible asset by determining whether the amortisation of the
goodwill balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved. The Company under both
US and UK GAAP has adopted an estimated life of 20 years.
Valuation of Interests in Leveraged Buyout Transactions
Under UK GAAP, when a leveraged buyout transaction has been completed, a new
basis of accounting for the assets and liabilities of the predecessor company
should be established following the acquisition. The fair value of the
underlying assets and liabilities is used with the excess of purchase price
over fair value of the net assets acquired allocated to goodwill.
Under US GAAP, the acquisition of a company in a leveraged buyout
transaction must be evaluated to determine whether it is (a) a financial
restructuring-recapitalisation for which no change in accounting basis would be
appropriate; (b) a step acquisition for which a partial change in accounting
basis would be appropriate; or (c) a purchase by new controlling investors for
which a partial or complete change in basis based upon the fair value of the
transaction would be appropriate. Key factors to be analysed include a change
in control of voting interest, residual interest in the newly formed company
and the fair value of securities with respect to the monetary consideration
paid. In the case of the Company, a partial change in basis based upon the fair
value of the transaction is appropriate.
Sale-leaseback Transactions
Under UK GAAP, the gain arising on a sale-leaseback transaction may be
recognised in full at the date of the transaction provided that it can be
demonstrated that a market rent is being paid under the lease agreement.
Under US GAAP, such gains are deferred and amortised in proportion to the
related gross rental charged to expense over the term of the lease.
Finance set up costs
Under UK GAAP the costs incurred on obtaining new debt are capitalised, and
amortised over the probable life of the debt.
Under US GAAP these costs are amortised over the term of the debt. Under UK
GAAP the carrying value of this asset is offset against the relevant
borrowings, under US GAAP this asset is shown separately.
Provision for Loss on Termination of a Business
Under UK GAAP, when a decision has been made to restructure part of the
Company's business, provisions are made for the impairment of long-lived and
certain intangible assets together with severance and other costs of closure.
US GAAP requires that specific criteria have been met before such costs can
be recognised as an expense. Among these is the requirement that all the
significant actions arising from a restructuring plan and their expected
completion dates must be identified by the balance sheet date. Impairment
charges are always recorded as an operating expense and the write down of
stocks is recorded as a component of cost of goods sold.
F-69
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Income Taxes
Under UK GAAP, deferred taxation is calculated under the liability method to
the extent that it is probable that the liabilities will crystallise in the
foreseeable future.
Under US GAAP, income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted rates expected to apply to taxable income in the years
in which these temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognised in income in the period that includes the enactment date. Valuation
allowances are provided to the extent that the realisation of deferred tax
assets is not more likely than not.
Dividends
Under UK GAAP, the proposed dividends on ordinary shares, as recommended by
the directors, are deducted from shareholders' equity and shown as a liability
in the balance sheet at the end of the period in which they relate.
Under US GAAP, such dividends are only deducted from shareholders' equity at
the date of declaration of the declared dividend.
Earnings Per Share
Under US and UK GAAP, basic earnings per share are computed using the
weighted average number of ordinary shares in issue during the year. US GAAP
also requires the computation of diluted earnings per share, which includes the
effect of potentially dilutive common stock under the treasury stock method.
Classification Differences Between UK and US GAAP
(i) Exceptional Items
Under UK GAAP, exceptional items generally derive from operations outside
the ordinary course of business and are reflected in a separate section of the
profit and loss account under operating profit and are shown gross of tax.
Under US GAAP, extraordinary and exceptional items are considered both
unusual in nature and infrequent in occurrence. In practice, extraordinary and
exceptional items are rarely presented. Accordingly, exceptional items
presented by the Company would not be classified as such under US GAAP.
(ii) Discontinued Operations
Under both UK and US GAAP, discontinued operations are separately identified
in the profit and loss account and must be attributable to only a significant
business.
Under UK GAAP, operating results from discontinued operations are disclosed
as a separate element within operating profit and any related gain or loss is
disclosed as an exceptional item.
Under US GAAP, a segment of a business is defined as a component of an
enterprise whose activities present a major line of business or class of
customer. The results of discontinued operations and the gain or loss on
disposal shall be reported in the income statement separately from continuing
operations but not as an extraordinary item. Estimated losses are provided at
the measurement date, the date on which the company
F-70
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
commits itself to a formal plan to dispose of a segment of the business. Gains
are recognised when realised, typically the disposal date. Gain or loss from
the disposal of a business segment should not include adjustments, costs and
expenses associated with normal business activities that should have been
recognised on a going concern basis up to the measurement date, such as
adjustment of accruals on long term contracts, or write down or write off of
receivables, inventories, property, plant and equipment used in the business,
or intangible assets. The long-lived assets and certain identifiable intangible
assets that are to be disposed of shall be reported at the lower of carrying
amount or fair value less cost to sell with any loss resulting included in
continuing operations.
(iii) Statement of Cash Flows
Under UK GAAP, cash flows are presented for operating activities, returns on
investment and servicing of finance, taxation paid, capital expenditure,
acquisitions, dividends paid and financing activities. Under UK GAAP, cash
includes cash in hand and cash on deposit, net of bank overdrafts.
Under US GAAP, cash flows are reported as operating, investing and financing
activities. Cash flows from taxation and returns and servicing of finance
would, with the exception of ordinary dividends paid, be included as operating
activities. The payment of dividends would be included under financing
activities. Cash and cash equivalents would include cash and short-term
investments with original maturities of three months or less.
Reconciliation to US accounting principles
The following is a summary of the adjustments to net income and
shareholders' equity which would have been required if US GAAP had been applied
instead of UK GAAP.
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
Nine months Three months Six months
Year ended ended ended ended
31 March 31 December 30 June 31 December
1999 1998 1999 1999
----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
(Loss)/profit attributable
to shareholders as reported
in the consolidated profit
and loss account in
accordance with UK GAAP.... (4,338) 1,839 165 44
Adjustments to conform to US
GAAP
Amortisation of goodwill.... (1,125) (869) (221) (8)
Impairment of goodwill...... (657) (657) -- --
Goodwill in respect of
subsidiary undertakings
disposed which was
previously written off..... 2,313 -- -- --
Valuation of interests in
leveraged buyout
transactions............... -- -- -- 12
Provision for termination of
a business................. 550 -- (550) --
Finance set up costs........ -- -- -- 290
Sale and leaseback.......... 16 12 4 8
Deferred income tax......... (168) -- 155 (107)
------ ----- ---- ------
Net (loss)/profit in
accordance with US GAAP.. (3,409) 325 (447) 239
------ ----- ---- ------
Analysed:
Continuing operations....... (469) 2,376 (328) 1,721
Discontinued operations..... (1,954) (825) 44 --
Interest.................... (323) (261) (40) (1,209)
Taxation.................... (663) (965) (123) (273)
------ ----- ---- ------
Net (loss)/profit in
accordance with US GAAP.. (3,409) 325 (447) 239
====== ===== ==== ======
</TABLE>
F-71
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
31 March 31 December 30 June 31 December
1999 1998 1999 1999
----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Shareholders' funds as
reported in the
consolidated balance sheet
in accordance with UK
GAAP....................... 9,106 10,746 9,552 1,311
Adjustments to conform with
US GAAP
Goodwill.................... 15,407 17,886 14,904 298
Valuation of interests in
leveraged buyout
transactions............... -- -- -- (484)
Provision for termination of
a business................. 550 -- -- --
Finance set up costs........ -- -- -- 290
Sale and leaseback.......... (374) (378) (369) (361)
Deferred income tax......... (91) 77 64 (43)
------ ------ ------ -----
Shareholders' equity in
accordance with US GAAP.... 24,598 28,331 24,151 1,011
====== ====== ====== =====
</TABLE>
Cash flows
The following table summarises the statements of cash flows as if they had
been presented in accordance with US GAAP:
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
Nine months Three months Six months
Year ended ended ended ended
31 March 31 December 30 June 31 December
1999 1998 1999 1999
----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Net cash provided by/(used
in) operating activities.. 6,916 3,812 (594) 1,817
Net cash used in investing
activities................ (2,633) (2,586) (596) (29,730)
Net cash (used in)/provided
by financing activities... (3,525) (2,664) (319) 29,893
------ ------ ------ -------
Net increase/(decrease) in
cash and cash
equivalents............... 758 (1,438) (1,509) 1,980
Cash and cash equivalents
under US GAAP at beginning
of period................. 2,810 2,810 3,568 --
Cash and cash equivalents
under US GAAP acquired.... -- -- -- 2,086
------ ------ ------ -------
Cash and cash equivalents
under US GAAP at end of
period.................. 3,568 1,372 2,059 4,066
====== ====== ====== =======
</TABLE>
F-72
<PAGE>
[DDi LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration fee.............. $ 75,805
National Association of Securities Dealers, Inc. filing fee...... 29,214
Nasdaq National Market listing fee............................... 90,000
Printing and engraving expenses.................................. 500,000
Legal fees and expenses.......................................... 1,250,000
Accounting fees and expenses..................................... 1,000,000
Blue sky fees and expenses....................................... 5,000
Transfer agent and Registrar fees................................ 3,500
Miscellaneous.................................................... 3,883,481
----------
Total.......................................................... $6,837,000
==========
</TABLE>
- --------
* To be included by amendment.
Item 14. Indemnification of Directors and Officers.
The Registrant's Delaware Certificate of Incorporation provides that the
Registrant's directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the exculpation from liabilities is not permitted
under the Delaware General Corporation Law as in effect at the time such
liability is determined. The Delaware By-Laws provide that the Registrant shall
indemnify its directors to the full extent permitted by the laws of the State
of Delaware.
Prior to the consummation of this offering, the Company will enter into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
Item 15. Recent Sales of Unregistered Securities.
During the last three years, DDi Corp. has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act"):
(1) Between October 4 and December 31, 1997, DDi Corp. completed the
recapitalization and the NTI acquisition. In connection with these
transactions, DDi Corp. issued an aggregate of 1,996,143.5408 shares of
Class A common stock and an aggregate of 233,503.6897 shares of Class L
common stock to affiliates of Bain Capital, Inc., affiliates of Celerity
Partners, L.L.C., affiliates of The Chase Manhattan Corporation, pre-
recapitalization shareholders, pre-acquisition NTI shareholders, NTI
employees and other investors for pre-recapitalization retained shares and
an aggregate of approximately $62.4 million.
(2) DDi Corp. completed the DCI merger on July 23, 1998. In connection
with the DCI merger, DDi Corp. issued an aggregate of 1,276,279.1690 shares
of Class A common stock and an aggregate of 162,064.5076 shares of Class L
common stock to pre-acquisition DCI shareholders in exchange for pre-
acquisition shares and vested options for pre-acquisition shares of DCI.
(3) Between September 30, 1998 and December 31, 1999, DDi Corp. sold an
aggregate of 157,804.8675 shares of Class A common stock and an aggregate
of 672.0093 shares of Class L common stock to employees and other persons
with business relationships to DDi, and to holders of Class A common stock
options for an aggregate of approximately $1.0 million.
II-1
<PAGE>
(4) Pursuant to employee equity incentive and stock option plans,
between October 1997 and December 31, 1999 DDi Corp. issued an aggregate of
352,306.8508 options to purchase Class A common stock and an aggregate of
46,299.5379 options to purchase Class L common stock.
(5) Affiliates of The Chase Manhattan Corporation were granted Class A
and Class L common stock warrants in connection with temporary financing
associated with the October 1997 recapitalization.
All such shares were exempt from registration under the Securities Act of
1933, as amended, pursuant to (S)4(2) thereof. In addition, on or after the
completion of the sale and distribution of the securities being registered, DDi
Corp. expects to issue shares of its common stock to MCM Electronics investors
in exchange for all of the outstanding ordinary shares of MCM Electronics. The
number of shares issued will depend on the closing date and initial public
offering price per share of the securities being registered, and the amount of
MCM Electronics debt on that date. See "Prospectus Summary--Recent
Developments," "Dilution" and note (g) to "Unaudited Pro Forma Consolidated
Balance Sheet." The issuance of shares to MCM Electronics investors will be
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Regulation S thereof.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Some of the following exhibits have been previously filed with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Act or the Securities Exchange Act. Such exhibits are identified by
the parenthetical references following the listing of each such exhibit and are
incorporated herein by reference.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1# Form of DDi Corp. Delaware Certificate of Incorporation.
3.2# Form of DDi Corp. Delaware By-laws.
4.1 Form of Stockholders Agreement dated as of March 31, 2000.
4.2 Form of certificate representing shares of Common Stock.
5.1 Opinion of Ropes & Gray.
10.1 Amended and Restated Recapitalization Agreement dated as of October 4,
1997. (Previously filed as Exhibit 10.2 to Registration Statement No.
333-41187, as amended).
10.2 Stock Contribution and Merger Agreement dated July 23, 1998 by and
among Details Holding Corp. and Dynamic Circuits Inc. and the
Stockholders of Dynamic Circuits Inc. (Previously filed as Exhibit 2.1
to Form 8-K dated July 23, 1998).
10.2.1# Form of Amendment dated as of March , 2000, to the Stock
Contribution and Merger Agreement dated July 23, 1998 by and among
Details Holdings Corp. and Dynamic Circuits Inc. and the Stockholders
of Dynamic Circuits Inc.
10.3.1# Credit Agreement dated as of July 23, 1998, as Amended and Restated as
of August 28, 1998.
10.3.2# First Amendment dated as of March 10, 1999, to the Credit Agreement
dated as of July 23, 1998, as Amended and Restated as of August 28,
1998.
10.3.3 Second Amendment dated as of March , 2000 to the Credit Agreement
dated as of July 23, 1998, as Amended and Restated as of August 28,
1998.
10.4 Details Holdings Corp.--Dynamic Circuits 1996 Stock Option Plan dated
as of July 23, 1998. (Previously filed as Exhibit 10.6 to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 File
No.333-41187 and 333-41211).
10.5 Details Holdings Corp.--Dynamic Circuits 1997 Stock Options Plan dated
as of July 23, 1998. (Previously filed as Exhibit 10.7 to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 File
No.333-41187 and 333-41211).
10.6 Details Holdings Corp. Bonus Plan dated as of July 23, 1998.
(Previously filed as Exhibit 10.8 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No.333-41187 and
333-41211).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7 Management Agreement dated October 28, 1997. (Previously filed as
Exhibit 10.6 to Registration Statement No. 333-41187, as amended).
10.8# Form of 2000 DDi Corp. Equity Incentive Plan.
10.9 1997 Details, Inc. Equity Incentive Plan. (Previously filed as Exhibit
10.7 to Registration Statement No. 333-41187, as amended).
10.10 1996 Employee Stock Option Plan dated December 31, 1996. (Previously
filed as Exhibit 10.8 to Registration Statement No. 333-41187, as
amended).
10.11 1996 Performance Stock Option Plan dated December 31, 1996. (Previously
filed as Exhibit 10.9 to Registration Statement No. 333-41187, as
amended).
10.12 Real Property Master Lease Agreement dated January 1, 1996. (Previously
filed as Exhibit 10.4 to Registration Statement No. 333-41187, as
amended).
10.13 Personal Property Master Lease Agreement dated January 1, 1996.
(Previously filed as Exhibit 10.5 to Registration Statement No. 333-
41187, as amended).
10.14 McMaster Employment Agreement dated September 1, 1995, as amended
October 28, 1997. (Previously filed as Exhibit 10.10 to Registration
Statement No. 333-41187, as amended).
10.15 Gisch Employment Agreement dated September 19, 1995 as amended October
28, 1997. (Previously filed as Exhibit 10.11 to Registration Statement
No. 333-41187, as amended).
10.16 Muse Employment Agreement dated September 1, 1995, as amended October
28, 1997. (Previously filed as Exhibit 10.12 to Registration Statement
No. 333-41187, as amended).
10.17 Wright Employment Agreement dated September 1, 1995, as amended October
28, 1997. (Previously filed as Exhibit 10.13 to Registration Statement
No. 333-41187, as amended).
10.18 Dimick Employment Agreement dated July 23, 1998. (Previously filed as
Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 File No.333-41187 and 333-41211).
10.19 Halvorson Employment Agreement dated July 23, 1998. (Previously filed
as Exhibit 10.22 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 File No.333-41187 and 333-41211).
10.20 Peters Employment Agreement dated July 23, 1998. (Previously filed as
Exhibit 10.23 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 File No.333-41187 and 333-41211).
10.21 NTI Stock Purchase Agreement dated December 19, 1997. (Previously filed
as Exhibit 10.4 to Registration Statement No. 333-41187, as amended).
10.22 NTI Real Property Lease Agreement dated as of June 15, 1994.
(Previously filed as Exhibit 10.16 to Registration Statement No. 333-
41187, as amended).
10.23 NTI Real Property Lease Agreement dated as of June 15, 1994.
(Previously filed as Exhibit 10.17 to Registration Statement No. 333-
41187, as amended).
10.24 NTI Real Property Lease Agreement dated as of June 15, 1994.
(Previously filed as Exhibit 10.18 to Registration Statement No. 333-
41187, as amended).
10.25 DCI Real Property Lease Agreement dated as of July 22, 1991.
(Previously filed as Exhibit 10.30 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and
333-41211).
10.26 DCI Real Property Lease Agreement dated as of March 20, 1997.
(Previously filed as Exhibit 10.31 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and 333-
41211).
10.27 DCI Real Property Lease Agreement dated as of November 12, 1997.
(Previously filed as Exhibit 10.32 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and 333-
41211).
10.28 DCI Real Property Lease Agreement dated as of August 18, 1998.
(Previously filed as Exhibit 10.33 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and 333-
41211).
10.29 Cuplex Real Property Lease Agreement dated as of April 14, 1998.
(Previously filed as Exhibit 10.34 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and 333-
41211).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.30 Cuplex Real Property Lease Agreement dated as of May 13, 1996.
(Previously filed as Exhibit 10.35 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and
333-41211).
10.31 Cuplex Real Property Lease Agreement dated as of November 2, 1995.
(Previously filed as Exhibit 10.36 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 File No. 333-41187 and
333-41211).
10.32 Indenture dated as of November 18, 1997. (Previously filed as Exhibit
4.1 to Registration Statement No. 333-41187, as amended).
10.33 Supplemental Indenture dated as of February 10, 1998. (Previously
filed as Exhibit 4.2 to Registration Statement No. 333-41187, as
amended).
10.34 Indenture dated as of November 18, 1997. (Previously filed as Exhibit
4.1 to Registration Statement No. 333-41211).
10.35# First Supplemental Indenture dated as of July 23, 1998.
10.36 Form of Merger Agreement between DDi Corp., a California corporation,
and DDi Merger Co., a Delaware corporation.
10.37# Form of DDi Corp. Employee Stock Purchase Plan.
10.38 Share Purchase Agreement between the shareholders of MCM Electronics
Limited and DDi Corp. dated as of March 22, 2000.
21.1# Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP regarding DDi Merger Co.
23.2 Consent of PricewaterhouseCoopers LLP regarding DDi Corp.
23.3 Consent of PricewaterhouseCoopers LLP regarding Dynamic Circuits Inc.
23.4 Consent of Ropes & Gray (included in the opinion filed as Exhibit
5.1).
23.5 Consent of KPMG Audit Plc regarding Symonds Limited.
24.1 Power of attorney pursuant to which amendments to this registration
statement may be filed (included on the signature page in Part II
hereof).
27.1# DDi Corp. Financial Data Schedule.
</TABLE>
- --------
# Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules.
The schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such manner as requested by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" above, 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 and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, DDi
Corp. has duly caused this Registration Statement on Form S-1 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Anaheim, State of California, on this 6th day of April, 2000.
DDi Corp.
By: /s/ Bruce D. McMaster
----------------------------------
Name: Bruce D. McMaster
Title: Chief Executive Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce D. McMaster President, Chief Executive April 6, 2000
______________________________________ Officer (Principal
Bruce D. McMaster Executive Officer) and
Director
/s/ Joseph P. Gisch Chief Financial Officer April 6, 2000
______________________________________ (Principal Financial and
Joseph P. Gisch Accounting Officer)
* Director April 6, 2000
______________________________________
Charles D. Dimick
* Director April 6, 2000
______________________________________
David Dominik
* Director April 6, 2000
______________________________________
Edward W. Conard
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director April 6, 2000
______________________________________
Stephen G. Pagliuca
* Director April 6, 2000
______________________________________
Prescott Ashe
* Director April 6, 2000
______________________________________
Stephen M. Zide
* Director April 6, 2000
______________________________________
Mark R. Benham
* Director April 6, 2000
______________________________________
Christopher Behrens
</TABLE>
* See Power of Attorney executed by each such officer and/or director on the
Registration Statement on Form S-1 previously filed with the SEC on January 28,
2000, appointing Bruce D. McMaster and Joseph P. Gisch, and each of them
singly, as true and lawful attorney-in-fact and agent with full power to sign
this and any and all amendments (including post-effective amendments) to this
Registration Statement.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, DDi
Merger Co. has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Anaheim, State of California, on this 6th day of April, 2000.
DDi Merger Co.
/s/ Bruce D. McMaster
By:
----------------------------------
Name: Bruce D. McMaster
Title: Chief Executive Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce D. McMaster President, Chief Executive April 6, 2000
______________________________________ Officer (Principal
Bruce D. McMaster Executive Officer) and
Director
/s/ Joseph P. Gisch Chief Financial Officer April 6, 2000
______________________________________ (Principal Financial and
Joseph P. Gisch Accounting Officer)
/s/ Charles D. Dimick Director April 6, 2000
______________________________________
Charles D. Dimick
* Director April 6, 2000
______________________________________
David Dominik
/s/ Edward W. Conard Director April 6, 2000
______________________________________
Edward W. Conard
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen G. Pagliuca Director April 6, 2000
______________________________________
Stephen G. Pagliuca
/s/ Prescott Ashe Director April 6, 2000
______________________________________
Prescott Ashe
* Director April 6, 2000
______________________________________
Stephen M. Zide
* Director April 6, 2000
______________________________________
Mark R. Benham
* Director April 6, 2000
______________________________________
Christopher Behrens
</TABLE>
II-9
<PAGE>
Exhibits:
Some of the following exhibits have been previously filed with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Act or the Securities Exchange Act. Such exhibits are identified by
the parenthetical references following the listing of each such exhibit and are
incorporated herein by reference.
<TABLE>
<C> <S>
1.1 Form of Underwriting
Agreement.
3.1# Form of DDi Corp. Delaware Certificate of
Incorporation.
3.2# Form of DDi Corp. Delaware By-
laws.
4.1 Stockholders Agreement dated as
of March , 2000.
4.2 Form of certificate representing shares of
Common Stock.
5.1 Opinion of Ropes &
Gray.
10.1 Amended and Restated Recapitalization Agreement dated as of October 4, 1997.
(Previously filed as Exhibit 10.2 to Registration Statement No. 333-41187, as
amended).
10.2 Stock Contribution and Merger Agreement dated July 23, 1998 by and among Details
Holding Corp. and Dynamic Circuits Inc. and the Stockholders of Dynamic Circuits
Inc. (Previously filed as Exhibit 2.1 to Form 8-K dated July 23, 1998).
10.2.1# Form of Amendment dated as of March , 2000, to the Stock Contribution and
Merger Agreement dated July 23, 1998 by and among Details Holdings Corp. and
Dynamic Circuits Inc. and the Stockholders of Dynamic Circuits Inc.
10.3.1# Credit Agreement dated as of July 23, 1998, as Amended and Restated as of
August 28, 1998.
10.3.2# First Amendment dated as of March 10, 1999, to the Credit Agreement dated as of
July 23, 1998, as Amended and Restated as of August 28, 1998.
10.3.3 Second Amendment dated as of March , 2000 to the Credit Agreement dated as of
July 23, 1998, as Amended and Restated as of August 28, 1998.
10.4 Details Holdings Corp.--Dynamic Circuits 1996 Stock Option Plan dated as of
July 23, 1998. (Previously filed as Exhibit 10.6 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 File No.333-41187 and
333-41211).
10.5 Details Holdings Corp.--Dynamic Circuits 1997 Stock Options Plan dated as of
July 23, 1998. (Previously filed as Exhibit 10.7 to the Annual Report on Form
10-K for the fiscal year ended December 31, 1998 File No.333-41187 and 333-
41211).
10.6 Details Holdings Corp. Bonus Plan dated as of July 23, 1998. (Previously filed as
Exhibit 10.8 to the Annual Report on Form 10-K for the fiscal year ended December
31, 1998 File No.333-41187 and 333-41211).
10.7 Management Agreement dated October 28, 1997. (Previously filed as Exhibit 10.6
to Registration Statement No. 333-41187, as amended).
10.8# Form of 2000 DDi Corp. Equity
Incentive Plan.
10.9 1997 Details, Inc. Equity Incentive Plan. (Previously filed as Exhibit 10.7 to
Registration Statement No. 333-41187, as amended).
10.10 1996 Employee Stock Option Plan dated December 31, 1996. (Previously filed as
Exhibit 10.8 to Registration Statement No. 333-41187, as amended).
10.11 1996 Performance Stock Option Plan dated December 31, 1996. (Previously filed as
Exhibit 10.9 to Registration Statement No. 333-41187, as amended).
10.12 Real Property Master Lease Agreement dated January 1, 1996. (Previously filed as
Exhibit 10.4 to Registration Statement No. 333-41187, as amended).
10.13 Personal Property Master Lease Agreement dated January 1, 1996. (Previously filed
as Exhibit 10.5 to Registration Statement No. 333-41187, as amended).
10.14 McMaster Employment Agreement dated September 1, 1995, as amended October
28, 1997. (Previously filed as Exhibit 10.10 to Registration Statement No.
333-41187, as amended).
10.15 Gisch Employment Agreement dated September 19, 1995 as amended October 28, 1997.
(Previously filed as Exhibit 10.11 to Registration Statement No. 333-41187, as
amended).
10.16 Muse Employment Agreement dated September 1, 1995, as amended October 28, 1997.
(Previously filed as Exhibit 10.12 to Registration Statement No. 333-41187, as
amended).
10.17 Wright Employment Agreement dated September 1, 1995, as amended October 28, 1997.
(Previously filed as Exhibit 10.13 to Registration Statement No. 333-41187, as
amended).
10.18 Dimick Employment Agreement dated July 23, 1998. (Previously filed as Exhibit 10.21
to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998 File
No.333-41187 and 333-41211).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.19 Halvorson Employment Agreement dated July 23, 1998. (Previously filed as Exhibit
10.22 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998
File No.333-41187 and 333- 41211).
10.20 Peters Employment Agreement dated July 23, 1998. (Previously filed as Exhibit 10.23
to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998 File
No.333-41187 and 333-41211).
10.21 NTI Stock Purchase Agreement dated December 19, 1997. (Previously filed as Exhibit
10.4 to Registration Statement No. 333-41187, as amended).
10.22 NTI Real Property Lease Agreement dated as of June 15, 1994. (Previously filed as
Exhibit 10.16 to Registration Statement No. 333-41187, as amended).
10.23 NTI Real Property Lease Agreement dated as of June 15, 1994. (Previously filed as
Exhibit 10.17 to Registration Statement No. 333-41187, as amended).
10.24 NTI Real Property Lease Agreement dated as of June 15, 1994. (Previously filed as
Exhibit 10.18 to Registration Statement No. 333-41187, as amended).
10.25 DCI Real Property Lease Agreement dated as of July 22, 1991. (Previously filed as
Exhibit 10.30 to the Annual Report on Form 10-K for the fiscal year ended December
31, 1998 File No. 333-41187 and 333-41211).
10.26 DCI Real Property Lease Agreement dated as of March 20, 1997. (Previously filed as
Exhibit 10.31 to the Annual Report on Form 10-K for the fiscal year ended December
31, 1998 File No. 333-41187 and 333-41211).
10.27 DCI Real Property Lease Agreement dated as of November 12, 1997. (Previously filed
as Exhibit 10.32 to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 File No. 333-41187 and 333-41211).
10.28 DCI Real Property Lease Agreement dated as of August 18, 1998. (Previously filed as
Exhibit 10.33 to the Annual Report on Form 10-K for the fiscal year ended December
31, 1998 File No. 333-41187 and 333-41211).
10.29 Cuplex Real Property Lease Agreement dated as of April 14, 1998. (Previously filed
as Exhibit 10.34 to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 File No. 333-41187 and 333-41211).
10.30 Cuplex Real Property Lease Agreement dated as of May 13, 1996. (Previously filed as
Exhibit 10.35 to the Annual Report on Form 10-K for the fiscal year ended December
31, 1998 File No. 333-41187 and 333-41211).
10.31 Cuplex Real Property Lease Agreement dated as of November 2, 1995. (Previously
filed as Exhibit 10.36 to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 File No. 333-41187 and 333-41211).
10.32 Indenture dated as of November 18, 1997. (Previously filed as Exhibit 4.1 to
Registration Statement No. 333-41187, as amended).
10.33 Supplemental Indenture dated as of February 10, 1998. (Previously filed as Exhibit
4.2 to Registration Statement No. 333-41187, as amended).
10.34 Indenture dated as of November 18, 1997. (Previously filed as Exhibit 4.1 to
Registration Statement No. 333-41211).
10.35# First Supplemental Indenture dated as of July 23, 1998.
10.36 Form of Merger Agreement between DDi Corp., a California corporation, and DDi
Merger Co., a Delaware corporation.
10.37# Form of DDi Corp. Employee Stock Purchase Plan.
10.38 Share Purchase Agreement between the shareholders of MCM Electronics Limited and
DDi Corp. dated as of March 22, 2000.
21.1# Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP regarding DDi Merger Co.
23.2# Consent of PricewaterhouseCoopers LLP regarding DDi Corp.
23.3# Consent of PricewaterhouseCoopers LLP regarding Dynamic Circuits Inc.
23.4 Consent of Ropes & Gray (included in the opinion filed as Exhibit 5.1).
23.5# Consent of KPMG Audit Plc regarding Symonds Limited.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
24.1 Power of attorney pursuant to which amendments to this registration statement may
be filed (included on the signature page in Part II hereof).
27.1# DDi Corp. Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
# Previously filed.
<PAGE>
EXHIBIT 1.1
____________________ SHARES
DDI CORP.
COMMON STOCK
UNDERWRITING AGREEMENT
___________, 2000
CREDIT SUISSE FIRST BOSTON CORPORATION,
As Representative of the Several Underwriters,
Eleven Madison Avenue,
New York, N.Y.10010-3629
Dear Sirs:
1. Introductory. DDi Corp., a California corporation ("DDI") proposes
that DDi Corp., a Delaware corporation into which it will merge ("DDI MERGER
CO.") will issue and sell __________ shares of its common stock, par value $.01
per share ("SECURITIES" and such _________ shares of Securities being
hereinafter referred to as the "FIRM SECURITIES"), following completion of the
Reclassification (as defined herein) For purposes of this Agreement, the
"COMPANY" shall mean (a), for all periods prior to the Reclassification, DDi and
(b), for all periods following the Reclassification, DDi Merger Co. (which shall
be named DDi Corp. upon completion of the Reclassification). The Company also
proposes to sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than _________ additional shares of its Securities (such
______________ additional shares being hereinafter referred to as the "OPTIONAL
SECURITIES"). The Firm Securities and the Optional Securities are herein
collectively called the "OFFERED SECURITIES". As part of the offering
contemplated by this Agreement, Credit Suisse First Boston Corporation (the
"DESIGNATED UNDERWRITER") has agreed to reserve out of the Firm Securities
purchased by it under this Agreement, up to _____________ shares, for sale to
the Company's directors, officers, employees and other parties associated with
the Company (collectively, "PARTICIPANTS"), as set forth in the Prospectus (as
defined herein) under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM").
The Firm Securities to be sold by the Designated Underwriter pursuant to the
Directed Share Program (the "DIRECTED SHARES") will be sold by the Designated
Underwriter pursuant to this Agreement at the public offering price. Any
Directed Shares not subscribed for by the end of this business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus. On or
<PAGE>
soon after the Closing Date (as defined herein), pursuant to a Share Purchase
Agreement (the "PURCHASE AGREEMENT") dated March 22, 2000 by and between the
Company and the shareholders of MCM Electronics Limited ("MCM"), DDi Merger Co.
will acquire all of the outstanding capital stock of MCM (the "ACQUISITION") for
a purchase price of approximately $___ million, payable in cash, _________
shares of Securities and the assumption of $______ million in debt (the
"ACQUISITION CONSIDERATION").
The Company hereby agrees with the several Underwriters named in Schedule A
hereto ("UNDERWRITERS") as follows:
2. Representations and Warranties of the Company. DDi and DDi Merger Co.
represent and warrant to, and agree with, the several Underwriters that:
(1) A registration statement (No. 333-95623) relating to the Offered
Securities, including a form of prospectus, has been filed with the Securities
and Exchange Commission ("COMMISSION") and either (A) has been declared
effective under the Securities Act of 1933 ("ACT") and is not proposed to be
amended or (B) is proposed to be amended by amendment or post-effective
amendment. If such registration statement (the "INITIAL REGISTRATION STATEMENT")
has been declared effective, either (A) an additional registration statement
(the "ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(B)")
under the Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (B) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE
462(C)") under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to
the initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement means (A) if
the Company has advised the Representative that it does not propose to amend
such registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c), or
(B) if the Company has advised the Representative that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective
2
<PAGE>
amendment, as the case may be, is declared effective by the Commission. If an
additional registration statement has not been filed prior to the execution and
delivery of this Agreement but the Company has advised the Representative that
it proposes to file one, "EFFECTIVE TIME" with respect to such additional
registration statement means the date and time as of which such registration
statement is filed and becomes effective pursuant to Rule 462(b). "EFFECTIVE
DATE" with respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time thereof.
The initial registration statement, as amended at its Effective Time, including
all information contained in the additional registration statement (if any) and
deemed to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("RULE 430A(B)") under the Act, is
hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial
Registration Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "REGISTRATION STATEMENTS" and individually as a
"REGISTRATION STATEMENT". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("RULE 424(B)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to as
the "PROSPECTUS". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(2) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("RULES AND REGULATIONS") and did not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
(B) on the Effective Date of the Additional Registration Statement (if any),
each Registration Statement conformed or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include, or
will not include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on the date of
this Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing
is required) at the Effective Date of the Additional Registration Statement in
which the Prospectus is included, each Registration Statement and the Prospectus
(as amended or supplemented) will conform, in all respects to the requirements
of the Act and the Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated therein or necessary
to make the
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statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all respects
to the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and no Additional Registration Statement has
been or will be filed. The two preceding sentences do not apply to statements in
or omissions from a Registration Statement or the Prospectus based upon written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein, it being understood and agreed that
the only such information is that described as such in Section 7(b) hereof.
(3) DDi has been duly incorporated and is an existing corporation in
good standing under the laws of the State of California, with power and
authority (corporate and other) to own its properties and conduct its business
as described in the Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires such
qualification.
(4) Prior to the Closing Date (as defined herein), the Company shall
have completed: (a) the reincorporation of DDi in Delaware through the merger of
DDi into DDi Merger Co. and (b) at the time of such reincorporation, the
conversion of DDi's Class L common stock and Class A common stock, as
contemplated in the Prospectus under the caption "The Reclassification"
(collectively, the "RECLASSIFICATION"); upon completion of the Reclassification,
DDi Merger Co. will have assumed all the rights and obligations of DDi and there
will be one class of common stock, the Securities; the Company will be duly
incorporated and an existing corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and the
Company will be duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of property
or the conduct of its business requires such qualification.
(5) Each subsidiary of the Company has been, and after giving effect
to the Acquisition pursuant to the terms of the Purchase Agreement will have
been, duly incorporated and is, and after giving effect to the Acquisition
pursuant to the terms of the Purchase Agreement will be, an existing corporation
in good standing under the laws of the jurisdiction of its incorporation, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and each subsidiary of the Company is,
and after giving effect to the Acquisition pursuant to the terms of the Purchase
Agreement will be, duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification except where
the failure to be so qualified would not individually or in the aggregate have a
material adverse effective on the condition (financial or other), business,
properties or results of
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operations of the Company and its subsidiaries taken as a whole ("MATERIAL
ADVERSE EFFECT"); all of the issued and outstanding capital stock of each
subsidiary of the Company has been, and after giving effect to the Acquisition
pursuant to the terms of the Purchase Agreement will have been, duly authorized
and validly issued and is fully paid and nonassessable; and the capital stock of
each subsidiary owned by the Company, directly or through subsidiaries, is, and
after giving effect to the Acquisition pursuant to the terms of the Purchase
Agreement will be, owned free from liens, encumbrances and defects, except as
described in the Prospectus under the caption "Description of Indebtedness -
Dynamic Details Senior Credit Facility."
(6) The Company has an authorized capitalization as set forth in the
Prospectus under the heading "Capitalization" in the column entitled "Actual"
and upon completion of the issue and sale of the Firm Securities and the use of
the proceeds therefrom, as contemplated in the Prospectus, and completion of the
Acquisition, as described in the Prospectus (as amended or supplemented), will
have the capitalization as set forth in the column entitled "Pro Forma
Combined;" and all outstanding shares of capital stock of the Company have been
duly authorized and validly issued, fully paid and are nonassessable and conform
to the description thereof contained in the Prospectus (as amended or
supplemented); and the stockholders of the Company have no preemptive rights
with respect to the Securities.
(7) Upon completion of the Reclassification and the Acquisition, all
outstanding shares of capital stock of the Company will have been duly
authorized and validly issued, fully paid and will be non-assessable and will
conform to the description thereof in the Prospectus; and upon their issuance
and sale pursuant to this Agreement, all Firm Securities will have been duly
authorized and validly issued, fully paid and non-assessable and will conform to
the description thereof contained in the Prospectus.
(8) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this offering.
(9) There are no contracts, agreements or understandings between the
Company and any person granting such person the right (i) to require the Company
to file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or (ii) to require the Company
to include such securities in the securities registered pursuant to the
Registration Statement or (iii) to require the Company to include such
securities in any securities being registered pursuant to any other registration
statement filed by the Company under the Act, except in the case of (i) and
(iii), as described in the Prospectus and in the case of (ii) as have been
satisfied or waived.
(10) The Securities have been approved for listing subject to notice
of issuance on The Nasdaq Stock Market's National Market.
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(11) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required to be obtained or made
by the Company for the consummation of the transactions contemplated by this
Agreement in connection with the sale of the Offered Securities or for the
consummation of the transactions contemplated by the Purchase Agreement, except
such as have been obtained and made under the Act and such as may be required
under state securities laws or by the NASD.
(12) The (a) execution, delivery and performance of this Agreement,
and the consummation of the transactions herein contemplated (including but not
limited to the sale of the Offered Securities by the Company and the use of the
proceeds therefrom as described in the Prospectus, as amended or supplemented)
and (b) the execution, delivery and performance of the Purchase Agreement
(including but not limited to the purchase of the capital stock of MCM and the
payment of the Acquisition Consideration) will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any statute, any rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the Company or
any subsidiary of the Company or of MCM or any of their properties, or (ii) any
agreement or instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary or of MCM is bound or to which
any of the properties of the Company or any such subsidiary is subject, or (iii)
the charter or by-laws of the Company (before or after the Reclassification) or
any such subsidiary, except in the case of (ii), for such breach or violation
that would not, individually or in the aggregate, have a Material Adverse
Effect.
(13) Each of this Agreement and the Purchase Agreement has been duly
authorized, executed and delivered by the Company.
(14) Except as disclosed in the Prospectus, the Company and its
subsidiaries have, and after giving effect to the Acquisition pursuant to the
terms of the Purchase Agreement will have, good and marketable title to all real
properties owned by them and personal property reflected as owned in the
financial statements described in paragraph (xx) below and not disposed of in
the ordinary course of business since December 31, 1999, plus any personal
property acquired since December 31, 1999, in each case that are material to the
business of the Company and its subsidiaries taken as a whole and in each case
free from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof by them;
and except as disclosed in the Prospectus, the Company and its subsidiaries
hold, and after giving effect to the Acquisition pursuant to the terms of the
Purchase Agreement will hold, any leased real or personal property that are
material to the business of the Company and its subsidiaries taken as a whole
under valid and enforceable leases, with no exceptions that would materially
interfere with the use made or to be made thereof by them.
(15) The Company and its subsidiaries possess, and after giving effect
to the Acquisition pursuant to the terms of the Purchase Agreement will possess,
adequate certificates,
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authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(16) No labor dispute with the employees of the Company or any
subsidiary exists, or after giving effect to the Acquisition pursuant to the
terms of the Purchase Agreement will exist, or, to the knowledge of the Company,
is imminent that might have a Material Adverse Effect.
(17) The Company and its subsidiaries own, possess or can acquire, or
after giving effect to the Acquisition pursuant to the terms of the Purchase
Agreement will own, possess or will be able to acquire, on reasonable terms,
adequate trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual property
(collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business
now operated by them, or presently employed by them, and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a Material Adverse Effect.
(18) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries is, and upon completion of the Acquisition pursuant to
the terms of the Purchase Agreement will be, in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws, is
liable for any off-site disposal or contamination pursuant to any environmental
laws, or is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have Material Adverse Effect; and the Company is not aware of any
pending investigation which might lead to such a claim.
(19) Except as disclosed in the Prospectus, there are, and upon
completion of the Acquisition pursuant to the terms of the Purchase Agreement
there will be, no pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect, or would
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the context
of the sale of the Offered Securities; and no such actions, suits or proceedings
are, to the Company's knowledge, threatened or contemplated.
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<PAGE>
(20) Each of PricewaterhouseCoopers LLP, who have certified the
financial statements of the Company and KPMG Audit Plc who have certified the
financial statements of MCM included in the Registration Statements, are
independent public accountants as required by the Act and the Rules and
Regulations. The financial statements included in each Registration Statement
and the Prospectus present fairly, in all material respects, the financial
position of the Company and its consolidated subsidiaries as of the dates shown
and their results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis; and the pro forma consolidated financial data contained in each
Registration Statement and the Prospectus have been prepared on a basis
consistent with the historical financial statements, includes all material
adjustments to the historical financial information required by Rule 11-02 of
Regulation S-X under the Act and the Securities Exchange Act of 1934 ("EXCHANGE
ACT") to reflect the transactions described therein the assumptions used in
preparing the pro forma financial statements and other data (including, but not
limited to "adjusted EBITDA") included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein, the
related pro forma adjustments give appropriate effect to those assumptions, and
the pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
(21) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has been,
and after giving effect to the Acquisition pursuant to the terms of the Purchase
Agreement will be, no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition (financial or
otherwise), business, properties or results of operations of the Company and its
subsidiaries takes as a whole, and, except as disclosed in or contemplated by
the Prospectus, there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(22) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus and the Acquisition pursuant to the terms of the
Purchase Agreement, will not be an "investment company" as defined in the
Investment Company Act of 1940.
(23) Furthermore, the Company represents and warrants to the
Underwriters that the Participants in the Directed Share Program identified to
the Designated Underwriter do not include persons located outside the United
States.
(24) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share Program with
the specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company of its products.
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(25) Neither the Company nor any of its subsidiaries is, nor upon
completion of the Acquisition pursuant to the terms of the Purchase Agreement
will be, in violation of its charter or by-laws, as the case may be, or in
default (or would be in default with notice or lapse of time, or both) in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, lease, joint venture or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which any of
their properties may be bound, which default or defaults would have a Material
Adverse Effect, or in violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court or governmental agency or body, the
violation of which would have a Material Adverse Effect.
(26) Neither the Company nor any of its directors, officers or
affiliates (as defined in the Rules and Regulations) has taken or will take,
directly or indirectly, any action designed to cause or result in, or which
constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the Securities to
facilitate the sale or resale of the Offered Securities.
(27) The Company, its subsidiaries and MCM have filed all federal,
state, local and foreign tax returns that have been required to be filed and
have paid all taxes shown thereon and all assessments received by them or any of
them to the extent that such taxes have become due and are not being contested
in good faith. Except as disclosed in the Registration Statement and the
Prospectus, there is no tax deficiency that has been or might reasonably be
expected to be asserted or, to the Company's knowledge, threatened against the
Company or any of its subsidiaries, that would have a Material Adverse Effect.
(28) No relationship, direct or indirect, exists between or among the
Company or any of its affiliates, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries,
on the other hand, that is required by the Act to be described in the
Registration Statement and the Prospectus that is not so described.
(29) Each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Securities Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by the Company or any of its
subsidiaries for employees or former employees of the Company or any of its
subsidiaries has been maintained in compliance, in all material respects, with
its respective terms and the requirements of any applicable statutes, order,
rules and regulations, including but not limited to ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), except for such non-compliance
that would not result in a Material Adverse Effect. No prohibited transaction,
within the meaning of Section 406 of ERISA or Section 4975 of the Code, has
occurred with respect to any such plan, excluding transactions effected pursuant
to a statutory or administrative exemption or transactions that would not have a
Material Adverse Effect. For each such plan that is subject to the funding rules
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of Section 412 of the Code or Section 302 of ERISA, no "accumulated funding
deficiency", as defined in Section 412 of the Code, has been incurred, whether
or not waived, and the fair market value of the assets of each such plan
(excluding for these purposes accrued but unpaid contributions) exceeded the
present value of all benefits accrued under such plan determined using
reasonable actuarial assumptions.
(30) The Company and each of its subsidiaries maintain, and upon
completion of the Acquisition pursuant to the terms of the Purchase Agreement
will maintain, a system of internal accounting controls that, taken as a whole,
are sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(31) The Company and each of its subsidiaries maintain, and upon
completion of the Acquisition pursuant to the terms of the Purchase Agreement
will maintain, insurance of the types and in the amounts that the Company
reasonably deems adequate for their respective business, including, without
limitation, insurance coverage on real and personal property owned or leased by
them against theft, damage, destruction, acts of vandalism and all other
material risks customarily insured against, all of which insurance is in full
force and effect. Neither the Company nor any of its subsidiaries has any reason
to believe that it will not be able to renew existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its respective business.
(32) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $________ per share, that number of
Firm Securities set forth opposite the name of such Underwriter in Schedule A
hereto.
The Company will deliver the Firm Securities to the Representative for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of _______________, at the office of Skadden, Arps, Slate, Meagher
& Flom LLP, Four Times Square, New York, NY, at [9:00] A.M., New York time, on
____________ ___, 2000, or at such other time not later than seven
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full business days thereafter as CSFBC and the Company determine, such time
being herein referred to as the "FIRST CLOSING DATE". The certificates for the
Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the above office of Skadden, Arps,
Slate, Meagher & Flom LLP at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of Optional Securities specified
in such notice and the Underwriters agree, severally and not jointly, to
purchase such Optional Securities. Such Optional Securities shall be purchased
from the Company for the account of each Underwriter in the same proportion as
the number of Firm Securities set forth opposite such Underwriter's name bears
to the total number of Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representative for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of ________________, at the above office of Skadden, Arps, Slate,
Meagher & Flom LLP. The certificates for the Optional Securities being purchased
on each Optional Closing Date will be in definitive form, in such denominations
and registered in such names as CSFBC requests upon reasonable notice prior to
such Optional Closing Date and will be made available for checking and packaging
at the above office of Skadden, Arps, Slate, Meagher & Flom LLP at a reasonable
time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of DDi and DDi Merger Co.. DDi and DDi Merger Co.
agree with the several Underwriters that:
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(1) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after
the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(2) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or the
related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement (if
its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(3) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(4) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement (which need not be audited) covering a
period of at least 12 months beginning after the Effective
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Date of the Initial Registration Statement (or, if later, the Effective Date of
the Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"AVAILABILITY DATE" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes such Effective Date, except
that, if such fourth fiscal quarter is the last quarter of the Company's fiscal
year, "Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(5) The Company will furnish to the Representative copies of each
Registration Statement, four of which will be signed and will include all
exhibits, each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other such documents shall be so furnished as soon as available.
(6) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to take any action that would
subject it to a general consent to service of process in any jurisdiction.
(7) During the period of five years hereafter, the Company will
furnish to the Representative and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representative (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Exchange Act or mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(8) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of CSFBC, except grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof,
issuances of Securities pursuant to the exercise of such options or the exercise
of any other employee stock options outstanding on the date hereof or issuances
of Securities pursuant to the Company's dividend reinvestment plan.
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(9) The Company agrees with the several Underwriters that the Company
will pay all expenses incident to the performance of the obligations of the
Company under this Agreement, for any filing fees and other expenses (including
reasonable fees and disbursements of counsel) in connection with qualification
of the Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates, subject to paragraph (f) above, and the printing of memoranda
relating thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. (the "NASD") of the Offered
Securities, for any travel expenses of the Company's officers and employees and
any other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
(10) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required by the
NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation
for a period of three months following the date of the effectiveness of the
Registration Statement. The Designated Underwriter will notify the Company as to
which Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for such
period of time.
(11) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
(12) In connection with the Reclassification, DDi Merger Co. will
assume all the rights and obligations of DDi, including, but not limited to,
those contained in this Agreement.
Furthermore, the Company covenants with the Underwriters that the
Company will comply, in all material respects, with all applicable securities
and other applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed Share
Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
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(1) The Representative shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of PricewaterhouseCoopers LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(1) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(2) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting matters
and other specified procedures, nothing came to their attention that
caused them to believe that:
(1) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of this Agreement,
there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company and its
consolidated subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any decrease in
consolidated net assets, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(2) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year, in consolidated net sales or net
operating income (loss) in the total or per share amounts of
consolidated income (loss) before extraordinary items or net
income (loss);
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
(3) on the basis of a reading of the unaudited pro forma
consolidated financial statements included in the Registration
Statements, carrying out certain specified procedures that would not
necessarily reveal matters of significance with respect to the
comments set forth in this paragraph (iii), inquiries of certain
officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters and proving the
arithmetic accuracy of the application of the pro forma adjustments to
the historical amounts in the unaudited pro forma consolidated
financial statements, nothing came to their attention that caused them
to
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believe that the unaudited pro forma consolidated financial statements
do not comply in form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements; and
(4) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration Statement is subsequent to such execution and
delivery, "REGISTRATION STATEMENTS" shall mean the Initial Registration
Statement and the additional registration statement as proposed to be filed
or as proposed to be amended by the post-effective amendment to be filed
shortly prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the
prospectus included in the Registration Statements.
(2) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CSFBC. If the
Effective Time of the Additional Registration Statement (if any) is not prior to
the execution and delivery of this Agreement, such Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representative, shall be
contemplated by the Commission.
(3) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event involving a
prospective change, in the
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condition (financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as one enterprise which, in the judgment
of a majority in interest of the Underwriters including the Representative, is
material and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities; (ii) any downgrading in the rating of any debt securities of the
Company by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public announcement
that any such organization has under surveillance or review its rating of any
debt securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any material suspension or material
limitation of trading in securities generally on the New York Stock Exchange,
The Nasdaq Stock Market's National Market, or any setting of minimum prices for
trading on such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal, New York or California authorities; or (v)
any outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity or emergency if, in the judgment of a majority in
interest of the Underwriters including the Representative, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities.
(4) The Representative shall have received an opinion, dated such
Closing Date, of Ropes & Gray, counsel for the Company, to the effect that:
(1) The Company has effected the Reclassification and has been duly
incorporated and is an existing corporation in good standing under the laws
of the State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification;
(2) Each of the Company's subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Each of the Company's subsidiaries is duly
qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or in
good standing which will not in the aggregate have a material adverse
effect on the Company and its subsidiaries taken as a whole. Each of the
Company and its subsidiaries has all requisite corporate authority to own,
lease and license its properties and conduct its business as now being
conducted and as described in the Registration Statement and the
Prospectus;
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<PAGE>
(3) All of the outstanding shares of capital stock of each subsidiary
of the Company have been duly authorized and validly issued, are fully paid
and non-assessable and were not issued in violation of preemptive or
similar rights and are owned directly or indirectly by the Company, free
and clear of any lien, encumbrance, claim, security interest, restriction
on transfer, stockholders' agreement, voting trust or other defect of title
whatsoever;
(4) The Company has the authorized capitalization as set forth in the
Prospectus, and the Offered Securities delivered on such Closing Date and
all other outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and conform
to the description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect to the
Securities;
(5) The Offered Securities have been approved for quotation on The
Nasdaq Stock Market's National Market;
(6) No consent, approval, authorization or order of, or filing with,
any governmental agency or body or any court is required to be obtained or
made by the Company for the consummation of the transactions contemplated
by this Agreement in connection with the sale of the Offered Securities or
for the consummation of the Purchase Agreement, except such as have been
obtained and made under the Act and such as may be required under state
securities laws;
(7) The Reclassification did not, and the execution, delivery and
performance of this Agreement and the consummation of the transactions
herein or therein contemplated (including, but not limited to the sale of
the Offered Securities by the Company and the use of the proceeds therefrom
as described in the Prospectus) and the consummation of the Acquisition
pursuant to the terms set forth in the Purchase Agreement (including but
not limited to the payment of the Acquisition Consideration) will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order of
any governmental agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is a
party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject, or
the charter or by-laws of the Company or any such subsidiary;
(8) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
and the Acquisition as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940;
(9) Except as disclosed in or specifically contemplated by the
Registration Statement and the Prospectus, to such counsel's knowledge,
there are no outstanding options, warrants or other rights calling for the
issuance of, and no commitments, obligations, plans or arrangements to
issue, any shares of capital stock of the Company or any security
convertible
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<PAGE>
into or exchangeable for capital stock of the Company. The outstanding
stock options relating to the Securities have been duly authorized and
validly issued and conform to the descriptions thereof contained in the
Registration Statement and the Prospectus;
(10) Except as described in the Prospectus, no holder of any security
of the Company has the right to require registration of capital stock of
the Company in connection with the registration of the Offered Securities.
All such rights with respect to the Registration Statement have been
effectively waived. Further, no holders of any security of the Company have
the right to require the Company to register capital stock of the Company
for 180 days after the date of the Prospectus;
(11) The Initial Registration Statement was declared effective under
the Act as of the date and time specified in such opinion, the Additional
Registration Statement (if any) was filed and became effective under the
Act as of the date and time (if determinable) specified in such opinion,
the Prospectus either was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date specified
therein or was included in the Initial Registration Statement or the
Additional Registration Statement (as the case may be), and, to the best of
the knowledge of such counsel, no stop order suspending the effectiveness
of a Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
such counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as of such
Closing Date, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; or that the Prospectus or any
amendment or supplement thereto, as of its issue date or as of such Closing
Date, contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of statutes,
legal and governmental proceedings and contracts and other documents are
accurate and fairly present the information required to be shown; and such
counsel do not know of any legal or governmental proceedings required to be
described in the Registration Statements or the Prospectus which are not
described as required or of any contracts or documents of a character
required to be described in the Registration Statements or the Prospectus
or to be filed as exhibits to the Registration Statements which are not
described and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial data
contained in the Registration Statements or the Prospectus; and
(12) Each of this Agreement, and to the extent governed by California
or Delaware law, the Purchase Agreement, has been duly authorized, executed
and delivered by the Company.
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<PAGE>
(a) The Representative shall have received an opinion, dated the
Closing Date, of Slaughter & May, English counsel for the Company to the
effect that (i) the Purchase Agreement has been duly authorized (to the
extent governed by English law), executed and delivered by the parties
thereto and constitutes a valid and legally binding instrument, enforceable
in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles, (ii)
MCM has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation and has
all requisite corporate authority to own, lease and license its properties
and conduct its business as now being conducted and as described in the
Registration Statement and Prospectus, (iii) all of the shares of
outstanding capital stock of MCM have been duly authorized and validly
issued, are fully paid and non-assessable and were not issued in violation
of preemptive or similar rights and upon completion of the Acquisition
pursuant to the terms of the Purchase Agreement, will be owned by the
Company, free and clear of any lien, encumbrance, claim, security interest,
restriction on transfer, stockholders' agreement, voting trust or other
defect of title whatsoever, and (iv) no consent, approval, authorization or
order of, or filing with, any governmental agency or body or any court is
required to be obtained or made by the parties for the consummation of the
transactions contemplated by the Purchase Agreement, except such as have
been obtained.
(5) The Representative shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of KPMG Audit Plc confirming that they are independent public
accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder with respect to MCM (and its predecessor Symonds Limited)
and such other matters as shall be reasonably requested by the Underwriters and
agreed to by KPMG Audit Plc.
(6) The Representative shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representative may require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass upon
such matters.
(7) The Representative shall have received a certificate, dated such
Closing Date, of the President or the Chairman and a principal financial or
accounting officer of the Company in which such officers, to the best of their
knowledge after reasonable investigation, shall state that: the representations
and warranties of the Company in this Agreement are true and correct; the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to such Closing Date; no
stop order suspending the
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effectiveness of any Registration Statement has been issued and no proceedings
for that purpose have been instituted or are contemplated by the Commission; the
Additional Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
including payment of the applicable filing fee in accordance with Rule 111(a) or
(b) under the Act, prior to the time the Prospectus was printed and distributed
to any Underwriter; and, subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of operations of
the Company and its subsidiaries, taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(8) The Representative shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
(9) On or prior to the date of this Agreement, the Representative
shall have received lockup letters from each of the executive officers and
directors of the Company and the Company's stockholders.
(b) Prior to the Closing Date, the Reclassification shall have been
completed as described in the Prospectus under the caption "The
Reclassification."
(10) Prior to the Closing Date, the Company shall have entered into an
amendment to its Credit Agreement, as Amended and Restated as of August 28, 1998
relating to the use of proceeds from the offering of the Securities and the
consummation of the Acquisition pursuant to the terms of the Purchase Agreement,
and such amendment remains in full force and effect.
(11) The Company shall have entered into the Purchase Agreement and
the Representative shall have received counterparts, conformed as executed
thereof and of all other documents and agreements entered into in connection
therewith.
CSFBC may in its sole discretion waive on behalf of the Underwriters compliance
with any conditions to the obligations of the Underwriters hereunder, whether in
respect of an Optional Closing Date or otherwise.
1. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material
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fact contained in any Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representative specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists of
the information described as such in subsection (b) below; and provided,
further, that with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus, if the Company had previously furnished copies thereof to such
Underwriter.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act (the "DESIGNATED Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of Directed Shares that the Participant agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of the Designated Entities.
Insofar as the foregoing indemnity agreement, or the representations and
warranties contained in Section 2(ii), may permit indemnification for
liabilities under the Act of any person who is an Underwriter or a partner or
controlling person of an Underwriter within the meaning of Section 15 of the Act
and who, at the date of this Agreement, is a director, officer or controlling
person of the Company, the Company has been advised that in the opinion of the
Commission
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such provisions may contravene Federal public policy as expressed in the Act and
may therefore be unenforceable. In the event that a claim for indemnification
under such agreement or such representations and warranties for any such
liabilities (except insofar as such agreement provides for the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such a person, the Company will submit to a court of appropriate jurisdiction
(unless in the opinion of counsel for the Company the matter has already been
settled by controlling precedent) the question of whether or not indemnification
by it for such liabilities is against public policy as expressed in the Act and
therefore unenforceable, and the Company will be governed by the final
adjudication of such issue.
(12) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, its directors and officers and each person, if any,
who controls the Company within the meaning of Section 15 of the Act against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representative specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of (i) the concession and reallowance figures appearing in the fourth paragraph
under the caption "Underwriting" in the Prospectus, (ii) the information
contained in the sixth paragraph under the caption "Underwriting" in the
Prospectus relating to discretionary sales, (iii) the statements of Chase
Securities Inc. and FleetBoston Robertson Stephens Inc. relating to their
participation in the Offering in the sixth to last paragraph under the caption
"Underwriting" in the Prospectus, and (iv) the information contained in the last
four paragraphs under the caption "Underwriting" in the Prospectus.
(13) Promptly after receipt by an indemnified party under this Section
or Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under subsection (a) or (b) above or Section 9, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above or Section 9. In case any
such action is brought against any indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
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thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section or Section 9, as the
case may be, for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. Notwithstanding anything contained herein to the
contrary, if indemnity may be sought pursuant to the second paragraph in Section
7(a) hereof in respect of such action or proceeding, then in addition to such
separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such (i) settlement includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.
(14) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
24
<PAGE>
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(15) The obligations of the Company under this Section or Section 9
shall be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter or the QIU (as defined herein) within the meaning of
the Act; and the obligations of the Underwriters under this Section shall be in
addition to any liability which the respective Underwriters may otherwise have
and shall extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed a Registration Statement
and to each person, if any, who controls the Company within the meaning of the
Act.
2. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 10 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
3. Qualified Independent Underwriter. The Company hereby confirms that at
its request CSFBC has without compensation acted as "qualified independent
underwriter" (in such
25
<PAGE>
capacity, the "QIU") within the meaning of Rule 2710 of the Conduct Rules of the
National Association of Securities Dealers, Inc. in connection with the offering
of the Offered Securities. The Company will indemnify and hold harmless the QIU
against any losses, claims, damages or liabilities, joint or several, to which
the QIU may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the QIU's acting (or alleged failing to act) as such "qualified
independent underwriter" and will reimburse the QIU for any legal or other
expenses reasonably incurred by the QIU in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred.
4. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by them pursuant to Section 5 and the
respective obligations of the Company and the Underwriters pursuant to Section 7
and the obligations of the Company pursuant to Section 9 shall remain in effect,
and if any Offered Securities have been purchased hereunder the representations
and warranties in Section 2 and all obligations under Section 5 shall also
remain in effect. If the purchase of the Offered Securities by the Underwriters
is not consummated for any reason other than solely because of the termination
of this Agreement pursuant to Section 8 or other than solely because of the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c),
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
5. Notices. All communications hereunder will be in writing and, if sent to
the Underwriters, will be mailed, delivered or telegraphed and confirmed to the
Representative at Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention:
Investment Banking Department - Transactions Advisory Group, or, if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to it at 1220
Simon Circle, Anaheim, California 92806, Attention: Chief Executive Officer;
provided, however, that any notice to an Underwriter pursuant to Section 7 will
be mailed, delivered or telegraphed and confirmed to such Underwriter.
6. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective personal representatives and
successors and the officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation hereunder.
26
<PAGE>
7. Representation. The Representative will act for the several Underwriters
in connection with the transactions contemplated by this Agreement, and any
action under this Agreement taken by the Representative will be binding upon all
the Underwriters.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
9. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
27
<PAGE>
If the foregoing is in accordance with the Representative's understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
..............................................
DDI CORP.
By...................................
[Insert title]
[DDI MERGER CO.]
By...................................
[Insert title]
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By.....................................
[Insert title]
Acting on behalf of itself
and as the Representative of
the several Underwriters.
28
<PAGE>
SCHEDULE A
NUMBER OF
FIRM SECURITIES
UNDERWRITER TO BE PURCHASED
----------- ---------------
Credit Suisse First Boston Corporation.................
FleetBoston Robertson Stephens Inc.....................
Chase Securities Inc...................................
Lehman Brothers Inc....................................
---------------
Total....................................
===============
29
<PAGE>
Exhibit 4.1
DDi CORP.
STOCKHOLDERS AGREEMENT
The Amended and Restated Stockholders Agreement (the "1998 Agreement") made
as of July 23, 1998 by and among:
(i) DDi Corp., a California corporation, f/k/a Details Holdings Corp. and
Details, Inc. (including its successor corporation following the
Merger (defined below), the "Company");
(ii) each of Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P., RGIP, LLC (collectively,
the "Investors");
(iii) DI Investors, L.L.C., Chase Manhattan Capital, L.P., PMI Mezzanine
Fund, LP, Celerity Dynamo, L.L.C., Celerity Details, L.L.C., Celerity
Liquids, L.L.C., KB Mezzanine Fund II, L.P., Indosuez DCI Partners and
Churchill ESOP Capital Partners (together with such others who shall
become party to this Agreement as an Other Investor, the "Other
Investors");
(iv) The holders, from time to time, of the Lender Warrants (together with
such others who acquire Lender Shares, the "Lenders");
(v) Charles D. Dimick, Bruce McMaster, Lee Muse, John Peters, Terry
Wright, Joseph P. Gisch, Kathleen M. Gisch, Eric Naroian and Thomas P.
Caldwell (together with such others who shall become party to this
Agreement as a Manager, the "Managers"); and
(vi) Bob Barante, Jorge Hernandez, Steve Garcia, Mihaela Ioana Dotiu, Jerry
Neidhart, Anil Verma, Paul Balius, Ricki Blain, Joe Gardeski, Paul
Walker, Ken Phillips, Armando Tongko, Michael Mosian, Tom Ingham, Ron
Jaech, Larry Peiper, Gary Sullivan, Ronald Ryno, Jeffrey Ryno, Vernon
Morgan and Dick Galatian (together with such others who shall become
party to this Agreement as an Employee, the "Employees" and together
with the Investors, the Other Investors, the Lenders and the Managers,
the "Stockholders"),
is hereby amended and restated in its entirety pursuant to Section 12.2 of the
1998 Agreement by written agreement of the Majority Investors, the Majority
Other Holders, the Majority Managers and the Majority Lenders (as each term is
defined in the 1998 Agreement) in the form of this Stockholders Agreement (the
1998 Agreement as amended and restated hereby is referred to herein as the
"Agreement") as of March __, 2000 to read as follows:
<PAGE>
Recitals
1. The Company (i) has filed a registration statement on Form S-1 with
the Commission (as defined herein); (ii) intends to merge with and into DDi
Corp., a Delaware corporation, in which merger (the "Merger") the holders of the
outstanding Common Stock of DDi Corp., a California corporation, will receive
shares of common stock, par value $.01 (the "Delaware Common Stock") of DDi
Corp., a Delaware corporation, as merger consideration; and (iii) intends to
effect an Initial Public Offering of Delaware Common Stock.
2. The parties desire to amend and restate the 1998 Agreement prior to
the Merger and the effectiveness of such Initial Public Offering.
3. Pursuant to the terms of a Share Purchase Agreement dated March __,
2000, the Company intends to acquire the capital stock of MCM Electronics, Ltd.
("MCM") and, in connection, with such acquisition, the Beneficial Owners and
Natwest Nominees (each as defined in such Share Purchase Agreement, and for
purposes of this agreement the "NatWest Investors") and all other record and/or
beneficial holders of MCM capital stock ("MCM Managers") will acquire Delaware
Common Stock in consideration of their interests in the capital stock of MCM.
4. It is a condition to the closing of the acquisition of MCM that the
NatWest Investors execute a counterpart signature page to this Agreement as
"Other Investors" and that MCM Managers execute a counterpart signature page to
this Agreement as "Managers."
Agreement
Therefore, the parties hereto hereby agree as follows:
1. EFFECTIVENESS; DEFINITIONS.
1.1 Effectiveness. This Agreement shall become effective upon the closing
of the Initial Public Offering.
1.2 Definitions. Certain terms are used in this Agreement as specifically
defined herein. These definitions are set forth or referred to in Section 13
hereof.
2. [RESERVED].
3. [RESERVED].
4. [RESERVED].
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<PAGE>
5. [RESERVED]
6. [RESERVED]
7. [RESERVED]
8. REGISTRATION RIGHTS. The Company will perform and comply, and cause each
of their respective subsidiaries to perform and comply, with such of the
following provisions as are applicable to it. Each holder of Shares will
perform and comply with such of the following provisions as are applicable to
such holder.
8.1 Demand Registration Rights for Investor Shares.
8.1 General. One or more holders of Investor Shares representing at
least 25% of the total amount of Investor Shares then outstanding
("Initiating Investors"), by notice to the Company specifying the intended
method or methods of disposition, may request that the Company effect the
registration under the Securities Act for a Public Offering of all or a
specified part of the Registrable Securities held by such Initiating
Investors (for purposes of this Agreement, "Registrable Investor
Securities" shall mean Registrable Securities constituting Investor
Shares). The Company will then use its best efforts to effect the
registration under the Securities Act of the Registrable Securities which
the Company has been requested to register by such Initiating Investors
together with all other Registrable Securities which the Company has been
requested to register pursuant to Section 8.3 (which request shall specify
the intended method of disposition of such Registrable Securities), all to
the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities which
the Company has been so requested to register; provided, however, that the
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 8.1.1:
(a) Within 180 days immediately following the effective date of
any registration statement pertaining to an underwritten public offering of
securities of the Company for its own account (other than a Rule 145
Transaction, or a registration relating solely to employee benefit plans);
(b) (i) On any form other than Form S-3 (or any successor form)
if the Company has previously effected five or more registrations of
Registrable Securities under this Section 8.1.1 on any form other than Form
S-3 (or any successor form); provided, however, that no registrations of
Registrable Securities which shall not have become and remained effective
in accordance with the provisions of this Section 8, and no registrations
of Registrable Securities pursuant to which the Initiating Investors and
all other holders of Registrable Investor Securities joining therein are
not able to include at least 90% of the
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<PAGE>
Registrable Securities which they desired to include, shall be included in
the calculation of numbers of registrations contemplated by this
clause (b);
(c) If the Company shall have furnished to the Initiating
Investors and such other holders of Registrable Securities which the
Company has been requested to register pursuant to this Section 8.1.1 a
certificate, signed by the President of the Company, stating that in the
good faith judgment of the Board it would be seriously detrimental to the
Company and its shareholders for such Registration Statement to be filed at
the date filing would have been required, in which case the Company shall
have an additional period of not more than 60 days within which to file
such Registration Statement; provided, however, that the Company shall not
so postpone a registration pursuant to this clause (c) more than once in
any twelve month period;
(d) On any form other than Form S-3 (or any successor form), if
the anticipated aggregate offering price to the public of the Registrable
Securities to be included in the registration by all holders is less than
$5,000,000; or
(e) After five years after the closing of the Initial Public
Offering.
8.1.1.1. Form. Except as otherwise provided above, each registration
requested pursuant to this Section 8.1.1 shall be effected by the filing of
a registration statement on Form S-1 (or any other form which includes
substantially the same information as would be required to be included in a
registration statement on such form as currently constituted), unless the
use of a different form has been agreed to in writing by holders of at
least a majority of the Registrable Investor Securities to be included in
the proposed registration statement in question (the "Majority
Participating Investors").
8.1.2. Payment of Expenses. The Company shall pay all reasonable
expenses of holders of Investor Shares incurred in connection with each
registration of Registrable Securities requested pursuant to this Section
8.1, other than underwriting discount and commission, if any, and
applicable transfer taxes, if any.
8.1.3. Additional Procedures. In the case of a registration pursuant
to Section 8.1 hereof, whenever the Majority Participating Investors shall
request that such registration shall be effected pursuant to an
underwritten offering, the Company shall include such information in the
written notices to holders of Registrable Securities referred to in Section
8.3. In such event, the right of any holder of Registrable Securities to
have securities owned by such holder included in such registration pursuant
to Section 8.1 shall be conditioned upon such holder's participation in
such
-4-
<PAGE>
underwriting and the inclusion of such holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed upon by the Majority
Participating Investors and such holder) to the extent provided herein. If
requested by such underwriters, the Company together with the holders of
Registrable Securities proposing to distribute their securities through
such underwriting will enter into an underwriting agreement with such
underwriters for such offering containing such representations and
warranties by the Company and such holders and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
customary indemnity and contribution provisions.
8.2 DI Investors Demand Registration Rights.
8.2.1. General. To the extent DI Investors, L.L.C. or its Affiliates hold
at least 50% of the Shares issued to them by the Company in connection with the
consummation of the Recapitalization Agreement, DI Investors, L.L.C. or such
Affiliate ("Initiating Other Investors"), by notice to the Company specifying
the intended method or methods of disposition, may request that the Company
effect the registration under the Securities Act for a Public Offering of all or
a specified part of the Registrable Securities held by such Initiating Other
Investors (for purposes of this Agreement, "Registrable Other Securities" shall
mean Registrable Securities constituting Other Shares). The Company will then
use its reasonable efforts to effect the registration under the Securities Act
of the Registrable Securities which the Company has been requested to register
by such Initiating Other Investors together with all other Registrable
Securities which the Company has been requested to register pursuant to Section
8.3 (which request shall specify the intended method of disposition of such
Registrable Securities), all to the extent requisite to permit the disposition
(in accordance with the intended methods thereof as aforesaid) of the
Registrable Securities which the Company has been so requested to register;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration pursuant to this Section 8.2.1:
(a) If the Company has previously effected two registrations of
Registrable Securities under this Section 8.2.1; provided, however, that no
registrations of Registrable Securities which either (i) shall not have
become and remained effective in accordance with the provisions of this
Section 8 or (ii) shall not have enabled the Initiating Other Investors to
include in such registration at least 90% of the Registrable Securities
which they desired to include shall be included in the calculation of the
number of registrations contemplated by this clause (a);
(b) Prior to the 360th day following the closing of the Initial
Public Offering;
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<PAGE>
(c) Within 180 days immediately following the effective date of
any registration statement pertaining to an underwritten public offering of
securities of the Company for its own account (other than a registration on
Form S-4 relating solely to a Rule 145 Transaction, or a registration
relating solely to employee benefit plans);
(d) If the Company shall have furnished to the Initiating Other
Investors and such other holders of Registrable Securities which the
Company has been requested to register pursuant to this Section 8.2.1 a
certificate, signed by the President of the Company, stating that in the
good faith judgment of the Board it would be seriously detrimental to the
Company and its shareholders for such Registration Statement to be filed at
the date filing would have been required, in which case the Company shall
have an additional period of not more than 60 days within which to file
such Registration Statement; provided, however, that the Company shall not
so postpone a registration pursuant to this clause (d) more than once in
any twelve month period;
(e) On any form other than Form S-3 (or any successor form); or
(f) After five years after the closing of the Initial Public
Offering.
8.2.1.1. Form. Each registration requested pursuant to this
Section 8.2.1 shall be effected by the filing of a registration
statement on Form S-3 (or any successor form).
8.2.2. Payment of Expenses. The Company shall pay all reasonable
expenses of holders of Other Shares incurred in connection with each
registration of Registrable Securities requested pursuant to this Section 8.2,
other than underwriting discount and commission, if any, and applicable transfer
taxes, if any.
8.2.3. Additional Procedures. In the case of a registration pursuant
to Section 8.2 hereof, whenever the Initiating Other Investors shall request
that such registration shall be effected pursuant to an underwritten offering,
the Company shall include such information in the written notices to holders of
Registrable Securities referred to in Section 8.3. In such event, the right of
any holder of Registrable Securities to have securities owned by such holder
included in such registration pursuant to Section 8.2 shall be conditioned upon
such holder's participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed upon by the Majority Participating Other Investors and such holder) to
the extent provided herein. If requested by such underwriters, the Company
together with the holders of Registrable Securities proposing to distribute
their securities through such underwriting will enter into an underwriting
agreement with such underwriters for such offering containing such
representations and warranties by the Company and such holders and such other
terms and provisions as are customarily contained in underwriting agreements
with respect to
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<PAGE>
secondary distributions, including, without limitation, customary indemnity and
contribution provisions.
8.2A Demand Registration Rights for NatWest Investors and MCM Managers.
8.2A.1. General. At any time between the 180th and 360th day
following the effective date of the Initial Public Offering, NatWest
Investors holding a majority of the Registrable Securities originally
issued to the NatWest Investors by the Company, by notice to the Company
(with a copy to the Investors), specifying the intended method or methods
of disposition and certifying that they have a bona fide intention to sell
the number of Registrable Securities to be so registered, may request that
the Company effect the registration under the Securities Act for a Public
Offering of up to 50% of the Registrable Securities held by the NatWest
Investors. Upon receipt of such notice, the Company will give notice to
the MCM Managers of the receipt of such notice. Any such MCM Manager, by
written response delivered to the Company within 20 days after the
effectiveness of such notice, which response shall include a certification
by such MCM Manager of his bona fide intention to sell the number of his
Registrable Securities to be so registered, may request that up to 44.44%
of the Registrable Securities held by such MCM Manager be included in such
registration. The Company will then use its best efforts to effect the
registration under the Securities Act of the Registrable Securities which
the Company has been requested to register pursuant to this Section 8.2A.1
by the NatWest Investors and the MCM Managers, to the extent requisite to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities which the Company has been so
requested to register; provided, however, that the Company shall not take
any action to effect any such registration pursuant to this Section 8.2A.1:
(a) Following the effective date of any registration
statement pertaining to an underwritten public offering of
securities of the Company in connection with which the NatWest
Investors have the right to include at least 50% of their
Registrable Securities and the MCM Managers have the right to
include at least 44.44% of their Registrable Securities pursuant
to Section 8.3;
(b) During any period during which the Company or the
Initiating Investors are actively planning an underwritten
offering of securities of the Company in connection with which
the NatWest Investors and the MCM Managers would have the right
to include Registrable Securities pursuant to Section 8.3; or
(c) If the Company shall have furnished to the NatWest
Investors a certificate, signed by the President of the Company,
stating that in the good faith judgment of the Board it would be
seriously detrimental to the Company and its shareholders for
such Registration Statement to be filed at the date filing would
have been required, in
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<PAGE>
which case the Company shall have an additional period of not
more than 60 days within which to file such Registration
Statement.
8.2A.2. Payment of Expenses. The Company shall pay all reasonable
expenses of the NatWest Investors incurred in connection with each
registration of Registrable Securities requested pursuant to this Section
8.2A, other than underwriting discount and commission, if any, and
applicable transfer taxes, if any.
8.2A.3. No Underwritten Offering. Any registration pursuant to
Section 8.2A.1 hereof may not be effected pursuant to an underwritten
offering.
8.2A.4. No Piggyback Rights. Notwithstanding the provisions of
Section 8.3.1.1, except as provided in Section 8.2A.1, no holder of
Registrable Securities shall have the right to have any such Registrable
Securities included in a registration requested pursuant to Section 8.2A.1.
8.2A.5. Black-out Period. Notwithstanding the provisions of Section
8.4.2, at any time during the 60 days during which a registration statement
filed pursuant to this Section 8.2A is required to be kept effective, if
the Company furnishes to the NatWest Investors and the MCM Managers a
certificate, signed by the President of the Company, stating that in the
good faith judgment of the Board it would be seriously detrimental to the
Company and its shareholders for the effectiveness of such registration
statement to be maintained, the NatWest Investors and the MCM Managers
shall not Transfer any Common Stock for a period of up to 30 days as
determined by the Company. The 60 day period referenced in Section 8.4.2
shall be extended by the number of days during which the NatWest Investors
and the MCM Managers are prohibited from Transferring Common Stock pursuant
to this Section, however in no case shall the Company be required to
maintain the effectiveness of a registration statement filed pursuant to
this Section 8.2A after 360 days from the effective date of the Initial
Public Offering.
8.3 Piggyback Registration Rights.
8.3 Piggyback Registration.
8.3.1.1. General. Each time the Company proposes to register any
shares of Common Stock under the Securities Act on a form which would
permit registration of Registrable Securities for sale to the public,
for its own account or for the account of any holder of its shares of
Common Stock, for sale in a Public Offering, the Company will give
notice to all holders of shares of Common Stock of its intention to do
so. Any such holder may, by written response delivered to the Company
within 20 days after the effectiveness of such notice, request that
all or a specified part of the Registrable Securities held by such
holder be included in such registration. The Company thereupon will
use its reasonable efforts to cause to be included in such
registration under the
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<PAGE>
Securities Act all shares of Common Stock which the Company has been
so requested to register by such holders, to the extent required to
permit the disposition (in accordance with the methods to be used by
the Company or other holders of shares of Common Stock in such Public
Offering) of the Registrable Securities to be so registered. No
registration of Registrable Securities effected under this Section 8.3
shall relieve the Company of any of its obligations to effect
registrations of Registrable Securities pursuant to Section 8.1
hereof.
8.3.1.2. Excluded Transactions. The Company shall not be
obligated to effect any registration of Registrable Securities under
this Section 8.3 incidental to the registration of any of its
securities in connection with:
(a) Any Public Offering relating to employee benefit plans
or dividend reinvestment plans;
(b) Any Public Offering relating to the acquisition or
merger after the date of the Original Agreement by the Company or
any of its subsidiaries of or with any other businesses; or
(c) Any Public Offering initiated by the NatWest Investors
pursuant to Section 8.2A.1.
8.3.2. Payment of Expenses. The Company shall pay all reasonable
expenses of holders of Registrable Securities incurred in connection with
each registration of Registrable Securities requested pursuant to this
Section 8.3, other than underwriting discount and commission, if any, and
applicable stamp or transfer taxes, if any; provided, however, that the
Company shall not be required to pay in respect of the fees and expenses of
any attorneys or other advisers retained by such holders more than an
aggregate for all such holders of $25,000 in the case of each such
registration.
8.3.3. Additional Procedures. Holders of Shares participating in any
Public Offering pursuant to this Section 8.3 shall take all such actions
and execute all such documents and instruments that are reasonably
requested by the Company to effect the sale of their Shares in such Public
Offering, including, without limitation, being parties to the underwriting
agreement entered into by the Company and any other selling shareholders in
connection therewith and being liable in respect of the representations and
warranties by, and the other agreements (including customary selling
stockholder indemnifications and "lock-up" agreements) on the part of, the
Company and any other selling shareholders to and for the benefit of the
underwriters in such underwriting agreement; provided, however, that (i)
with respect to individual representations, warranties and agreements of
sellers of Shares in such Public Offering, the aggregate amount of such
liability shall not exceed such holder's net proceeds from such offering
and (ii) with respect to all other representations, warranties and
agreements of sellers of shares in such Public Offering, the aggregate
amount of such liability shall not exceed the lesser of (a) such holder's
pro rata portion of any such liability, in accordance with
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such holder's portion of the total number of Shares included in the
offering or (b) such holder's net proceeds from such offering.
8.4 Certain Other Provisions.
8.4.1. Underwriter's Cutback. In connection with any registration of
shares in an underwritten offering, the underwriter may determine that
marketing factors (including, without limitation, an adverse effect on the
per share offering price) require a limitation of the number of shares to
be underwritten. Notwithstanding any contrary provision of this Section 8
and subject to the terms of this Section 8.4.1, the underwriter may limit
the number of shares which would otherwise be included in such registration
by excluding any or all Registrable Securities from such registration (it
being understood that the number of shares which the Company seeks to have
registered in such registration shall not be subject to exclusion, in whole
or in part, under this Section 8.4.1). Upon receipt of notice from the
underwriter of the need to reduce the number of shares to be included in
the registration, the Company shall advise all holders of the Company's
securities that would otherwise be registered and underwritten pursuant
hereto, and the number of shares of such securities, including Registrable
Securities, that may be included in the registration shall be allocated in
the following manner, unless the underwriter shall determine that marketing
factors require a different allocation: shares, other than Registrable
Securities, requested to be included in such registration by shareholders
shall be excluded; and, if a limitation on the number of shares is still
required, the number of Registrable Securities that may be included in such
registration shall be allocated among the holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
which each such holder requested be registered in such registration. For
purposes of any underwriter cutback, all Registrable Securities held by any
holder of Registrable Securities which is a partnership, corporation or
limited liability company shall also include any Registrable Securities
held by the partners, retired partners, shareholders, members or affiliated
entities of such holder, or the estates and family members of any such
partners, retired partners and members and any trusts for the benefit of
any of the foregoing persons, and such holder and other persons shall be
deemed to be a single selling holder, and any pro rata reduction with
respect to such selling holder shall be based upon the aggregate amount of
Registrable Securities owned by all entities and individuals included in
such selling holder, as defined in this sentence. No securities excluded
from the underwriting by reason of the underwriter's marketing limitation
shall be included in such registration. If any holder of Registrable
Securities disapproves of the terms of the underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter.
The Registrable Securities so withdrawn shall also be withdrawn from
registration.
8.4.2. Other Actions. If and in each case when the Company is required
to use its best efforts to effect a registration of any Registrable
Securities as provided in this Section 8, the Company shall take
appropriate and customary actions in furtherance thereof, including,
without limitation: (i) promptly filing with the Commission a
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registration statement and using reasonable efforts to cause such
registration statement to become effective, (ii) preparing and filing with
the Commission such amendments and supplements to such registration
statements as may be required to comply with the Securities Act and to keep
such registration statement effective for a period not to exceed 270 days
(or 60 days in the case of a registration statement filed pursuant to
Section 8.2A) from the date of effectiveness or such earlier time as the
Registrable Securities covered by such registration statement shall have
been disposed of in accordance with the intended method of distribution
therefor or the expiration of the time when a prospectus relating to such
registration is required to be delivered under the Securities Act, (iii)
use its best efforts to register or qualify such Registrable Securities
under the state securities or "blue sky" laws of such jurisdictions as the
sellers shall reasonably request; provided, however, that the Company shall
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not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business in
any jurisdiction in which it would not otherwise be so subject; and (iv)
otherwise cooperate reasonably with, and take such customary actions as may
reasonably be requested by the holders of Registrable Securities in
connection with, such registration.
8.4.3. Selection of Underwriters and Counsel. The underwriters and
legal counsel to be retained in connection with any Public Offering shall
be selected by the Board or, in the case of an offering following a request
therefor under Section 8.1.1, the Initiating Investors.
8.4.4. Lock-Up. Without the prior written consent of the underwriters
managing the IPO, for a period beginning seven days immediately preceding and
ending on the 180th day following the effective date of the registration
statement used in connection with such offering, no holder of Shares (whether or
not a selling shareholder pursuant to such registration statement) shall
Transfer any Common Stock except pursuant to such registration statement or to a
Permitted Transferee in accordance with the terms of this Agreement. In the case
of any Public Offering that is not the IPO or effected pursuant to Section 8.2A,
each holder of Shares agrees to enter into a reasonable form of agreement,
approved by the Company, restricting the Transfer of any Common Stock for up to
90 days following the effective date of the registration statement used in
connection with such offering if the underwriters managing such Public Offering
demand such an agreement.
8.5 Indemnification and Contribution.
8.5.1. Indemnities of the Company. In the event of any registration of
any Registrable Securities or other debt or equity securities of the
Company or any of its subsidiaries under the Securities Act pursuant to
this Section 8 or otherwise, and in connection with any registration
statement or any other disclosure document produced by or on behalf of the
Company or any of its subsidiaries including, without limitation, reports
required and other documents filed under the Exchange Act, and other
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documents pursuant to which any debt or equity securities of the Company or
any of its subsidiaries are sold (whether or not for the account of the
Company or its subsidiaries), the Company will, and hereby do, and will
cause each of their respective subsidiaries, jointly and severally to,
indemnify and hold harmless each seller of Registrable Securities, any
Person who is or might be deemed to be a controlling Person of the Company
or any of its subsidiaries within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, their respective direct
and indirect partners, advisory board members, directors, officers,
trustees, members and shareholders, and each other Person, if any, who
controls any such seller or any such holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (each such
person being referred to herein as a "Covered Person"), against any losses,
claims, damages or liabilities, joint or several, to which such Covered
Person may be or become subject under the Securities Act, the Exchange Act,
any other securities or other law of any jurisdiction, the common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any registration statement under
the Securities Act, any preliminary prospectus or final prospectus included
therein, or any related summary prospectus, or any amendment or supplement
thereto, or any document incorporated by reference therein, or any other
such disclosure document (including without limitation reports and other
documents filed under the Exchange Act and any document incorporated by
reference therein) or other document or report, (ii) any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii)
any violation or alleged violation by the Company or any of its
subsidiaries of any federal, state, foreign or common law rule or
regulation applicable to the Company or any of its subsidiaries and
relating to action or inaction in connection with any such registration,
disclosure document or other document or report, and will reimburse such
Covered Person for any legal or any other expenses incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that neither the
Company nor any of its subsidiaries shall be liable to any Covered Person
in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, incorporated
document or other such disclosure document or other document or report, in
reliance upon and in conformity with written information furnished to the
Company or to any of its subsidiaries through an instrument duly executed
by such Covered Person specifically stating that it is for use in the
preparation thereof. The indemnities of the Company and of its subsidiaries
contained in this Section 8.5.1 shall remain in full force and effect
regardless of any investigation made by or on behalf of such Covered Person
and shall survive any transfer of securities.
8.5.2. Indemnities to the Company. The Company and any of its
subsidiaries may require, as a condition to including any securities in any
registration statement filed
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pursuant to this Section 8, that the Company and any of its subsidiaries
shall have received an undertaking satisfactory to it from the prospective
seller of such securities, to indemnify and hold harmless the Company and
any of its subsidiaries, each director of the Company or any of its
subsidiaries, each officer of the Company or any of its subsidiaries who
shall sign such registration statement and each other Person (other than
such seller), if any, who controls the Company and any of its subsidiaries
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act with respect to any statement in or omission from such
registration statement, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, or any other
disclosure document (including, without limitation, reports and other
documents filed under the Exchange Act or any document incorporated
therein) or other document or report, if such statement or omission was
made in reliance upon and in conformity with written information furnished
to the Company or any of its subsidiaries through an instrument executed by
such seller specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, incorporated document or other
document or report. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company, any of
its subsidiaries or any such director, officer or controlling Person and
shall survive any transfer of securities.
8.5.3. Indemnification Procedures. Promptly after receipt by a Person
entitled to indemnification pursuant to the foregoing provisions of this
Section 8.5 (an "Indemnitee") of notice of the commencement of any action
or proceeding involving a claim of the type referred to in the foregoing
provisions of this Section 8.5, such Indemnitee will, if a claim in respect
thereof is to be made by such Indemnitee against any indemnifying party,
give written notice to each such indemnifying party of the commencement of
such action; provided, however, that the failure of any Indemnitee to give
notice to such indemnifying party as provided herein shall not relieve any
indemnifying party of its obligations under the foregoing provisions of
this Section 8.5, except and solely to the extent that such indemnifying
party is actually and materially prejudiced by such failure to give notice.
In case any such action is brought against an Indemnitee, each indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory to such Indemnitee
(who shall not, except with the consent of the Indemnitee, be counsel to
such an indemnifying party), and after notice from an indemnifying party to
such Indemnitee of its election so to assume the defense thereof, such
indemnifying party will not be liable to such Indemnitee for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof; provided, however, that (i) if the Indemnitee reasonably
determines that there may be a conflict between the positions of such
indemnifying party and the Indemnitee in conducting the defense of such
action or if the Indemnitee reasonably concludes that representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, then counsel for the Indemnitee
shall conduct the defense to the extent reasonably
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determined by such counsel to be necessary to protect the interests of the
Indemnitee and such indemnifying party shall employ separate counsel for
its own defense, (ii) in any event, the Indemnitee shall be entitled to
have counsel chosen by such Indemnitee participate in, but not conduct, the
defense and (iii) the indemnifying party shall bear the legal expenses
incurred in connection with the conduct of, and the participation in, the
defense as referred to in clauses (i) and (ii) above. If, within a
reasonable time after receipt of the notice, such indemnifying party shall
not have elected to assume the defense of the action, such indemnifying
party shall be responsible for any legal or other expenses incurred by such
Indemnitee in connection with the defense of the action, suit,
investigation, inquiry or proceeding. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnitee of a release from all liabilities in respect of such claim
or litigation.
8.5.4. Contribution. If the indemnification provided for in Sections
8.5.1 or 8.5.2 hereof is unavailable to a party that would have been an
Indemnitee under any such Section in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such Indemnitee, contribute to
the amount paid or payable by such Indemnitee as a result of such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative fault
of such indemnifying party on the one hand and such Indemnitee on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or such
Indemnitee and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The parties agree that it would not be just or equitable if
contribution pursuant to this Section 8.5.4 were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentence. The
amount paid or payable by a contributing party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8.5.4 shall include any legal or
other expenses reasonably incurred by such Indemnitee in connection with
investigating or defending any such action or claim. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
8.5.5. Limitation on Liability of Holders of Registrable Securities.
The liability of each holder of Registrable Securities in respect of any
indemnification or contribution obligation of such holder arising under
this Section 8.5 shall not in any event exceed an amount equal to the net
proceeds to such holder (after deduction of all
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underwriters' discounts and commissions) from the disposition of the
Registrable Securities disposed of by such holder pursuant to such
registration.
9. TRANSFERS TO OTHER HOLDERS. Shares Transferred by a holder of Shares to
another holder of Shares under this Agreement shall be deemed for all purposes
hereof to be Investor Shares, Other Shares, Management Shares or Employee Shares
hereunder, as the case may be, of like kind with the other Shares held by such
acquiring holder.
10. REMEDIES.
10.1. Generally. The Company and each holder of Shares shall have all
remedies available at law, in equity or otherwise in the event of any breach or
violation of this Agreement or any default hereunder by the Company or any
holder of Shares. The parties acknowledge and agree that in the event of any
breach of this Agreement, in addition to any other remedies which may be
available, each of the parties hereto shall be entitled to specific performance
of the obligations of the other parties hereto and, in addition, to such other
equitable remedies (including, without limitation, preliminary or temporary
relief) as may be appropriate in the circumstances.
10.2. [RESERVED]
11. LEGENDS.
11.1. [Reserved].
11.2. 1933 Act Legends. Each certificate representing Shares shall have the
following legend endorsed conspicuously thereupon:
The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of 1933,
as amended (the "Act"), and may not be sold, assigned, pledged or otherwise
transferred in the absence of an effective registration under the Act
covering the transfer or an opinion of counsel, satisfactory to the issuer,
that registration under the Act is not required.
11.3. Stop Transfer Instruction. The Company will instruct any transfer
agent not to register the Transfer of any Shares until the conditions specified
in the foregoing legend is satisfied.
11.4. Termination of Certain Restrictions. The legend set forth in Section
11.2 shall cease to be required as to any particular Shares (i) when, in the
opinion of Ropes & Gray, or other counsel reasonably acceptable to the Company,
such restrictions are no longer required in order to assure compliance with the
Securities Act or (ii) when such Shares have been effectively registered under
the Securities Act or transferred pursuant to Rule 144. Wherever (i) such
restrictions shall cease and terminate as to any Shares or (ii) such Shares
shall be
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transferable under paragraph (k) of Rule 144, the holder thereof shall
be entitled to receive from the Company, without expense, new certificates not
bearing the legend set forth in Section 11.2 hereof.
12. AMENDMENT, TERMINATION, ETC.
12.1. Oral Modifications. This Agreement may not be orally amended,
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
12.2. Written Modifications. This Agreement may be amended, modified,
extended or terminated, and the provisions hereof may be waived, only by an
agreement in writing signed by the Majority Investors; provided, however, that
(a) the consent of the Majority Other Holders shall be required for any
amendment, modification, extension, termination or waiver which has a material
adverse effect on the rights or obligations of the holders of Other Shares as
such under this Agreement, (b) the consent of the Majority Managers shall be
required for any amendment, modification, extension, termination or waiver which
has a material adverse effect on the rights or obligations of the holders of
Management Shares as such under this Agreement, (c) the consent of the Majority
Employees shall be required for any amendment, modification, extension,
termination or waiver which has a material adverse effect on rights or
obligations of the holders of Employee Shares as such under this Agreement (d)
the consent of holders of a majority of the Shares originally issued to the
NatWest Investors and the MCM Managers shall be required for any amendment,
modification, extension, termination or waiver which has a material adverse
effect on their rights or obligations under Section 8.2A of this Agreement and
(e) the consent of the Majority Lenders shall be required for any amendment,
modification, extension, termination or waiver which has a material adverse
effect on the rights or obligations of the holders of Lender Shares as such
under this Agreement. Each such amendment, modification, extension, termination
and waiver shall be binding upon each party hereto and each holder of Shares
subject hereto. In addition, each party hereto and each holder of Shares
subject hereto may waive any right hereunder by an instrument in writing signed
by such party or holder.
12.3. Termination. No termination under this Agreement shall relieve any
Person of liability for breach prior to termination.
12.4. Additional Parties. In appropriate circumstances, the Company may
require certain other Persons to which Common Stock is issued to execute
counterparts hereto to become bound hereby. Such counterparts shall indicate
the designation of Shares issued to such Persons.
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13. DEFINITIONS. For purposes of this Agreement:
13.1. Certain Matters of Construction. In addition to the definitions
referred to or set forth below in this Section 13:
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(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof;
(b) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined;
(c) The masculine, feminine and neuter genders shall each include the
other; and
(d) References to the date hereof shall be deemed to be references to
the date of the Original Agreement.
13.2. Definitions. The following terms shall have the following meanings:
"Affiliate" shall mean, with respect to any specified Person, any
other Person which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person (for the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise).
"Agreement" shall have the meaning set forth in the Preamble.
"Board" shall mean the board of directors of the Company.
"Class A Stock" shall mean the Class A common stock, par value $.01,
of the Company prior to the Merger.
"Class L Stock" shall mean the Class L common stock, par value $.01,
of the Company prior to the Merger.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the Class A Stock, the Class L Stock and the
Delaware Common Stock.
"Company" shall have the meaning set forth in the Preamble.
"Convertible Securities" shall mean any evidence of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable or exercisable for shares of
Common Stock.
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"Covered Person" shall have the meaning set forth in Section 8.5.1.
"Delaware Common Stock" shall have the meaning set forth in the
Recitals.
"Employee Shares" shall mean (i) all shares of Common Stock (other
than shares of Restricted Common Stock or Common Stock issued pursuant to
the exercise of any Option) originally issued to, or issued with respect to
shares originally issued to, or held by, an Employee, whenever issued and
(ii) for all purposes of this Agreement, all Options (treating such Options
as a number of Shares equal to the number of Equivalent Shares represented
by such Options), all shares of Common Stock issued pursuant to the
exercise of any Option and all shares of Restricted Common Stock originally
granted or issued to, or issued with respect to shares or options
originally issued to, or held by, an Employee, whenever issued.
"Employees" shall have the meaning set forth in the Recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect from time to time.
"Indemnitee" shall have the meaning set forth in Section 8.5.3.
"Independent Investment Banking Firm" shall mean a nationally
recognized investment banking firm selected by the Board which does not
hold any equity interest in the Company or in any shareholder of the
Company and which is not employed by either the Company or the Investor at
the time the applicable fairness opinion is furnished (other than
employment for the purpose of providing such fairness opinion).
"Initial Public Offering" means the initial Public Offering registered
on Form S-1 (or any successor form under the Securities Act).
"Initiating Investors" shall have the meaning set forth in Section
8.1.1.
"Initiating Other Investors" shall have the meaning set forth in
Section 8.2.1.
"Investor Shares" shall mean (i) all shares of Common Stock (other
than shares of Common Stock issued pursuant to the exercise of any Option)
originally issued to, or issued with respect to shares originally issued
to, or held by, any Investor, whenever issued and (ii) for all purposes of
this Agreement, all Options (treating such Options as a number of Shares
equal to the number of Equivalent Shares represented by such Options) and
all shares of Common Stock issued pursuant to the exercise of any Option
originally granted or issued to, or issued with respect to shares or
options originally issued to, or held by, an Investor, whenever issued.
"Investors" shall have the meaning set forth in the Preamble.
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"Lender Shares" shall mean (i) all shares of Common Stock issued
pursuant to the exercise of any Lender Warrant or other Option originally
granted or issued to, or issued with respect to shares or options
originally issued to, or held by, a Lender, whenever issued.
"Lender Warrants" shall mean the warrants issued under the Warrant
Agreements to acquire Common Stock.
"Lenders" shall have the meaning set forth in the Preamble.
"Majority Employees" shall mean, as of any date, the holders of a
majority of the Employee Shares outstanding on such date.
"Majority Investors" shall mean, as of any date, the holders of a
majority of the Investor Shares outstanding on such date.
"Majority Lenders" shall mean, as of any date, the holders of a
majority of the Lender Shares outstanding on such date.
"Majority Managers" shall mean, as of any date, the holders of a
majority of the Management Shares outstanding on such date.
"Majority Other Holders" shall mean, as of any date, the holders of a
majority of Other Shares outstanding on such date.
"Majority Participating Investors" shall have the meaning set forth in
Section 8.1.1.
"Majority Participating Other Investors" shall mean holders of at
least a majority of the Registrable Other Securities to be included in any
given proposed registration statement.
"Management Shares" shall mean (i) all shares of Common Stock (other
than shares of Restricted Common Stock or Common Stock issued pursuant to
the exercise of any Option) originally issued to, or issued with respect to
shares originally issued to, or held by, a Manager, whenever issued and
(ii) for all purposes of this Agreement, all Options (treating such Options
as a number of Shares equal to the number of Equivalent Shares represented
by such Options), all shares of Common Stock issued pursuant to the
exercise of any Option and all shares of Restricted Common Stock originally
granted or issued to, or issued with respect to shares or options
originally issued to, or held by, a Manager, whenever issued.
"Managers" shall have the meaning set forth in the Preamble.
"MCM" shall have the meaning set forth in the Recitals.
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"MCM Managers" shall have the meaning set forth in the Recitals.
"Merger" shall have the meaning set forth in the Recitals.
"NatWest Investors" shall have the meaning set forth in the Recitals.
"Options" shall mean any options or warrants (including without
limitation the Lender Warrants) to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities.
"Other Investors" shall have the meaning set forth in the Preamble.
"Other Shares" shall mean (i) all shares of Common Stock (other than
shares of Common Stock issued pursuant to the exercise of any Option)
originally issued to, or issued with respect to shares originally issued
to, or held by, an Other Investor, whenever issued and (ii) for all
purposes of this Agreement, all Options (treating such Options as a number
of Shares equal to the number of Equivalent Shares represented by such
Options) and all shares of Common Stock issued pursuant to the exercise of
any Option originally granted or issued to, or issued with respect to
shares or options originally issued to, or held by, an Other Investor,
whenever issued.
"Person" shall mean any individual, partnership, corporation, company,
association, trust, joint venture, unincorporated organization, entity or
division, or any government, governmental department or agency or political
subdivision thereof.
"Public Offering" shall mean a public offering and sale of Common
Stock for cash pursuant to an effective registration statement under the
Securities Act.
"Registrable Investor Securities" shall have the meaning set forth in
Section 8.1.1.
"Registrable Other Securities" shall have the meaning set forth in
Section 8.2.1.
"Registrable Securities" shall mean (i) all shares of Class A Stock,
(ii) all shares of Class A Stock issuable upon conversion of Shares of
Class L Stock, (iii) all shares of Class A Stock issuable upon exercise of
any Option or any Warrant, (iv) all shares of Delaware Common Stock issued
in the Merger, (v) all shares of Common Stock issued to the NatWest
Investors or the MCM Managers in consideration of their interests in MCM,
and (vi) all shares of Class A Stock or Delaware Common Stock directly or
indirectly issued or issuable with respect to the securities referred to in
clauses (i), (ii), (iii), (iv) or (v) above by way of stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, in each
case which (a) constitute Shares or (b) are the subject of a separate
registration rights agreement. As to any particular Registrable
Securities, such shares shall cease to
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be Registrable Securities when (a) a registration statement with respect to
the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) such securities shall have
been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) subject to the provisions of
Section 11 hereof, such securities shall have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent disposition of them
shall not require registration of them under the Securities Act or such
securities may be distributed without volume limitation or other
restrictions on transfer under Rule 144 (including without application of
paragraphs (c), (e) (f) and (h) of Rule 144), or (d) such securities shall
have ceased to be outstanding.
"Regulation D" shall mean Regulation D under the Securities Act.
"Restricted Common Stock" shall mean Shares issued or sold to Managers
(other than the MCM Managers) with respect to which there are restrictions
on Transfer independent of this Agreement.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Rule 145 Transaction" shall mean a registration on Form S-4 pursuant
to Rule 145 of the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as in effect
from time to time.
"Shares" shall mean all Investor Shares, Lender Shares, Other Shares,
Management Shares and Employee Shares.
"Stockholders" shall have the meaning set forth in the Preamble.
"Transfer" shall mean any sale, pledge, assignment, encumbrance or
other transfer or disposition of any Shares to any other Person, whether
directly, indirectly, voluntarily, involuntarily, by operation of law,
pursuant to judicial process or otherwise.
"Warrant Agreements" shall mean those certain Warrant Agreements, each
dated as of the date of the Original Agreement, as amended, between the
Company and ChaseMellon Shareholder Services, L.L.C., as Warrant Agent.
14. MISCELLANEOUS.
14.1. Authority; Effect. Each party hereto represents and warrants to and
agrees with each other party that the execution and delivery of this Agreement
and the consummation of
-22-
<PAGE>
the transactions contemplated hereby have been duly authorized on behalf of such
party and do not violate any agreement or other instrument applicable to such
party or by which its assets are bound. This Agreement does not, and shall not
be construed to, give rise to the creation of a partnership among any of the
parties hereto, or to constitute any of such parties members of a joint venture
or other association.
14.2. Transactions with Affiliates. Prior to the consummation of a
transaction with an Affiliate of an Investor involving consideration of more
than $10 million, the Company will secure a fairness opinion from an Independent
Investment Banking Firm as to the fairness of such transaction to the Company
from a financial point of view.
14.3. Notices. Any notices and other communications required or permitted
in this Agreement shall be effective if in writing and (a) delivered personally
or (b) sent (i) by Federal Express, DHL or UPS, delivery charges prepaid or (ii)
by registered or certified mail, return receipt requested, postage prepaid, in
each case, addressed as follows:
If to the Company or the Investors, to them:
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Steve Pagliuca
Ed Conard
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Alfred O. Rose
If to an Other Investor, a Manager, an Employee or a Lender, to it at
the address set forth on the records of the Company.
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date received, if personally delivered, (b)
two business days after being sent by Federal Express, DHL or UPS and (c) three
business days, if sent by registered or certified mail. Each of the parties
hereto shall be entitled to specify a different address by giving notice as
aforesaid to each of the other parties hereto.
14.4. Binding Effect, etc. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, supersedes all prior or
contemporaneous oral or
-23-
<PAGE>
written agreements or discussions with respect to such subject matter, and shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
14.5. Descriptive Headings. The descriptive headings of this Agreement are
for convenience of reference only, are not to be considered a part hereof and
shall not be construed to define or limit any of the terms or provisions hereof.
14.6. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
14.7. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, such provision shall
be construed by modifying or limiting it so as to be valid and enforceable to
the maximum extent compatible with, and possible under, applicable law. The
provisions hereof are severable, and in the event any provision hereof should be
held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
15. GOVERNING LAW.
15.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Delaware without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
-24-
<PAGE>
Stockholders Agreement
2000
-------------,
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE INVESTORS: BAIN CAPITAL FUND V, L.P.
BAIN CAPITAL FUND V-B, L.P.
By Bain Capital Partners V, L.P.,
their general partner
By Bain Capital Investors V, Inc.,
its general partner
By______________________________________
Title: Managing Director
BCIP ASSOCIATES
BCIP TRUST ASSOCIATES, L.P.
By__________________________________
Title: a general partner
<PAGE>
Stockholders Agreement
2000
-------------,
THE OTHER INVESTORS: CELERITY DYNAMO, L.L.C.
By__________________________
its
CELERITY LIQUIDS, L.L.C.
By__________________________
its
CELERITY DETAILS, L.L.C.
By__________________________
its
<PAGE>
Stockholders Agreement
2000
-------------,
OTHER INVESTORS:
CHASE MANHATTAN CAPITAL, L.P.
By_____________________________
its
CHASE SECURITIES INC.
By____________________________
its
DI INVESTORS, L.L.C.
By___________________________
its
<PAGE>
Stockholders Agreement
2000
-------------,
LENDERS: CHASE SECURITIES INC.
By_________________________
Title:
CHASE MANHATTAN CAPITAL, L.P.
By_________________________
Title:
<PAGE>
Stockholders Agreement
2000
-------------,
MANAGERS:
__________________________
Charles D. Dimick
__________________________
Bruce D. McMaster
__________________________
Joseph P. Gisch
<PAGE>
EXHIBIT 4.2
[DDi Logo] Dynamic
Details
Incorporated
"The global time to market solution"
THIS CERTIFICATE IS TRANSFERABLE IN THE CITIES OF
RIDGEFIELD, NJ AND NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 233162 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON
STOCK, $0.01 PAR VALUE PER SHARE, OF
DDi CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated:
Bruce D. McMaster Joseph P. Gisch
PRESIDENT & CEO CHIEF FINANCIAL OFFICER
DDi CORP
DELAWARE
SEAL
2000
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
DDi CORP.
A statement of the rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of shares and upon the holders
thereof as established by the Articles of Incorporation of the Corporation and
by any certificate of determination, and the number of shares constituting each
class or series and the designations thereof, may be obtained by any shareholder
of the Corporation upon written request and without charge from the Secretary of
the Corporation at its corporate headquarters.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM = as tenants in common
TEN ENT = as tenants by the entireties
JT TEN = as joint tenants with rights of survivorship and not as tenants in
common
UNIF GIFT MIN ACT-_________________Custodian__________________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________________________________
(State)
UNIF TRF MIN ACT-__________________ Custodian (until age__________)
(Cust)
____________________ under Uniform Transfers
to Minors Act______________________________________
(State)
For value received,__________________________hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFYING NUMBER OF ASSIGNEE
[______________________________________________]
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney,
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________, ____ X____________________________
X____________________________
Notice: The signature(s) to this assignment must correspond with the name(s)
written upon the face of this Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature(s) Guaranteed
By______________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-16.
<PAGE>
EXHIBIT 5.1
[ROPES & GRAY LETTERHEAD]
April 6, 2000
DDi Corp.
DDi Merger Co.
1220 Simon Circle
Anaheim, CA 92806
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-1 (the "Registration Statement"), filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, for the
registration of 14,687,500 shares of Common Stock, $.01 par value (the
"Shares"), of DDi Merger Co., a Delaware corporation (the "Company"). The Shares
are to be sold pursuant to an underwriting agreement (the "Underwriting
Agreement") to be entered into among DDi Corp., a California corporation, the
Company and Credit Suisse First Boston Corporation, as representative of the
underwriters named therein.
We have acted as counsel for the Company in connection with its proposed
issuance and sale of the Shares. For purposes of this opinion, we have examined
and relied upon such documents, records, certificates and other instruments as
we have deemed necessary.
We express no opinion as to the applicability of compliance with or effect
of Federal law or the law of any jurisdiction other than The Commonwealth of
Massachusetts and the corporate laws of the State of Delaware.
Based on the foregoing, we are of the opinion that the shares have been
duly authorized and, when the Shares have been issued and sold and the Company
has received the consideration in accordance with the terms of the Underwriting
Agreement, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters".
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Very truly yours,
Ropes & Gray
<PAGE>
Exhibit 10.36
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Merger Agreement") dated as of
April ___, 2000, is by and between DDi Corp., a California corporation (the
"Parent"), and DDi Merger Co., a Delaware corporation that is a wholly owned
subsidiary of the Parent (the "Subsidiary").
The Parent's Board of Directors has determined that it is advisable and in
the best interests of the Parent and its stockholders to reincorporate the
Parent as a Delaware corporation. The purpose of this Merger Agreement is to
effect such reincorporation through the merger of the Parent with and into the
Subsidiary.
The parties agree as follows:
1. THE MERGER. The Parent shall be merged with and into the Subsidiary
in accordance with this Merger Agreement, the Delaware General Corporation Law,
and the California Corporations Code (the "Merger"). From and after the
Effective Time (as defined in Section 2 below), the separate existence of the
Parent shall terminate and the Subsidiary shall continue in existence as the
surviving corporation (the "Surviving Corporation"). The Surviving Corporation
shall be governed by the laws of the State of Delaware.
2. EFFECTIVE TIME OF MERGER. Following (i) the requisite approval of the
Merger and this Merger Agreement by the shareholders of the Parent and (ii) the
execution and filing of a Certificate of Ownership and Merger pursuant to
Section 253 of the Delaware General Corporation Law and Section 1110 of the
California Corporations Code, the Merger shall become effective immediately
prior to the initial public offering of the Common Stock, $.01 par value, of the
Surviving Corporation (the "Effective Time").
3. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.
From and after the Effective Time, the Certificate of Incorporation (including
without limitation the authorized capital stock set forth therein) and the by-
laws of the Subsidiary shall be the Certificate of Incorporation and by-laws,
respectively, of the Surviving Corporation. Article I of the Certificate of
Incorporation of the Surviving Corporation shall, by effect of the Merger, be
amended to read as follows:
"The name of this corporation is "DDi Corp." (hereinafter referred to as
the "Corporation")."
4. DIRECTORS AND OFFICERS. From and after the Effective Time, the
respective directors and officers of the Subsidiary shall continue in office as
the directors and officers of the Surviving Corporation, subject to the
provisions of the Certificate of Incorporation and by-laws of the Surviving
Corporation.
<PAGE>
5. TREATMENT OF CAPITAL STOCK.
(a) Outstanding Capital Stock. The designation and number of outstanding
shares of each class and series of the capital stock of the Parent and the
Subsidiary, respectively, are as follows as of December 31, 1999:
No. of Shares
Designation Outstanding
----------- -----------
Parent: Class A-1 Common Stock, 283,216.6591
No Par Value
Class A-2 Common Stock, 619,347.3991
No Par Value
Class A-3 Common Stock, 923,268.2304
No Par Value
Class A-4 Common Stock, 449,079.4109
No Par Value
Class A-5 Common Stock, 1,111,870.9956
No Par Value
Class A-6 Common Stock, 135,310.9028
No Par Value
Class A-7 Common Stock, none
No Par Value
Class L Common Stock, 396,330.2076
No Par Value
Subsidiary: Common Stock 100
.01 par value$
(b) Conversion Ratio. For purposes of this Agreement, the Conversion Ratio
shall equal a fraction, (i) the numerator of which is the number of shares of
Class A-1 Common Stock of the Parent which would be outstanding immediately
prior to the Effective Time if the shares of the Parent's capital stock set
forth in clause (a) above (and only such shares) were reclassified in the manner
described in clause (c) below and (ii) the denominator of which is 24,750,000.
(c) Reclassification of Shares of the Parent's Capital Stock. Immediately
prior to the Effective Time, subject to the affirmative vote of (x) a majority
of the outstanding
2
<PAGE>
shares of Class L Common Stock of the Parent, voting as a single class and (y) a
majority of the outstanding shares of Class A-2 Common Stock, Class A-3 Common
Stock, Class A-4 Common Stock, Class A-5 Common Stock, Class A-6 Common Stock
and Class A-7 Common Stock of the Parent, voting as a single class,
(i) each share of the Class L Common Stock of the Parent that is then
issued and outstanding shall be converted into and become a number of
fully paid and non-assessable shares of Class A-1 Common Stock of the
Parent determined in accordance with Article 3.8 of the Parent's
Restated and Amended Articles of Incorporation, based on the
Applicable Price Per Share (as defined in the Parent's Restated and
Amended Articles of Incorporation) as determined by reference to the
public offering price of the Common Stock of the Surviving Corporation
established by the joint Pricing Committee of the Boards of Directors
of the Parent and the Subsidiary; and
(ii) each share of Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6 and Class A-7 Common Stock of the Parent that is then issued and
outstanding shall be converted into and become one share of fully paid
and non-assessable share of Class A-1 Common Stock, no par value, of
the Parent in accordance with Article 3.9 of the Parent's Restated and
Amended Articles of Incorporation.
(d) Treatment of Parent's Capital Stock in the Merger. As of the
Effective Time, automatically and without further actions,
(i) each share of Class A-1 Common Stock of the Parent that is issued
and outstanding immediately before the Effective Time (after giving
effect to clause (c) above) shall be converted into and become a
number of fully paid and non-assessable shares of the Common Stock of
the Surviving Corporation equal to the Conversion Ratio;
(iii) pursuant to Section 155 of the Delaware General Corporation
Law, each fractional share of the Surviving Corporation's capital
stock that is issued and outstanding shall be redeemable by the
Surviving Corporation for cash in an amount to be determined by
multiplying such fraction of a share by the initial public offering
price per share;
(ii) all treasury shares of the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-7 and Class L Common Stock of the
Parent shall be retired and canceled; and
(iv) all outstanding options and warrants to purchase shares of the
Parent's capital stock shall be converted into options and warrants to
acquire such full number of shares of Common Stock of the Surviving
Corporation (rounded down to the nearest full share) as the holders of
such options and warrants
3
<PAGE>
would have acquired in the Merger had the options and warrants been
exercised immediately prior to the reclassification described in
clause (b) above with appropriate adjustments to the exercise price to
reflect the effect of such reclassification and the Merger.
(e) Cancellation of Shares of the Subsidiary's Capital Stock. As of the
Effective Time, automatically and without further actions, each share of the
Subsidiary's capital stock that was issued and outstanding or held in treasury
immediately before the Effective Time shall be canceled and returned to the
status of an authorized but unissued share of capital stock.
(f) Exchange of Certificates. From and after the Effective Time, the
certificates formerly representing shares of the Parent's capital stock that
have been converted into shares of the Surviving Corporation's capital stock in
accordance with this Merger Agreement shall thereafter represent the shares of
the Surviving Corporation's capital stock into which the shares of the Parent's
capital stock formerly represented thereby have been so converted, regardless of
whether such certificates are surrendered to the Surviving Corporation,
provided, however, that the Surviving Corporation shall not be obligated to
issue new certificates evidencing such shares of its capital stock unless and
until the old certificates are either delivered to the Surviving Corporation, or
in any particular case the registered holder thereof notifies the Surviving
Corporation that such certificates have been lost, stolen, or destroyed and
executes an agreement satisfactory to the Surviving Corporation to indemnify the
Surviving Corporation and its officers, directors, employees, agents, and
representatives, including without limitation its transfer agent(s), from and
against any loss or damage incurred in connection therewith.
6. AVAILABILITY OF MERGER AGREEMENT. An original or attested copy of
this Merger Agreement shall be kept on file at the principal executive office of
the Surviving Corporation and shall be available for inspection and copying by
any stockholder of the Surviving Corporation upon request and without charge.
7. AMENDMENT. Except to the extent prohibited by applicable law, any of
the terms and conditions of this Merger Agreement may be waived at any time by
the party entitled to the benefits thereof, and this Merger Agreement may be
amended or otherwise modified at any time by action of the respective Boards of
Directors of the Parent and the Subsidiary, in each case notwithstanding the
approval hereof by the respective stockholders of the Parent or the Subsidiary
or both.
8. TERMINATION OR ABANDONMENT. This Merger Agreement and the Merger may
be terminated and/or abandoned at any time before the Effective Time, and/or the
consummation of the Merger may be deferred for a reasonable period (not to
exceed twelve months), by action of the respective Boards of Directors of the
Parent and the Subsidiary, notwithstanding the approval hereof or thereof by the
respective stockholders of the Parent or the Subsidiary or both. In the event
of any termination or abandonment of this Merger Agreement and the Merger, this
Merger Agreement shall become void and
4
<PAGE>
of no effect, without any liability on the part of either party or its
stockholders, directors, or officers or any other person or entity.
9. MISCELLANEOUS.
(a) Counterparts. This Merger Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement. In pleading or proving this Agreement, it
shall not be necessary to produce or account for more than one counterpart of
this Merger Agreement duly executed by the party to be charged.
(b) Captions. The captions of sections of this Merger Agreement are for
convenience of reference only, and shall not affect the interpretation or
construction of this Merger Agreement.
(c) Binding Effect and Benefits; No Third-Party Beneficiaries. This
Agreement shall bind and inure to the benefit of the Parent and the Subsidiary
and their respective successors-in-interest. Nothing in this Merger Agreement
shall confer any rights or remedies on any person or entity other than the
Parent and the Subsidiary and their respective successors-in-interest.
(d) Governing Law. This Merger Agreement shall be governed by and
interpreted and construed in accordance with the internal laws of the State of
Delaware (without reference to principles of conflicts or choice of law).
[REMAINDER OF PAGE INTENTIONALLY BLANK]
5
<PAGE>
Executed and delivered as an agreement under seal as of the date first above
written.
DDi CORP., DDi MERGER CO.,
a California corporation a Delaware corporation
By: By:
---------------------------- ----------------------------
--------------------- ---------------------
President President
By: By:
---------------------------- ----------------------------
--------------------- ---------------------
Secretary Secretary
<PAGE>
Exhibit 10.38
SHARE PURCHASE AGREEMENT
DATED , 2000
BETWEEN:
1. NATWEST EQUITY PARTNERS LIMITED whose registered office is at 135
Bishopsgate, London EC2M 3UR (registered in England and Wales No. 3220373)
("NWEP"); and
2. THE EUROPEAN PRIVATE EQUITY FUND, THE EUROPEAN PRIVATE EQUITY FUND "B",
THE EUROPEAN PRIVATE EQUITY FUND "C", THE EUROPEAN PRIVATE EQUITY FUND
"D", NATWEST EQUITY PARTNERS NO. 5 FUND, NATWEST EQUITY PARTNERS NO. 4
FUND AND THE NATWEST EQUITY PARTNERS PARTNERSHIP, each of which is an
English limited partnership having its principal place of business at 7th
and 8th floors, 101 Finsbury Pavement, London EC2A 1EJ and NATWEST EQUITY
PARTNERS CO-INVESTMENT PLAN LIMITED, a company incorporated in Guernsey
whose registered office is at 13-15 Victoria Road, St. Peter Port,
Guernsey (the "Beneficial Owners"); and
3. NATWEST VENTURES NOMINEES LIMITED whose registered office is 135
Bishopsgate, London EC2M 3UR (registered in England and Wales No. 03139614
("Natwest Nominees"); and
4. MR. M. MALONE of Old Market House, Station Road, Beckford,
Gloucestershire, GL20 7AN, MR. M. GLANFIELD of Weston House,
Welford-on-Avon, Warwickshire, CV7 8EH and MR. J. CALVERT of Braeburn
House, 2 Nine Squares, Eckington, Nr. Pershore, Worcestershire, WR10 3PZ
(the "Managers"); and
5. BANK OF SCOTLAND of Bank House, 8 Cherry Street, Birmingham, B2 5AD
("BOS"); and
6. All those holders of B ordinary shares in the capital of the Company whose
names are set out in Schedule 5 (the "B Shareholders"); and
7. BRYONIE GLANFIELD of Weston House, Welford-on-Avon, Warwickshire CV37 8EH,
JEANNE CATHERINE GLANFIELD of 22 Salcote Road, Gravesend, Kent, DA12 4RB,
LESLIE JAMES GLANFIELD of 22 Salcote Road, Gravesend, Kent, DA12 4RB,
OLIVE BANKS of 88 Paygrove Lane, Longlevens, Gloucester, HENRY FREDERICK
BANKS of 88 Paygrove Lane, Longlevens, Gloucester, CHRISTINE MALONE of The
Old Market House, Station Road, Beckford, Tewkesbury, Gloucestershire,
GL20 7AN, RYAN MALONE of The Old Market House, Station Road, Beckford,
Tewkesbury, Gloucestershire GL20 7AN, DARREN MALONE of The Old Market
House, Station Road, Beckford, Tewkesbury, Gloucestershire, GL20 7AN and
KATHERINE MARY CALVERT of Braeburn House, 2 Ninesquares, Eckington, Nr.
Pershore, Worcestershire WR10 3PZ (the "Managers' Family Parties"); and
<PAGE>
2
8. DDi CORP. of 1220 Simon Circle, Anaheim, California 92806 (incorporated in
California but intended to be re-incorporated in Delaware, USA) (the
"Purchaser").
WHEREAS:
NWEP has agreed to procure the sale of, the Sellers (as defined in this
Agreement) have agreed to sell and the Purchaser has agreed to purchase and pay
for the Shares (as defined in this Agreement) on the terms and subject to the
conditions of this Agreement.
WHEREBY IT IS AGREED as follows:
1. INTERPRETATION
(A) Certain words and expressions used in this Agreement are defined in
Schedule 1.
(B) The Schedules form part of this Agreement and shall have the same force
and effect as if set out in the body of this Agreement and any reference
to this Agreement shall include the Schedules.
(C) The parties acknowledge that DDi Corp., incorporated in California USA,
intends to merge with and into DDi Corp., incorporated in Delaware USA,
immediately prior to the IPO and prior to Completion and the issue of the
Consideration Shares and that from and after the effectiveness of such
merger the term "Purchaser" shall refer to DDi Corp., incorporated in
Delaware USA, the surviving corporation of such merger.
2. SALE AND PURCHASE
(A) On the terms and subject to the conditions set out in this Agreement, NWEP
shall procure the sale of the Shares, each of the Sellers shall sell or
procure the sale of the Shares set forth opposite its name in Schedule 5
and the Purchaser shall purchase the Shares as at and with effect from
Completion together with all rights attached or accruing to them at
Completion.
(B) Each of the Managers has the right to transfer the legal and beneficial
title to the Shares set forth opposite his name in Schedule 5.
(C) NatWest Nominees has the right to transfer the legal title, and the
Beneficial Owners have the right to transfer the beneficial title to the
Shares set forth opposite their names in Schedule 5.
(D) BOS will on Completion have the right to transfer the legal and beneficial
title to the Shares set forth opposite its name in Schedule 5.
(E) Each B Shareholder has the right to transfer the legal and beneficial
title to the Shares set forth opposite its name in Schedule 5.
<PAGE>
3
(F) Each of the Managers' Family Parties has the right to transfer the legal
and beneficial title to the Shares set forth opposite his or her name in
Schedule 5.
(G) The Shares shall be sold with full title guarantee and free from all
liens, charges and encumbrances.
(H) The Purchaser shall be entitled to exercise all rights attached or
accruing to the Shares including, without limitation, the right to receive
all dividends, distributions or any return of capital declared, paid or
made by the Company on or after the Completion Date.
(I) The Sellers waive all rights of pre-emption over any of the Shares
conferred upon them by the articles of association of the Company or in
any other way.
3. CONDITIONS
(A) The obligations of the Purchaser under this Agreement are conditional in
all respects upon:
(i) the Purchaser's registration statement (No. 333-95623) filed with
the US Securities and Exchange Commission having been declared
effective, the IPO Price having exceeded USD 10 per share, the
receipt of the net proceeds of the IPO by the Purchaser and the
listing of the shares of the Purchaser on the NASDAQ National
Market;
(ii) the Investor Parties having each complied fully with its obligations
in Clause 9 and the Investor Parties having delivered to the
Purchaser a certificate in form and substance satisfactory to the
Purchaser, who shall act reasonably, and duly executed by the
Investor Parties confirming that, if such be the case, the Investor
Parties have each complied fully with its obligations in Clause 9;
(iii) no order or judgement of any court or governmental, statutory or
regulatory body having been issued or made prior to Completion,
which has the effect of making unlawful or otherwise prohibiting the
purchase of the Company by the Purchaser;
(iv) the receipt of a letter in the Agreed Form from BOS indicating that
it does not intend to exercise any rights that may be triggered by
the transactions contemplated by this Agreement pursuant to a term
loan agreement and a working capital letter and documentation
relating thereto each dated 27 May, 1999(the "BOS Facilities")
notwithstanding Completion and confirming that the BOS Facilities
will remain in full force and effect notwithstanding Completion, in
all respects on their existing terms;
<PAGE>
4
(v) the Warranties being accurate and not misleading as at the date of
this Agreement by reference to the fact and circumstances in
existence at the date of this Agreement;
(vi) the Warranties continuing to be accurate in all material respects
and not misleading in any material way up to and including the
Completion Date and the Warranties being materially accurate and not
misleading in any material way when repeated immediately before
Completion by reference to the facts and circumstances subsisting at
that time and the Obligors (on behalf of themselves) and the Natwest
Parties and BOS (on behalf of themselves solely in relation to the
Warranties in paragraphs 1 and 2 of Schedule 3) having delivered a
certificate in form and substance satisfactory to the Purchaser, who
shall act reasonably, and duly executed by the Obligors and the
NatWest Parties and BOS confirming that, if such be the case, the
applicable Warranties were accurate and not misleading as at the
date of this Agreement and that they have continued to be and are
materially accurate and not misleading in any material way;
(vii) no change which in the Purchaser's reasonable opinion affects
adversely the business or assets or condition or the financial or
trading position or prospects of any member of the Group in any
material way having occurred before the time of Completion;
(viii) the Investor Parties having delivered a certificate in a form and
substance satisfactory to the Purchaser, who shall act reasonably,
confirming that the Company and/or any other relevant member of the
Group has served all notices and obtained all consents necessitated
by the transactions contemplated by this Agreement in relation to
the Assumed Liabilities;
(ix) the receipt by the Purchaser of a certificate from the Investor
Parties confirming that they have complied with all of their
obligations under the Investment Agreement and have no claims
against the Company (in respect of the Investor Parties other than
the Managers)or the Managers under the Investment Agreement and, on
payment of the Investor Loans Amount and the April Interest, no
amounts will remain outstanding from any member of the Group to the
Investor Parties;
(x) the receipt by the Purchaser of confirmation from the Company that
Mr P Jackson has paid up all amounts currently outstanding on his
Shares and confirmation from Symonds Limited that it has released
its equitable charge over the B Shares of Mark Campbell;
(xi) the Purchaser having received all necessary approvals in respect of
its existing financing facilities in relation to the transactions
contemplated by this Agreement.
<PAGE>
5
(B) Each of the Investor Parties, BOS and the Purchaser shall (to the extent
that it is within their ability to do so) use their respective reasonable
endeavours to fulfil or procure the fulfilment of the conditions set out
in sub-clause (A) above and will notify the other parties immediately upon
the satisfaction of such conditions.
(C) The Purchaser may waive in whole or in part all or any of the conditions
set out in sub-clause (A). For the avoidance of doubt, the Investor
Parties and BOS expressly acknowledge that the Purchaser has sole and
absolute discretion to decide:
(i) whether or not to consummate, postpone or abandon the IPO; and
(ii) the IPO Price,
and the Purchaser shall have no liability to any Investor Party or BOS
arising from, relating to, or in connection with any such decision (save
as stated in sub-clause 3(G)).
(D) If the conditions set out in sub-clause (A) are not fulfilled
(notwithstanding the required reasonable endeavours in sub-clause (B)) or
waived by the Purchaser on or before the Termination Date, then the
Purchaser shall be entitled to treat this Agreement as terminated by
written notice to the Investor Parties and BOS.
(E) If an event or series of events occurs or first becomes known to the
Company after the date hereof but prior to Completion which is reasonably
likely to result in the Adjusted Enterprise Value being less than GBP
47,800,000 then NWEP, on behalf of the Investor Parties and BOS, may give
written notice to the Purchaser (such notice to be sent by fax and by same
day courier) giving reasons for such belief and delivered to the Purchaser
no later than three Business Days before Completion. Unless the Purchaser
responds to such notice within two Business Days of receipt, indicating
that it wishes to proceed to Completion, this Agreement shall terminate
automatically three Business Days after service of such notice by NWEP. If
the Purchaser elects to proceed to Completion in accordance with this
sub-clause, the Adjustment Amount shall be capped at GBP 5,000,000. NWEP
(on behalf of the Investor Parties and BOS), undertakes to notify the
Purchaser immediately on its becoming aware of any circumstance which
would cause it to serve a notice pursuant to this sub-clause (E).
(F) If the Agreement is terminated then, subject to sub-clauses (G) and (H),
the obligations of each party under this Agreement shall automatically
terminate PROVIDED that the rights and liabilities of the parties which
have accrued prior to termination shall subsist.
(G) If the Agreement is terminated due to the non-fulfilment of the condition
in sub-clause (A)(i) above, the Purchaser will pay to the Sellers an
amount equal to 50% of the reasonable out of pocket expenses incurred by
the Sellers in relation to this Agreement up to a maximum amount of GBP
100,000.
<PAGE>
6
(H) The Investor Parties and BOS acknowledge that the restrictions contained
in Clauses 18 and 19 shall continue to apply after the termination of the
sale and purchase of the Shares under this Agreement without limit in
time.
4. CONSIDERATION
(A) The Provisional Consideration for the sale of the Shares shall be GBP
22,709,000 which figure has been calculated as set out in Schedule 8.
(B) Each of the Sellers shall be entitled to the percentage of the Provisional
Consideration set forth opposite their names in column (5) of Part A of
Schedule 5 which is equivalent to the amount of the Provisional
Consideration set forth opposite their names in column (6) of Part A of
Schedule 5.
(C) The Provisional Consideration due to each of the Sellers after deduction
of their proportion of the Sellers' Advisers' Fees is set out column (8)
of Part A of Schedule 5 (the "Completion Payments")
(D) If the IPO Price is in excess of USD 18.50, each of the Investor Parties
will be entitled to receive additional Consideration Shares in accordance
with Part B of Schedule 11. If the Investor Parties become entitled to
such further shares, BOS shall be entitled to receive its pro rated
equivalent in cash as set out in Part B of Schedule 11.
(E) The Completion Payments shall be satisfied as follows:
(i) that portion of the Completion Payments set forth opposite each
Seller's name in column (9) of Part A of Schedule 5 shall be
satisfied on the Completion Date in cash; and
(ii) that portion of the Completion Payments set forth opposite each
Seller's name in column (10) of Part A of Schedule 5 shall be
satisfied on the Completion Date by the allotment and issue to those
parties of his or its allocable portion of the Consideration Shares.
(F) The Provisional Consideration shall be adjusted in accordance with the
provisions of Schedule 10.
5. COMPLETION
(A) Completion of the sale and purchase of the Shares shall take place on the
Completion Date at the offices of the Purchaser's Solicitors.
(B) At Completion each of the Investor Parties, BOS and the Purchaser shall do
those things respectively listed in respect of them in Schedule 2.
<PAGE>
7
(C) The Purchaser shall not be obliged to complete the sale and purchase of
any of the Shares unless the sale and purchase of all the Shares is
completed simultaneously.
(D) The Provisional Consideration shall be satisfied by or on behalf of the
Purchaser at Completion as referred to in Clause 4 and Schedule 2.
(E) Receipt of the Provisional Consideration in accordance with sub-clause (D)
shall constitute a good discharge of the Purchaser in respect of the
payment of the Provisional Consideration, but not, for the avoidance of
doubt, in respect of the parties' respective obligations under Schedule
10. In relation to the Sellers' Advisers' Fees and any Completion Payments
to be made in cash, for the avoidance of doubt, the Purchaser shall not be
concerned to how such moneys transferred in accordance with Schedule 2 are
applied.
(F) Immediately upon Completion the Purchaser shall procure the repayment by
the Company of the Investor Loans Amount and the April Interest provided
that the Investor Parties shall have demanded such repayment.
(G) Immediately upon Completion each of the Sellers other than BOS shall
execute a Lock-up Agreement in the form or substantially in the form of
Attachment V.
6. INVESTOR PARTIES' AND BOS's WARRANTIES, INDEMNITIES AND UNDERTAKINGS AND
PURCHASER'S REMEDIES
(A) Subject as provided in this Agreement, and in particular, sub-clause (B)
of this Clause 6, each of the Investor Parties and BOS severally warrants
to the Purchaser as at the date of this Agreement in the terms set out in
Schedule 3.
(B) Notwithstanding any other provision of this Agreement, the only Warranties
given by the NatWest Parties, BOS and the Managers' Family Parties are the
Warranties contained in paragraphs 1 and 2 of Schedule 3 in respect of
themselves and their Shares and each of their obligations under this
Clause 6 shall be read in that context.
(C) Each of the Investor Parties and BOS shall severally warrant to the
Purchaser immediately before Completion that the Warranties are true and
accurate in all material respects and not misleading in any material
respect and such repetition of the Warranties shall be by reference to the
facts and circumstances then subsisting save that a reference in the
Warranties to any fact, matter or thing existing, occurring or having
occurred at or before the date of this Agreement shall be construed as a
reference to that fact, matter or thing existing, occurring or having
occurred (as the case may be) at or before Completion (as the case may be)
and that any reference in the Warranties, whether express or implied, to
the date of this Agreement is substituted by a reference to the Completion
Date.
(D) The Investor Parties and BOS shall procure in so far as they are able that
no act shall be performed or omission allowed, whether by themselves or by
any member of
<PAGE>
8
the Group which would result in any of the Warranties being breached or
misleading at any time up to and including the time of Completion.
(E) In the absence of fraud or dishonesty on the part of any of the Investor
Parties or BOS or their respective officers or employees, the liability of
each of the Investor Parties or BOS under or in relation to the Warranties
shall be limited as set out in Schedule 4.
(F) Each of the Investor Parties and BOS accepts that the Purchaser is
entering into this Agreement in reliance upon the Warranties.
(G) Each of the Investor Parties and BOS undertakes (if any claim is made
against him or it in connection with the Warranties or the sale of the
Shares to the Purchaser) not to make any claim against any member of the
Group or any director or employee of any member of the Group on whom he or
it may have relied before agreeing to any terms of this Agreement or of
the Tax Covenant or authorising any statement in the Disclosure Letter.
(H) Each of the Warranties shall be construed as a separate and independent
warranty and shall not be limited or restricted by reference to any other
Warranty except that the only Warranties given in respect of Environmental
Matters are the Environmental Warranties and each of the other Warranties
shall be deemed not to have been given in relation to Environmental
Matters.
(I) Between the date of signing this Agreement and the Completion Date, each
of Investor Parties and BOS as soon as is reasonably practicable upon any
of them becoming aware of any such matter disclose to the Purchaser any
matter:-
(i) which is or may reasonably foreseeably constitute a breach of or be
inconsistent with any of the Warranties if they were to be repeated
at any time after the date of this Agreement; or
(ii) which is or may reasonably foreseeably constitute a breach of or be
inconsistent with any of the Warranties.
(J) Subject to the limitations set out in Schedule 4, the Purchaser shall be
entitled to claim that any of the Warranties has or had been breached both
before and after Completion or is or was inaccurate or misleading and,
without limitation, to claim under any indemnity or covenant even if the
Purchaser could have discovered on or before Completion that the Warranty
in question had been breached or was inaccurate or misleading and
Completion shall not in any way constitute a waiver of any of the
Purchaser's rights.
(K) All Warranties, indemnities, covenants and other undertakings contained in
or entered into in accordance with this agreement shall remain in full
force and effect notwithstanding Completion.
<PAGE>
9
(L) If, between the signing of this Agreement and Completion, the Purchaser
becomes aware (whether it does so by reason of any disclosure made under
sub-clause (I) or not) that any of the Warranties is or was materially
inaccurate or misleading or that there has been any material breach or
breaches of any of the Warranties or any other term of this Agreement, the
Purchaser shall (save to the extent that such inaccuracy, misleading
nature or breach is set out in the Disclosure Letter) be entitled to treat
this Agreement as terminated from such time by notice in writing served on
the Investor Parties and BOS prior to the Completion Date.
(M) If the Agreement is terminated then, subject to sub-clause 3(H), the
obligations of each party under this Agreement shall automatically
terminate PROVIDED that the rights and liabilities of the parties which
have accrued prior to termination shall subsist.
(N) If in respect of or in connection with any breach of any of the Warranties
or any facts or matters warranted not being true and being misleading any
amount payable to the Purchaser by the Investor Parties and BOS
(including, without limitation, any payment under the Indemnities and
whether under this clause or otherwise) is subject to Taxation, such
additional amounts shall be paid to the Purchaser by the Investor Parties
and BOS so as to ensure that the net amount received by the Purchaser is
equal to the full amount payable to the Purchaser under this agreement.
(O) Each Seller agrees not to resell its Consideration Shares or engage in
hedging transactions with respect to such Consideration Shares except (i)
in accordance with Regulation S under the Securities Act, (ii) pursuant to
a registration statement under the Securities Act, or (iii) pursuant to an
available exemption from registration under the Securities Act.
(P) Each Seller accepts that the certificates representing the Consideration
Shares shall bear a legend to the effect that transfer of such shares is
prohibited except (i) in accordance with Regulation S under the Securities
Act, (ii) pursuant to a registration statement under the Securities Act,
or (iii) pursuant to an available exemption from registration under the
Securities Act.
(Q) Each of the Investor Parties acknowledges that it shall not be entitled to
claim that any provision of the Investment Agreement has been breached by
the Company as a result of its entry into this Agreement or any matters
arising out of or contemplated by this Agreement. The Investor Parties
acknowledge and agree that on Completion the Investment Agreement will be
terminated and of no further effect and the Company shall be under no
further obligation to any of the Investor Parties pursuant to that
Agreement.
(R) Each of the Sellers agrees that the Purchaser shall (subject to the option
mentioned below) be entitled to require it to surrender such number of his
or its Consideration Shares to the Purchaser as shall be necessary to
satisfy any liabilities of that Seller under this Agreement. If the
Purchaser chooses to exercise this right, each
<PAGE>
10
Consideration Share surrendered shall be deemed to be surrendered at the
IPO Price. Each Seller shall have the option to satisfy any such liability
in cash instead of by the surrender of Consideration Shares.
7. OBLIGORS' INDEMNITIES AND COVENANTS
(A) Each of the Obligors agrees severally to indemnify the Purchaser (for
itself, and, as a separate covenant, as trustee for each member of the
Group) against all or any of the matters set out in this Clause 7.
(B) The Obligors shall severally indemnify the Purchaser against Claims made
in relation to the sale and purchase of Finishing Services Limited and
Finishing Technology Limited.
(C) The Obligors shall severally indemnify the Purchaser against:
(i) any liability of any member of the Group arising by virtue of
Article 141 of the Treaty of Rome or any other provision of
English or EU law to contribute to any pension scheme in which
any member of the Group participates or has participated in
order to equalise any guaranteed minimum pension of scheme
members; and
(ii) any liability of any member of the Group to contribute to the
Symonds Engineering Retirement Benefit Scheme or the
administration fees associated with the winding up of that
scheme.
(D) The Obligors shall severally indemnify the Purchaser against any and all
Claims, payments and expenses incurred by the Purchaser or any member of
the Group arising out of or in connection with:
(i) the Zlin Electronics Limited Directors Pension Scheme or the
Calne Electronics Limited Directors Pension Scheme;
(ii) the exclusion of part time employees from any pension scheme
or benefits; and
(iii) warranties or indemnities given by any member of the Group in
respect of the HBH Tools & Stampings Limited Retirement and
Death Benefit Scheme, the HBH Retirement Benefits Scheme and
the HBH. Tools & Stampings Limited Money Purchase Scheme.
(E) Without restricting the rights of the Purchaser or its ability to claim
damages on any basis in the event that any of the Warranties is breached
or is untrue or misleading, the Obligors severally covenant with the
Purchaser (for the benefit of the Purchaser, each member of the Group,
each member of the Purchaser's Group and each of their respective
directors, officers, agents and employees from time to time) that the
Obligors will pay to the Purchaser or to such person as the Purchaser
<PAGE>
11
shall direct (so far as possible, and if so requested by the Purchaser, by
way of repayment by the Obligors of the consideration payable under this
Agreement) an amount equal to all fines, penalties, costs, losses,
damages, expenses (including legal and other professional expenses) or
liabilities resulting directly or indirectly from:
(i) any Environmental Matters which have arisen or arise at any time as
the direct or indirect result of any act or omission of any person
in relation to any present or former business or premises of the
Company or any member of the Group or any other act or omission of
any member of the Group at or prior to Completion; or
(ii) any Environmental Matters existing at or prior to Completion at or
about any of the Properties; or
(iii) the transfer to any person or the disposal at or prior to Completion
of any Hazardous Materials or Waste by or on behalf o any member of
the Group,
including the amount necessary to put the relevant person into the
position which would have existed had the relevant matter not existed or
arisen and in particular including the full amount of any deficiency or
diminution in value of the Shares or any asset and any reduced profits or
increased losses.
(F) In the absence of fraud or dishonesty on the part of any of the Obligors
or their respective officers or employees, the liability of each of the
Obligors under or in relation to the indemnities in this Clause 7 (the
"Indemnities") shall be limited as set out in Schedule 4.
8. PURCHASER'S WARRANTIES
The Purchaser warrants to the Sellers that:
(i) the Purchaser is a corporation duly organised, validly existing and
in good standing under the laws of California and has full power and
authority to conduct its business as presently conducted and to
enter into and perform this Agreement and the other documents which
are to be executed by the Purchaser at Completion (the "Purchaser's
Completion Documents") and to carry out the transactions
contemplated by this Agreement and the Purchaser's Completion
Documents;
(ii) this Agreement constitutes and the Purchaser's Completion Documents
will constitute, when executed by the Purchaser, binding obligations
of the Purchaser in accordance with their respective terms;
(iii) on the Completion Date, following the merger to which reference is
made in Clause 1(C), prior to the issuance of shares (a) hereunder
or (b) in connection with the IPO, and assuming an IPO Price of USD
16, there will be
<PAGE>
12
approximately 24,750,000 shares of the Purchaser's common stock
issued and outstanding; and
(iv) the issuance, sale and delivery of the Consideration Shares in
accordance with this Agreement has been duly authorised by all
necessary corporate action on the part of the Purchaser and when
issued, sold and delivered at Completion, the Consideration Shares
will be duly and validly issued, fully paid and non-assessable.
9. CONDUCT OF BUSINESS BEFORE COMPLETION
(A) Subject to sub-clause (B), each of the Investor Parties shall procure that
between the date of this Agreement and Completion or termination of this
Agreement each member of the Group shall carry on business in the ordinary
course and in a manner consistent with the way in which the business has
been carried on in the twelve months prior to the date of this Agreement
and shall procure that no member of the Group shall undertake any act or
course of conduct which is outside the ordinary course of the business of
the Group or which is not of a routine unimportant nature. Subject as
aforesaid, in particular (but without prejudice to the generality of the
foregoing) each of the Investor Parties shall procure that no member of
the Group shall undertake any of the acts or matters specified in
sub-clause (B) without the prior written consent of the Purchaser.
(B) The acts and matters referred to in sub-clause (A) are as follows:-
(i) the acquisition or disposal of any interest in real property (but
excluding the subleasing of the Company's property at Axis 10, John
Tate Road, Foxholes Business Park, Hertford, details of which are
set out in the Disclosure Letter);
(ii) any acquisition or disposal of any interest in the business or share
capital of any undertaking;
(iii) any offer by any member of the Group to engage any new employee or
consultant at any annual salary or fee per employee or consultant
(on the basis of full time employment or consultancy) in excess of
(pound)50,000 per annum or which is not terminable by the employer
by giving six months' notice;
(iv) any dismissal of any Senior Employee of the Group, other than for
cause;
(v) any amendment, including any increase in emoluments (including,
without limitation, pension benefits and contributions, bonuses,
commissions and benefits in kind), to the terms of employment of any
category of employees of the Group, but excluding the annual pay
review for the year 2000, details of which are set out in the
Disclosure Letter;
<PAGE>
13
(vi) any declaration, authorisation, making or payment of a dividend (in
cash or in specie) or other distribution of a similar nature or
which is taxed in the same way as a dividend;
(vii) any reduction of capital;
(viii) any grant of any guarantee or indemnity for the obligations of any
person who is not a member of the Group whether in relation to the
business of the Group or otherwise;
(ix) with the exception of the allotment of 41,237 A ordinary shares in
the capital of the Company to BOS pursuant to BOS's outstanding
warrant to subscribe for such shares, any creation, allotment or
issue or any grant of any option over or other right to subscribe
or purchase, or any redemption or purchase of, any share or loan
capital or securities of any member of the Group or securities
convertible into any of the foregoing;
(x) any creation or grant of any option, right to acquire, mortgage,
charge, pledge, lien (other than a lien arising by operation of law
or in the ordinary course of business) or other form of security or
encumbrance or equity on, over or affecting the whole or any part
of the undertaking or assets of any member of the Group other than
rights arising under retention of title clauses in the ordinary
course of business;
(xi) the making of any loan (other than the granting of trade credit in
the ordinary course of business in accordance with the Group's
normal practice) to any person other than to a member of the Group;
(xii) any borrowing (other than the receipt of trade credit in the
ordinary course of business) other than borrowings from a member of
the Group;
(xiii) the appointment of any agent or distributor of any member of the
Group or varying the terms of any agent or distributor of any
member of the Group;
(xiv) appoint or permit any person to become a director of any member of
the Group;
(xv) any change in the manner or timing of the collection or enforcement
of any trade receivables or of the payment of any trade payables or
other Indebtedness or any action in relation to such matters which
is inconsistent with the past practice of the members of the Group
and the way in which the business has been previously carried on;
(xvi) any reduction of provisions or reserves shown in the Accounts;
(xvii) any roll over or hold over claim or election in respect of the site
at Cheshunt (full particulars of such disposal being set out in the
Disclosure Letter);
<PAGE>
14
(xviii) the entering into of any agreement (conditional or otherwise) with
any Investor Party or BOS; and
(xix) the entering into of any agreement (conditional or otherwise) to
do any of the foregoing.
(C) Each of the Investor Parties shall procure that between the date of this
Agreement and the Completion Date, on the reasonable request of the
Purchaser (after discussion with the Managers), each member of the Group
shall allow the management of the Purchaser (and its advisers, lawyers,
bankers, financiers, accountants, underwriters of the IPO and any other
persons authorised by it), upon reasonable notice, to have full access
during normal working hours to the books and records of each member of the
Group in the possession or control of the relevant member of the Group and
to directors and members of the management of the Group and the members of
the Group. The directors and members of the management of the Group shall
be instructed to give promptly all information and explanations to the
Purchaser or any such persons as they may reasonably request. For the
avoidance of doubt, nothing in this sub-clause (C) shall oblige the
Investor Parties to procure that any member of the Group disclose
information relating to its customers and suppliers, which, in the
reasonable opinion of the Investor Parties, would prejudice the
competitive position of that member of the Group in its market should the
transactions contemplated by this Agreement not proceed to Completion.
(D) The Purchaser shall, between the date of this Agreement and the Completion
Date, on the reasonable request of the Managers (after discussion with the
Purchaser), permit selected members of the Company's management (and their
advisers and lawyers), upon reasonable notice, to have full access during
normal working hours to the books and records of the Purchaser including
the statutory books, minutes books, leases, contracts, intellectual
property and supplier lists (but excluding customer lists) in the
possession or control of the Purchaser and to directors and members of the
management of the Purchaser and the directors and members of the
management of the Purchaser shall be instructed to give promptly all
information and explanations to the Manager (and their advisers and
lawyers) as they may reasonably request. For the avoidance of doubt,
nothing in this sub-clause (D) shall oblige the Purchaser to disclose
information relating to its customers and suppliers which, in the
reasonable opinion of the Purchaser, would prejudice the Purchaser's
competitive position in its market should the transactions contemplated by
this Agreement not proceed to Completion.
10. RESTRICTIONS ON THE MANAGERS AND THE NATWEST PARTIES
(A) Each of the Managers undertakes that he will not, either alone or in
conjunction with or on behalf of any other person, do any of the following
things:
(i) neither pending nor for a period of two years after the Completion
Date either alone or jointly with or as adviser to or agent of any
person directly
<PAGE>
15
or indirectly carry on or be engaged or economically interested in
any business which competes (directly or indirectly) with any of the
Acquired Businesses;
(ii) within two years from the Completion Date, entice away from the
employment of any member of the Purchaser's Group any Key Employee;
nor
(iii) disclose to any other person or (in any way which may be detrimental
to the Acquired Businesses) use any information which is
Confidential Business Information;
(iv) solicit the custom, in relation to goods or services sold to any
person (which, for the avoidance of doubt, shall be construed so as
to include any individual, firm, company, joint venture, association
or partnership (whether or not having separate legal personality))
by any member of the Group in the course of its business during the
two years before the Completion Date, of that person in respect of
similar goods or services; nor
(v) assist any person to do any of the foregoing things.
(B) Each of the NatWest Parties undertakes that they will not disclose to any
other person or use any information which is Confidential Business
Information and that they will treat such information as strictly
confidential.
11. PROVISION RELATING TO RESTRICTIONS
Each undertaking contained in Clause 10 shall be construed as a separate
undertaking and if one or more of the undertakings is held to be against
the public interest or unlawful or in any way an unreasonable restraint of
trade, the remaining undertakings shall continue to bind the Managers
and/or the NatWest Parties as the case may be.
12. EFFECT OF COMPLETION
Save as otherwise provided herein, any provision of this Agreement or of
any other document referred to herein which is capable of being performed
after but which has not been performed at or before Completion and all
Warranties and other Assurances contained in or entered into pursuant to
this Agreement shall remain in full force and effect notwithstanding
Completion.
13. REMEDIES AND WAIVERS
(A) No delay or omission on the part of any party to this Agreement in
exercising any right, power or remedy provided by law or under this
Agreement or any other documents referred to in it shall impair such
right, power or remedy or operate as a waiver thereof.
<PAGE>
16
(B) The single or partial exercise of any right, power or remedy provided by
law or under this Agreement shall not preclude any other or further
exercise thereof or the exercise of any other right, power or remedy
except where expressly stated herein.
(C) The rights, powers and remedies provided in this Agreement are cumulative
and not exclusive of any rights, powers and remedies provided by law
unless otherwise stated herein.
14. ASSIGNMENT
(A) Obligations under this Agreement shall not be assignable.
(B) The benefits of this Agreement shall not be assignable except that the
Purchaser may assign all or any part of the benefit of, or its rights or
benefits under, this Agreement and any agreements referred to in Clause 16
together with any causes of action arising in connection with them to its
successors in title or a member of the Purchaser's Group or as security to
any person lending money to a member of the Purchaser's Group (a
"Permitted Assignee").
15. FURTHER ASSURANCE
Without prejudice to any restriction or limitation on the extent of any
party's obligations under this Agreement contained in this Agreement, each
of the parties shall from time to time so far as each is reasonably able
do or procure the doing of all such acts and/or execute or procure the
execution of all such documents in a form reasonably satisfactory to the
party concerned as they may reasonably consider necessary to transfer the
Shares to the Purchaser or otherwise to give the other party the full
benefit of this Agreement.
16. ENTIRE AGREEMENT
(A) For the purposes of this Clause, "Pre-contractual Statement" means a
draft, agreement, undertaking, representation, warranty, promise,
assurance or arrangement of any nature whatsoever, whether or not in
writing, relating to the subject matter of this Agreement and any other
documents referred to in this Agreement (the "Share Purchase Documents")
or any of them made or given by a party to any of the Share Purchase
Documents or any other person at any time prior to the date of this
Agreement.
(B) The Share Purchase Documents constitute the whole and only agreement
between the parties relating to the sale and purchase of the Shares.
(C) To the extent expressly repeated in the Share Purchase Documents, the
Share Purchase Documents supersede and extinguish any Pre-contractual
Statement.
<PAGE>
17
(D) Each party acknowledges that in entering into the Share Purchase Documents
it or he is not relying upon any Pre-contractual Statement which is not
expressly set out in them.
(E) None of the parties shall have any rights of action (except in the case of
fraud) against any other party to this Agreement arising out of or in
connection with any Pre-contractual Statement except to the extent that
such Pre-contractual Statement is repeated in the Share Purchase
Documents.
(F) This Agreement may only be varied by a document signed by both of the
parties and expressed to be a variation to this Agreement.
17. NOTICES
(A) Any notice or other communication given or made under or in connection
with the matters contemplated by this Agreement shall be in writing.
(B) Any such notice or other communication shall be addressed as provided in
sub-clause (C) and, if so addressed, shall be deemed to have been duly
given or made as follows:
(i) if sent by personal delivery, upon delivery at the address of the
relevant party;
(ii) if sent by first class post, two Business Days after the date of
posting;
(iii) if sent by facsimile, when received;
PROVIDED THAT if, in accordance with the above provisions, any such notice
or other communication would otherwise be deemed to be given or made
outside Working Hours, such notice or other communication shall be deemed
to be given or made at the start of Working Hours on the next Business
Day.
(C) The relevant addressee, address and facsimile number of each party for the
purposes of this Agreement, subject to sub-clause (D), are:
<TABLE>
<CAPTION>
1. Name of party Address Facsimile No. For the attention of
- -- ------------- ------- ------------ ---------------------
<S> <C> <C> <C>
Purchaser 1220 Simon Circle, 001714-688-7500 Joseph Gisch
Anaheim,
CA 92806
USA
</TABLE>
<PAGE>
18
<TABLE>
<CAPTION>
1. Name of party Address Facsimile No. For the attention of
- -- ------------- ------- ------------ ---------------------
<S> <C> <C> <C>
c.c. Ropes & Gray 001617-951-7050 Alfred Rose
One International
Place,
Boston,
MA02110 USA
2. Managers, B Wragge & Co, 0121 214 1099 Ian Metcalfe
Shareholders and 55 Colmore Row,
Managers' Family Birmingham B32AS
Parties
3. NatWest Parties NatWest Equity 01212362089 Kevin Reynolds
Partners
Wellesley House
37 Waterloo Street
Birmingham
B2 5TJ
4. BOS Bank of Scotland 01216338463 Andrew Carswell
Bank House
8 Cherry Street
Birmingham
B2 5AD
</TABLE>
(D) A party may notify the other parties to this Agreement of a change to its
name, relevant addressee, address or facsimile number for the purposes of
sub-clause (C) PROVIDED THAT such notification shall only be effective
on:-
(i) the date specified in the notification as the date on which the
change is to take place; or
(ii) if no date is specified or the date specified is less than five
clear Business Days after the date on which notice is given, the
date falling five clear Business Days after notice of any such
change has been given.
(E) For the avoidance of doubt, the parties agree that the provisions of this
Clause shall not apply in relation to the service of any writ, summons,
order, judgement or other document relating to or in connection with any
Proceedings.
18. ANNOUNCEMENTS
(A) Subject to sub-clause (B), no announcement concerning the sale or purchase
of the Shares or any ancillary matter (other than the Press Announcements
and any documents published or announcements made by any member of the
Purchaser's Group in connection with the IPO) shall be made by any party
without the prior
<PAGE>
19
written approval of the Purchaser and NWEP, such approval not to be
unreasonably withheld or delayed.
(B) Either party may make an announcement concerning the sale or purchase of
the Shares or any ancillary matter if required by:-
(i) the law of any relevant jurisdiction; or
(ii) any securities exchange or regulatory or governmental body to which
either party is subject or submits, wherever situated, whether or
not the requirement has the force of law,
in which case the party concerned shall take all such steps as may be
reasonable and practicable in the circumstances to agree the contents of
such announcement with the other party before making such announcement and
PROVIDED THAT any such announcement shall be made only after notice to the
other party.
(C) The restrictions contained in this Clause shall continue to apply after
the termination of this Agreement without limit in time.
19. CONFIDENTIALITY
(A) Subject to sub-clause (B) and Clause 18, each party shall treat as
strictly confidential all information received or obtained as a result of
entering into or performing this Agreement which relates to:-
(i) the provisions or the subject matter of this Agreement or any
document referred to herein;
(ii) the negotiations relating to this Agreement or any document referred
to herein;
(iii) (in the case of the Purchaser only) the Investor Parties and BOS (in
the case of the Investor Parties and BOS only) the Purchaser's Group
and the business carried on by each member of each of them.
(B) Any party may disclose information which would otherwise be confidential
if and to the extent:-
(i) required by the law of any relevant jurisdiction or for the purpose
of any judicial proceedings;
(ii) required by any securities exchange or regulatory or governmental
body to which either party is subject or submits, wherever situated,
including (without limitation) any Revenue Authority, whether or not
the requirement for information has the force of law;
<PAGE>
20
(iii) that the information is disclosed on a strictly confidential basis
to the professional advisers, auditors and bankers of that party;
(iv) that the information has come into the public domain through no
fault of that party;
(v) that the other party has given prior written approval to the
disclosure;
(vi) that the information was in the possession of the Purchaser's Group
or the Investor Parties and/or BOS (as the case may be) prior to
the time that it was acquired by a member of the Purchaser's Group
or the Investor Parties and/or BOS (respectively) from any of the
Investor Parties and/or BOS or of the Purchaser's Group or any of
the Investor Parties and/or BOS (respectively) and provided that
such information is not known to a member of the Purchaser's Group
or the Investor Parties and/or BOS (respectively) to be subject to
any other duty of confidentiality owed to any of the Investor
Parties and/or BOS or any of the Purchaser's Group (respectively);
(vii) it does so to a member of the Purchaser's Group (in the case of the
Purchaser) which accepts restrictions in the terms of this Clause;
or
(viii) required to enable that party to enforce its rights under this
Agreement,
PROVIDED THAT any such information disclosed pursuant to paragraphs (i) or
(ii) shall be disclosed only after notice to the other party unless it is
information supplied to a Revenue Authority in confidence and in
compliance with Clause 19.
(C) The restrictions contained in this Clause shall continue to apply after
the termination of the sale and purchase of the Shares under this
Agreement without limit in time.
(D) With effect from Completion, the provisions of the confidentiality
undertakings entered into between the Company and the Purchaser and dated
3rd March, 2000 shall, in respect of Confidential Information and
Documents (as defined therein) relating to the Acquired Businesses, be
terminated and the Purchaser shall be released from all obligations and
liabilities thereunder in respect of such Confidential Information and
Documents, save as regards any antecedent breach. Pending Completion, if
there is a conflict between the terms of such confidentiality undertakings
and the terms of this Clause, the provisions of this Clause shall prevail.
20. COSTS AND EXPENSES
Save as otherwise stated in this Agreement, each party shall pay its own
costs and expenses in relation to the negotiations leading up to the sale
of the Shares and to the preparation, execution and carrying into effect
of this Agreement and all other
<PAGE>
21
documents referred to in it and the Investor Parties and BOS agree that no
cost or expense of whatever nature relating to the sale and purchase of
the Shares or the preparation, execution and carrying into effect of this
Agreement and all other documents referred to in it has been or is to be
borne by any member of the Group.
21. COUNTERPARTS
(A) This Agreement may be executed in any number of counterparts, and by the
parties on separate counterparts, but shall not be effective until each
party has executed at least one counterpart.
(B) Each counterpart shall constitute an original of this Agreement, but all
the counterparts shall together constitute but one and the same
instrument.
22. INVALIDITY
If at any time any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction,
that shall not affect or impair:-
(i) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(ii) the legality, validity or enforceability under the law of any other
jurisdiction of that or any other provision of this Agreement.
23. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
English law.
24. JURISDICTION
(A) Each of the parties to this Agreement irrevocably agrees for the exclusive
benefit of the other party that the courts of England are to have
jurisdiction to settle any disputes which may arise out of or in
connection with this Agreement and that accordingly any Proceedings may be
brought in such courts. Nothing contained in this Clause shall limit the
right of any party to take Proceedings against others in any other court
of competent jurisdiction, nor shall the taking of Proceedings in one or
more jurisdictions preclude the taking of Proceedings in any other
jurisdiction, whether concurrently or not, to the extent permitted by the
law of such other jurisdiction.
(B) Each party irrevocably waives (and irrevocably agrees not to raise) any
objection which it may have now or hereafter to the laying of the venue of
any Proceedings in any such court as is referred to in sub-clause (A) and
any claim of forum non conveniens and further irrevocably agrees that a
judgement in any Proceedings brought in any court referred to in this
Clause shall (provided that there is no
<PAGE>
22
appeal pending or open) be conclusive and binding upon such party and may
be enforced in the courts of any other jurisdiction.
25. AGENT FOR SERVICE
(A) The Purchaser irrevocably appoints DDi Europe Limited of Doncastle House,
Doncastle Road, Bracknell, Berkshire RG12 8PE to be its agent for the
receipt of service of process in England. It agrees that any Service
Document may be effectively served on it in connection with Proceedings in
England and Wales by service on its agent.
(B) Any Service Document shall be deemed to have been duly served if marked
for the attention of DDi Europe Limited at Doncastle House, Doncastle
Road, Bracknell, Berkshire RG12 8PE or such other address within England
and Wales as may be notified to the party wishing to serve the Document
and:
(i) left at the specified address; or
(ii) sent to the specified address by first class post.
In the case of (A), the Service Document will be deemed to have been duly
served when it is left. In the case of (B), the Service Document shall be
deemed to have been duly served two clear Business Days after the date of
posting.
(C) If the agent at any time ceases for any reason to act as such, the
Purchaser shall appoint a replacement agent having an address for service
in England or Wales and shall notify the other parties of the name and
address of the replacement agent. Failing such appointment and
notification, the other parties shall be entitled by notice to the
Purchaser to appoint a replacement agent to act on the Purchaser's behalf.
The provisions of this clause applying to service on an agent apply
equally to service on a replacement agent.
(D) A copy of any Service Document served on an agent shall be sent by post to
the Purchaser. Failure or delay in so doing shall not prejudice the
effectiveness of service of the Service Document.
(E) "Service Document" means a claim form, order or judgement issued out of
the courts of England and Wales/document relating to or in connection with
any Proceedings.
IN WITNESS whereof the parties have entered into this Agreement the day and year
first before written.
<PAGE>
23
SCHEDULE 1
(Interpretation)
DEFINITIONS
(A) In this Agreement and the Schedules to it:-
"Accounts Date" means 31st March, 1999;
"Accounts" means the consolidated statutory
accounts of the Subsidiaries as at the
Accounts Date for the twelve months
ended on the Accounts Date, copies of
which are Attachment I;
"Acquired Business" means the business of a member of the
Group as carried on by that member in
the 12 months immediately preceding the
date of this Agreement and "Acquired
Businesses" shall be construed
accordingly;
"Adjusted Enterprise Value" is defined in Schedule 10;
"Adjustment Amount" is defined in Schedule 10;
"Adjustment Period" 1st April, 1999 to 31st March, 2000;
"Adjustment Statement" is defined in Schedule 10;
"Agreed Form" in relation to any document means such
document in the form initialled for the
purposes of identification only by the
Purchaser's Solicitors and the Investor
Parties' Solicitors;
"Amended and Restated Stockholders' means an amended and restated
Agreement" stockholders agreement between the
Purchasers' shareholders, in the Agreed
Form;
"April Interest" means interest on the Investor Loans
for the period from 1st April, 2000 to
the Completion Date;
"Assumed Liabilities" is defined in Schedule 8;
<PAGE>
24
"Assurance" means any warranty, representation,
statement, assurance, covenant,
agreement, undertaking, indemnity or
commitment of any nature whatsoever;
"Attachment" means a document referred to in this
Agreement as an attachment and being in
the Agreed Form;
"Beneficial Owners" means the second named parties to this
Agreement;
"BOS" means the fifth named party to this
Agreement;
"BOS Account" means Bank of Scotland CHAPS Suspense
Account (for the attention of Andy
Carswell) 00082283 at Bank of Scotland,
sort code 12-05-65;
"BOS Facilities" is defined in Clause 3(A)(iv);
"BOS Shares" means 41,237 A ordinary shares in the
capital of the Company;
"B Shareholders" means the sixth named parties to this
Agreement;
"Business Day" means a day (other than a Saturday or a
Sunday) on which banks are open for the
transaction of normal banking business
in London and New York;
"Business Information" means all information, know-how and
records (whether or not confidential
and in whatever form held) including
(without limitation) all formulas,
designs, specifications, drawings,
data, manuals and instructions and all
customer lists, sales information,
business plans and forecasts, and all
technical expertise and all computer
software and all accounting and tax
records, correspondence, orders and
inquiries;
"CGTA 1979" means the Capital Gains Tax Act 1979;
<PAGE>
25
"Claims" means all and any liabilities, losses,
claims, actions, demands, costs and
expenses, proceedings or judgements of
whatsoever nature and whether or not
arising in the ordinary course of
business;
"Companies Acts" means the Companies Act 1985, the
Companies Consolidation (Consequential
Provisions) Act 1985, the Companies Act
1989 and Part V of the Criminal Justice
Act 1993;
"Company's Account" means MCM Electronics Limited current
account, account number 00483849 at
Bank of Scotland, 124 Colmore Row,
Birmingham B3 3AU, sort code 12-05-65;
"Company" means MCM Electronics Limited, basic
information concerning which is set out
in Schedule 6;
"Completion" means completion of the sale and
purchase of the Shares under this
Agreement;
"Completion Date" means the day on which the conditions
listed in Clause 3 shall have been
satisfied or waived or, if such day is
not a Business Day, the Business Day
immediately following such day, or such
other date as the parties may agree;
"Confidential Business Information" means Business Information which is
confidential or not generally known;
"Consideration Shares" is defined in Schedule 11;
"Completion Payments" is defined in Clause 4(C);
"Data Room" means those documents referred to in
the list in the Agreed Form forming
Attachment III;
"Disclosure Letter" means the letter dated with the same
date as this Agreement written by the
Investor Parties to the Purchaser for
the purposes of paragraph 5 of Schedule
4;
"EBITDA" is defined in Schedule 10;
<PAGE>
26
"EBITDA Adjustment" is defined in Schedule 10;
"Employees" means persons employed by any member of
the Group including directors of the
Company and/or the Subsidiaries at the
date of this Agreement;
"Encumbrance" is defined in Schedule 3;
"Environment" means all, or any, of the following
media namely the air (including without
limitation the air within buildings and
the air within other natural or
man-made structures above or below
ground), water and land and any living
organisms or systems supported by those
media;
"Environmental Laws" means all applicable statutes and
subordinate legislation, and other
European, national and local laws and
bylaws, common laws, civil code,
directives or guidance notes of a
mandatory nature insofar as they relate
to or apply to Environmental Matters
including for the avoidance of doubt
the New Contaminated Land Power;
"Environmental Matters" means:-
(i) pollution or contamination;
(ii) the disposal, release,
spillage, deposit, escape,
discharge, leak or emission
of Hazardous Materials or
Waste;
(iii) exposure of any person to
Hazardous Materials or Waste;
(iv) the creation of any noise,
vibration, radiation, common
law or statutory nuisance or
other adverse impact on the
Environment.
<PAGE>
27
"Environmental Permit" means any registration, permit,
licence, permission, consent,
authorisation, waiver, order or
exemption issued or granted or required
to be issued or granted under
Environmental Laws in relation to
either the carrying on of the business
of any member of the Group or in
relation to any Properties;
"Environmental Report" means the Environmental Review: Project
Fish - Final version dated April 1999
prepared by Aspinwall & Company on
behalf of NWEP;
"Environmental Warranties" means the Warranties set out in
paragraph 18 of Schedule 3 and
"Environmental Warranty" shall be
construed accordingly;
"Estimated Net Debt" means GBP 30,091,000 as set out in
Schedule 8;
"Final Net Debt Amount" is defined in Schedule 10;
"GBP" means pounds sterling;
"Group" means the Company and all the
Subsidiaries and where the context so
requires, includes any one or more of
such companies;
"Hazardous Materials" means anything which alone or in
combination with other things is
capable of causing harm or damage to
property or to man or to the
environment or any other organism
supported by the environment including,
without limitation, pollutants,
contaminants and dangerous, toxic or
radioactive substances;
"ICTA 1988" means the Income and Corporation Taxes
Act 1988;
"Indebtedness" shall be construed to include any
obligation (whether incurred as
principal or surety) for the payment or
repayment of money (including, without
limitation, contingent liabilities in
accordance with generally accepted
accounting principles in the United
Kingdom);
"Indemnities" is defined in Clause 7(F)
<PAGE>
28
"Independent Auditors" means a partner of at least 10 years'
qualified experience at Deloitte &
Touche of Colmore Gate, 2 Colmore Row,
Birmingham B32 2BN or such other firm
as the parties may agree;
"Information Technology" means computer software, hardware,
networks and other peripherals;
"Intellectual Property" means patents, trade marks and service
marks, rights in designs, trade or
business names or signs, copyrights
(including rights in computer software)
and topography rights (whether or not
any of these is registered and
including applications for registration
of any such thing) and rights under
licences and consents in relation to
any such thing and all rights or forms
of protection of a similar nature or
having equivalent or similar effect to
any of these which may subsist anywhere
in the world;
"Investment Agreement" means an agreement dated 27th May, 1999
between the Company, the Managers, NWEP
and the Beneficial Owners;
"Investors' Completion Documents" is defined in paragraph 2(A) of
Schedule 3;
"Investor Loan" means the facilities designated as such
in Schedule 8;
"Investor Loans Amount" means GBP 14,868,000;
"Investor Parties" means the Sellers (other than BOS) and
NWEP;
"Investor Parties' Auditors" means KPMG;
"Investor Parties' Solicitors" means Wragge and Co.;
"IPO Price" means the price at which shares of
common stock of the Purchaser are first
offered to the public pursuant to the
IPO;
"IPO" means the initial public offering of
shares in the Purchaser;
<PAGE>
29
"Key Employee" means:-
(i) any Employee in a position
carrying significant managerial
responsibilities or whose
responsibilities are of a
technical nature who, having
regard to his experience,
skills and knowledge of the
Acquired Businesses, is not
readily replaceable within a
reasonable time without
material expense (excluding
payments made to that Employee)
on the part of any member of
the Group; or
(ii) any Senior Employee;
"Liability Cap Addition" is defined in paragraph 1 of Schedule 4;
"Lock-up Agreement" means the lock-up agreement relating to
the Consideration Shares in the Agreed
Form of Attachment IV;
"Management Accounts" means the monthly unaudited
consolidated financial statements of
the Group for the months April 1999 to
January 2000 (inclusive) (each of which
includes the unaudited profit and loss
of the Group for the cumulative period
starting on 1st April 1999 and ending
on the last day of the relevant month)
copies of which are Attachment VII;
"Managers" means the fourth named parties to this
Agreement;
"Managers' Family Parties" means the seventh named parties to this
Agreement;
"Material Contract" is defined in paragraph 9(C) of
Schedule 3;
"NatWest Group" means NWEP and its subsidiaries and
associated companies (but excluding
each member of the Group);
"NatWest Nominees" means the third named party to this
Agreement;
"NatWest Parties" means NWEP, the Beneficial Owners and
NatWest Nominees;
<PAGE>
30
"Negative Debt Adjustment" is defined in Schedule 10;
"New Contaminated Land Power" means the new power enacted by section
57 of the Environment Act 1995 (but not
yet brought into force) including the
Statutory Guidance on Contaminated Land
published 16th February, 2000 and SI
2000 No. 227 made 2nd February, 2000
laid before Parliament 9th February,
2000 coming into force on 1st April,
2000 and SI 2000 No. 340 (C.8) made 2nd
February, 2000 under that power;
"NWEP" means the first named party to this
Agreement;
"Obligors" means the Managers and the B
Shareholders;
"Permitted Assignee" is defined in Clause 14(B);
"Positive Debt Adjustment" is defined in Schedule 10;
"Pre-contractual Statement" is defined in Clause 16;
"Press Announcements" means the press announcements (if any)
to be issued by the parties in the
Agreed Form of Attachment IV;
"Proceedings" means any proceeding, suit or action
arising out of or in connection with
this Agreement;
"Property" or "Properties" means the real properties listed in
Schedule 9;
"Proportional Provisional is defined in Schedule 11;
Consideration"
"Provisional Consideration" means GPB 22,709,000 calculated as set
out in Schedule 8;
"Purchaser" means the eighth named party to this
Agreement;
"Purchaser's Account" means the Purchaser's account with
Union Bank of Canada, Monterey Park,
Ca. 91755, Swift Code UBLAU 566 ABA
122000496, account number 0700490432;
"Purchaser's Auditors" means PricewaterhouseCoopers;
<PAGE>
31
"Purchaser's Completion Documents" has the meaning given thereto in Clause
8;
"Purchaser's Group" means the Purchaser, its subsidiaries
(including each member of the Group),
any holding company of the Purchaser
and all other subsidiaries of any such
holding company from time to time;
"Purchaser's Solicitors" means Slaughter and May;
"Revenue Authority" means the Inland Revenue and the
Commissioners of Customs and Excise and
any similar body in any other
jurisdiction;
"RTPA 1976" means the Restrictive Trade Practices
Act 1976;
"Securities Act" means the United States Securities Act
of 1933 as amended;
"Sellers" means the Beneficial Owners, NatWest
Nominees, the Managers, BOS, the B
Shareholders and the Managers Family
Parties;
"Sellers' Account" means Wragge & Co Client Account at
Lloyds TSB Bank plc of 114-116 Colmore
Row, Birmingham B3 3BB, sort code
30-00-03 account number 0660947;
"Sellers' Advisers' Fees" means GBP 1,700,000 (as set out in
Schedule 8);
"Sellers' Shares" means the Shares other than the BOS
Shares;
"Senior Employee" means any one of the Employees who is
entitled to emoluments at a rate (or,
in the case of fluctuating amounts, has
or would have been entitled to an
average annual rate over the last three
financial years) in excess of
(pound)50,000 per annum and every
director who is also an employee;
"Service Document" is defined in Clause 25(E);
"Share Purchase Documents" is defined in Clause 16;
<PAGE>
32
"Shares" means the entire issued share capital
of the Company;
"Subsidiaries" means any of the subsidiaries of the
Company, basic information concerning
which being set out in Schedule 7 and,
which expression, where the context so
requires, includes any or all of such
companies and "Subsidiary" shall be
construed accordingly;
"Takeover" means the successful bid by the Company
to acquire the entire share capital of
Symonds Limited;
"Takeover Date" means 5th July, 1999;
"Tax Authority" means any taxing or other authority
(whether within or outside the United
Kingdom) competent to impose any
liability to Tax;
"Tax Covenant" means the tax covenant in the Agreed
Form as set out in Attachment II;
"Tax Warranties"
means the Warranties set out in
paragraphs 26 to 37 of Schedule 3 and
"Tax Warranty" shall be construed
accordingly;
"Tax" or "Taxation" has the meaning given in the Tax
Covenant;
"TCGA 1992" means the Taxation of Chargeable Gains
Act 1992;
"Termination Date" means 30th June, 2000;
"USD Equivalent" in relation to an amount expressed in a
currency other than USD, means such
amount translated into USD at the
prevailing exchange rate applicable to
that amount of USD by reference to the
rates published in the UK Financial
Times on the Completion Date;
"USD" means United States Dollars;
"VATA 1994" means the Value Added Tax Act 1994;
<PAGE>
33
"Warranties" means the warranties set out in
Schedule 3 and "Warranty" shall be
construed accordingly;
"Waste" means any waste including anything
which is abandoned, unwanted or surplus
irrespective of whether it is capable
of being recovered or recycled or has
any value;
"Working Hours" means 9.30 a.m. to 5.30 p.m. on a
Business Day; and
"Year 2000 Matters" means whether the performance or
functionality of Information Technology
is, has been or will be affected by
dates prior to, during or after the
year 2000 and, in particular (but
without limitation), whether:
(i) no value for current date
causes, has caused or will
cause any interruption in
operation;
(ii) date-based functionality
behaves, has behaved and will
behave consistently for dates
prior to, during and after
the year 2000;
(iii) in all interfaces and data
storage, the century in any
date is, has been and will be
specified either explicitly
or by unambiguous algorithms
or inferencing rules; and
(iv) the year 2000 is and will be
recognised as a leap year.
(B) In this agreement, unless otherwise specified:-
(i) references to Clauses, Schedules and Attachments are to Clauses of,
and Schedules and Attachments to, this Agreement;
(ii) a reference to a sub-clause is to a sub-clause of the Clause in
which such reference appears, to a paragraph is to a paragraph of
the sub-clause or Schedule (as the case may be) in which such
reference appears and to a sub-paragraph is to a sub-paragraph of
the paragraph in which such reference appears;
<PAGE>
34
(iii) a reference to any statute or statutory provision shall be
construed as a reference to the same as it may have been, or may
from time to time be, amended, modified or re-enacted except to the
extent that any amendment or modification made after the date of
this Agreement would increase the liability of the Investor Parties
under this Agreement;
(iv) references to a "company" shall be construed so as to include any
company, corporation or other body corporate, wherever and however
incorporated or established;
(v) references to a "person" shall be construed so as to include any
individual, firm, company, government, state or agency of a state
or any joint venture, association or partnership (whether or not
having separate legal personality);
(vi) the expressions "holding company", "subsidiary" and "wholly-owned
subsidiary" shall have the meaning given in the Companies Act 1985;
(vii) a person shall be deemed to be connected with another if that
person is connected with that other within the meaning of section
839 ICTA 1988;
(viii) references to writing shall include any modes of reproducing words
in a legible and non-transitory form;
(ix) references to times of the day are to London time;
(x) headings are for convenience only and do not affect the
interpretation of this Agreement;
(xi) references to any English legal term for any action, remedy, method
of judicial proceeding, legal document, legal status, court,
official, or any legal concept or thing shall in respect of any
jurisdiction other than England be deemed to include what most
nearly approximates in that jurisdiction to the English legal term;
(xii) "so far as the Obligors are aware" means so far as is within the
actual knowledge of the Obligors or any of them and such knowledge
as the Obligors or any of them would have had had they made all
enquiries that a reasonable person of their qualification,
experience and position would have made.
<PAGE>
35
SCHEDULE 2
(Completion arrangements)
1. The Investor Parties' Obligations
At Completion the Investor Parties shall:
(A) deliver to the Purchaser or the Purchaser's Solicitors:
(i) the Tax Covenant, duly executed by the Obligors;
(ii) a Lock-Up Agreement, duly executed by each of the Sellers (except
BOS);
(iii) a copy of the minutes (or the relevant extract thereof) of a duly
held meeting of the directors of each of the Investor Parties (or a
duly constituted committee thereof) authorising the execution by
each of the Investor Parties of this Agreement and the Investors'
Completion Documents and, in the case where such execution is
authorised by a committee of the board of directors of the relevant
Investor Party, a copy of the minutes of a duly held meeting of the
directors constituting such committee or the relevant extract
thereof (in each case such copy minutes being certified as correct
by the secretary of the relevant Investor Party);
(iv) duly executed transfers in respect of the Shares (including any
Shares held by any nominee ) in favour of the Purchaser and share
certificates for such shares in the names of the relevant
transferors and any power of attorney under which any transfer is
executed on behalf of any of the transferors;
(v) the statutory registers (which shall be written up to but not
including the Completion Date), the certificate of incorporation
(and any certificate of incorporation on change of name) and common
seal (if any) of the Company and each of the Subsidiaries;
(vi) counterparts of the Amended and Restated Stockholders' Agreement,
duly executed by each of the Sellers (except BOS);
(B) procure the holding of board meetings of the Company and each of the
Subsidiaries at which:-
(i) it shall be resolved that the relevant transfers referred to in
paragraphs 1(A)(iv) above and 2(B) below shall be approved for
registration and (subject only in each case to the transfer being
duly stamped) the respective transferee registered as the holder of
the respective shares in the register of members of the relevant
member of the Group;
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36
(ii) each of the persons nominated by the Purchaser shall be appointed
directors of the relevant company, as the Purchaser shall direct,
such appointments to take effect on the Completion Date;
(iii) the resignation from the office of director of the relevant member
of the Group of Kevin Reynolds shall be tendered and accepted so as
to take effect at the close of the meeting and Kevin Reynolds shall
deliver to the relevant company an acknowledgement executed as a
deed in the Agreed Form, stating that he has no claim against the
relevant company for breach of any contract of employment with the
relevant company, compensation for loss of office, redundancy or
unfair dismissal or on any other account whatsoever and that no
agreement or arrangement is outstanding under which the relevant
company has or could have any obligation to him;
(iv) (if the Purchaser so requires) the situation of the registered
office shall be changed to such address as the Purchaser may
nominate and (subject to the provisions of the Companies Acts) the
accounting reference date shall be changed in accordance with any
instructions given by the Purchaser to Martin Glanfield on behalf of
the Investor Parties; and
(v) all existing instructions to banks shall be revoked and new
instructions to such banks in such form as the Purchaser may
reasonably direct shall be approved, provided that the Purchaser has
supplied such new instructions to Martin Glanfield on behalf of the
Investor Parties prior to Completion;
(C) (if required by the Purchaser) procure that the present auditors of the
Company and/or any of the Subsidiaries resign their office as such and
deposit at the registered office of the Company and/or any of the
Subsidiaries (as the case may be) a letter in Agreed Form notifying their
resignation acknowledging that, save for the payment of fees in the
ordinary course, they have in each case no claim against the relevant
company and containing a statement pursuant to section 394(1) Companies
Act 1985 that there are no circumstances connected with their ceasing to
hold office which they consider should be brought to the attention of any
members or creditors;
(D) procure that minutes of the board meetings referred to above, certified as
correct by the secretary of the relevant company, and the resignations and
acknowledgements referred to above are delivered to the Purchaser or the
Purchaser's Solicitors;
(E) use their reasonable endeavours to procure the signing by Aspinwall &
Company of a reliance agreement in a form suitable to the Purchaser in all
respects granting to the Purchaser (and any such person or persons as the
Purchaser may nominate) and at the Sellers' cost the right to rely on the
Environmental Report.
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37
2. BOS Obligations
At Completion BOS shall deliver to the Purchaser or the Purchaser's
solicitors:-
(A) a certified copy of a power of attorney authorising the execution of those
of the Investors Completion Documents to which BOS is a party by BOS; and
(B) duly executed transfers in respect of the BOS Shares (including any Shares
held by any nominee) in favour of the Purchaser and share certificates for
such shares in the names of the relevant transferors and any power of
attorney under which any transfer is executed on behalf of any of the
transferors.
3. Purchaser's obligations
At Completion the Purchaser shall:
(A) deliver to the Investor Parties' Solicitors:
(i) a counterpart of the Tax Covenant, duly executed by the Purchaser;
(ii) a counterpart of the Amended and Restated Stockholders' Agreement,
duly executed by the Purchaser;
(iii) a copy of the minutes of a duly held meeting of the directors of the
Purchaser (or a duly constituted committee thereof) authorising (i)
the execution by the Purchaser of this Agreement and the Purchaser's
Completion Documents, (ii) the issue, sale and delivery of the
Consideration Shares in accordance with this Agreement, and (iii)
the performance by the Purchaser of this Agreement and the
Purchaser's Completion Documents;
(iv) share certificates for the Consideration Shares;
(v) pay the Completion Payments due to BOS in GBP by CHAPS transfer same
day value to the BOS Account ;
(vi) pay the Investor Loan Amount in GBP by CHAPS transfer for same day
value to the Company's Account.
(vii) pay the Sellers' Advisers' Fees and the Completion Payments due to
the Managers, the Managers' Family Parties and the B Shareholders
which are to be satisfied in cash in GBP by CHAPS transfer for same
day value to the Sellers' Account.
<PAGE>
38
SCHEDULE 3
(The Warranties)
1. Ownership of the Shares
(A) Each of the Sellers are the sole legal and beneficial owners of the Shares
set opposite his or its name in Schedule 5.
(B) BOS is the sole legal and beneficial owner of the BOS Shares.
(C) The Shares constitute the entire issued share capital of the Company.
(D) There is no option, warrant, right to acquire, mortgage, charge, pledge,
lien or other form of security or encumbrance or equity on, over or
affecting the Shares or any of them and there is no agreement or
commitment to give or create any of the foregoing and no claim has been
made against the Company or any of the Investor Parties or BOS by any
person to be entitled to any.
2. Capacity of the Investor Parties
(A) Each of the Investor Parties and BOS has the requisite power and authority
to enter into and perform this Agreement and the other documents which are
to be executed by any of them at Completion (the "Investors' Completion
Documents").
(B) This Agreement constitutes and the relevant Investors' Completion
Documents to which they are a party will, when executed by the Investor
Parties, constitute binding obligations of each of the Investor Parties
and BOS in accordance with their respective terms.
(C) The execution and delivery of, and the performance by each of the Investor
Parties and BOS of obligations under, this Agreement and the Investors'
Completion Documents will not:-
(i) result in a breach of any provision of the memorandum or articles of
association of NWEP, NatWest Nominees or BOS or the constitutional
documents of the Beneficial Owners or the memorandum or articles of
association of any member of the Group;
(ii) result in a breach of, or constitute a default under, any instrument
to which any of the Investor Parties or BOS or any member of the
Group is a party or by which any of the Investor Parties or BOS or
any member of the Group is bound;
(iii) result in a breach of any order, judgement or decree of any court or
governmental agency to which any of the Investor Parties or BOS or
any member of the Group is a party or by which any of the Investor
Parties or BOS or any member of the Group is bound; or
<PAGE>
39
(iv) require any of the Investor Parties or BOS or any member of the
Group to obtain any consent or approval of, or give any notice to or
make any registration with, any United Kingdom governmental or other
authority which has not been obtained or made at the date hereof
both on an unconditional basis and on a basis which cannot be
revoked.
(D) None of the Sellers is a US person as such term is defined in Regulation S
of the Securities Act, nor are any of the Sellers acquiring the
Consideration Shares for the account or benefit of any such US person.
3. Arrangements between the Group and the Investor Parties
No Material Contract is outstanding between any member of the Group and
any of
(i) the Investor Parties or BOS; or
(ii) any member of the NatWest Group; or
(iii) any person who is a director of the NatWest Group or connected with
any such member of the NatWest Group, with any of the Investor
Parties, or with BOS,
and the Data Room contains each Material Contract which was outstanding
between any member of the Group and any of the Investor Parties or BOS or
any member of the NatWest Group or any person who is a director of the
NatWest Group or connected with any such member of the NatWest Group or
with BOS or with any of the Investor Parties at any time during (i) the
twelve months ended on the Accounts Date or (ii) the period from the
Accounts Date to the date of signing of this Agreement.
4. Group structure, etc.
(A) The Shares comprise the whole of the issued and allotted share capital of
the Company and all of them are fully paid up and there are no
restrictions of any kind on the voting or transfer of any of the Shares.
(B) There is no agreement or commitment or option or warrant outstanding which
calls for the allotment, issue or transfer of, or accords to any person
the right to call for the allotment or issue of, any shares (including the
Shares) or debentures in or securities of any member of the Group.
(C) The information given in Schedules 6 and 7 is true and accurate.
(D) The Company is the sole legal and beneficial owner of the entire issued
share capital of each of the Subsidiaries free and clear of all pledges,
securities, liens, charges, encumbrances, equities, claims, restrictions,
options or limitations affecting the Company's ability to vote or transfer
such shares.
<PAGE>
40
(E) No member of the Group has any interest in the share capital of or other
equity interest in any company other than the Subsidiaries.
(F) No member of the Group acts or carries on business in partnership with any
other person or is a member (otherwise than through the holding of share
capital) of any corporate or unincorporated body, undertaking or
association or holds or is liable on any share or security which is not
fully paid up or which carries any liability.
(G) No member of the Group trades under a name other than its corporate name.
(H) Each member of the Group is duly organised and validly existing under
English law.
(I) Each member of the Group has the corporate power and authority to own its
own properties and to carry on its business as it is currently conducted.
5. Ownership of Assets
(A) All assets used by any member of the Group in the course of its business
are both legally and beneficially owned by a member of the Group free from
any third party rights and all such assets are included in the Accounts or
the Management Accounts.
(B) Each of the assets included in the Accounts or acquired by any member of
the Group since the Accounts Date is owned both legally and beneficially
by a member of the Group and each of those assets capable of possession is
in the possession of a member of the Group.
(C) Apart from stock which is subject to suppliers' usual retention of title
terms, no option, right to acquire, mortgage, charge, pledge, lien or
other form of security or encumbrance or equity (an "Encumbrance") on,
over or affecting the whole or any part of the undertaking or the assets
of any member of the Group (including any investment in any other member
of the Group) is outstanding and there is no agreement or commitment to
give or create any such Encumbrance and no claim has been made by any
person to be entitled to any such Encumbrance which is still outstanding.
(D) Each item of plant and machinery, including fixed plant and machinery and
all vehicles and office and other equipment used by any member of the
Group in the Acquired Businesses is serviceable and capable of being
properly used without interruption in connection with the Acquired
Businesses taken as a whole as currently conducted.
(E) To the extent that any of the assets referred to in sub-paragraph (C) are
not owned by a member of the Group, details of such assets are contained
in the Disclosure Letter including, in the case of assets leased by a
member of the Group, all details of the leases under which such assets are
held.
<PAGE>
41
6. Accuracy of information
(A) All registers required to be kept by each member of the Group by law have
been properly kept and are up to date and contain a record of the matters
which should be dealt with in those registers and no notice or allegation
that any of them is incorrect or should be rectified has been received by
any member of the Group.
(B) The copies of the memorandum and articles of association or other like
constitutional documents of each member of the Group contained in the Data
Room are complete and accurate copies.
(C) All returns and other documents relating to the Group required to be
delivered to the Registrar of Companies have been properly made and
delivered.
7. Accounts and Statutory Accounts
(A) The Accounts:-
(i) were prepared in accordance with accounting principles generally
accepted in the United Kingdom as at the Accounts Date and commonly
adopted by companies carrying on businesses similar to those carried
on by the respective members of the Group;
(ii) show a true and fair view in accordance with such generally accepted
accounting principles and practices of the assets and liabilities of
the members of the Group to which they relate, and of the Group as a
whole as at the Accounts Date and the profits of the Group for the
accounting period then ended; and
(iii) are not affected by any unusual or non-recurring items save for
those items specifically stated as such therein.
(B) Each of the Management Accounts have been properly prepared in accordance
with good accounting practice and on a basis consistent with that
previously adopted and give a fair and reasonable view of the results of
the Group for the period to which they relate. The Management Accounts do
not contain any unusual, exceptional, non- recurring or extraordinary
items of income or expenditure (save as specifically disclosed therein)
which would render the profits or losses of the of the Group for all or
any part of the period to which the Management Accounts relate unusually
high or low.
(C) The accounts provided by the Company for inclusion in the Purchaser's S-1
Registration Statement conform in all material respects to the
instructions set forth in item 18 of Form 20-F promulgated by the US
Securities and Exchange Commission.
<PAGE>
42
(D) Details of all Indebtedness of each member of the Group are set out in the
Disclosure Letter.
(E) At the Accounts Date, no member of the Group had any liability (whether
actual, contingent, unquantified or disputed) or outstanding capital
commitment which is not adequately disclosed or provided for in the
Accounts.
8. Events since the Takeover Date
(A) Since the Takeover Date:-
(i) there has been no material adverse change in the business or assets
or condition or the financial or trading position or prospects of
the Group as a whole or any member of the Group;
(ii) the Acquired Businesses have in all material respects been carried
on in the ordinary course and no Material Contract has been entered
into by any member of the Group;
(iii) no asset of any member of the Group of a value in excess of
(pound)100,000 has been acquired or disposed of on capital account
or has been agreed to be acquired or disposed of;
(iv) no resolution of any member of the Group in general meeting has
been passed other than resolutions relating to the routine business
of annual general meetings;
(v) no member of the Group has declared, authorised, made or paid to
its members any dividend or other similar distribution;
(vi) no member of the Group has allotted or issued or agreed to issue or
granted an option or other right to acquire any share capital;
(vii) no member of the Group has redeemed or purchased or offered or
agreed to redeem or purchase any of its share capital; and
(viii) no customer or supplier has:-
(a) so far as the Obligors are aware, ceased or notified an
intention to cease trading with or supplying to the Group;
(b) so far as the Obligors are aware, reduced, or notified an
intention to reduce (conditionally or otherwise)
substantially its trading with or supplies to the Group; or
<PAGE>
43
(c) changed or indicated in writing an intention to change
substantially the terms on which it is prepared to trade with
or supply the Group (other than price and quota changes
consistent with past practice).
(B) All net book debts and other trade receivables shown in the Accounts have
been realised for an aggregate sum not being less than that shown in the
Accounts less applicable provisions.
(C) No indication has been received that any debt now owing to any member of
the Group is bad or doubtful in whole or in part.
9. Contracts and commitments
(A) The Data Room contains each outstanding contract or arrangement entered
into by any member of the Group which:
(i) is worth more than GBP(pound)50,000 per annum;
(ii) restricts it from carrying on the Acquired Business Group in any
part of the world;
(iii) is a joint venture agreement or arrangement under which it is to
participate with any other person in any business; or
(iv) is an agency or distributorship contract or arrangement.
(B) No member of the Group is a party to any contract or arrangement which is
not contained in the Data Room and which:
(i) is a contract or arrangement which has an unexpired term of or more
one year;
(ii) can be terminated by any other party thereto in the event of a
change of control of that member of the Group or would be materially
affected by such change; or
(iii) makes it liable to make any investment in securities or make any
loan (other than normal trade credit) to any person.
(C) No member of the Group is in breach of any contract or arrangement of the
type referred to in paragraphs (A) or (B) above (a "Material Contract")
and, so far as the Obligors are aware, no other party to any such,
Contract is in breach of any such Material Contract.
<PAGE>
44
10. Bank accounts and borrowings
(A) Details of all bank accounts maintained or used by each member of the
Group (comprising, in each case, the name and address of the bank with
whom the account is kept and the number and nature of the account) are set
out in the Disclosure Letter.
(B) The Data Room contains the terms of each overdraft, loan and other similar
financial facility available to each member of the Group and the amounts
outstanding under them (as at the close of business on the Business Day
immediately preceding the date of this Agreement) are set out in the
Disclosure Letter and no Investor Party or member of the Group has done
anything whereby the continuance of any of those facilities might be
affected or prejudiced.
(C) The total amount of Indebtedness of each member of the Group does not
exceed any limitation in its financial facilities or memorandum or
articles of association.
(D) The copy of the agreements relating to the BOS Facilities contained in the
Data Room are complete and accurate copies.
(E) Except for the borrowings referred to in paragraphs 10(B) and 10(C) no
member of the Group has outstanding any loan capital or incurred or agreed
to incur any borrowing which it has not repaid or satisfied, or has lent
or agreed to lend any money which has not been repaid to it or owns the
benefit of any debt present or future (other than debts due to it in
respect of the sale of trading stock in the normal course of trading) or
is a party to or has any obligation under:
(i) any loan agreement, debenture, acceptance credit facility, bill of
exchange, promissory note, finance lease, debt or inventory
financing, discounting or factoring arrangement or sale and lease
back arrangement; or
(ii) any other arrangement the purpose of which is to raise money or
provide finance or credit.
(F) No event which is or, with the passing of any time or the giving of any
notice, certificate, declaration or demand, would become an event of
default under or any material breach of any of the terms of any loan
capital, borrowing, debenture or financial facility of any member of the
Group or would entitle any third party to call for repayment prior to
normal maturity has occurred or been alleged.
11. Powers of attorney
No member of the Group has given any power of attorney, proxy or similar
authority in relation to the Acquired Business which is still outstanding.
<PAGE>
45
12. Grants and allowances
No member of the Group has received any grant, allowance, aid or subsidy
from any supranational, national or local authority or government agency
during the last three years which is currently repayable as a result of
any act or failure to act by the member of the Group concerned or which
would be repayable as a result of the sale of the Shares to the Purchaser.
13. Substantial dependence
Since 1st April, 1999 no person has purchased from or sold to any member
of the Group more than 10 per cent. of the aggregate amount of all sales
or purchases made by the Group taken as a whole during such period.
14. Licences
All licences, consents, and other permissions and approvals which are
necessary to any Acquired Business (excluding those referred to in Clause
3 of this Agreement) are held by the relevant member of the Group and are
listed in the Disclosure Letter, are not subject to onerous conditions and
are in full force and effect and all reports, returns and information
required by law or as a condition of any licence, consents, permit or
approval to be made or given to any person or authority in connection with
the business of any member of the Group have been made or given to the
appropriate person or authority and no member of the Group has received
any indication that any licence, consent, permission or approval is likely
to be revoked or which may confer an right of revocation.
15. Litigation
(A) No member of the Group is engaged in any litigation or arbitration,
administrative or criminal proceedings, whether as plaintiff, defendant or
otherwise.
(B) No such litigation or arbitration, administrative or criminal proceedings
as are referred to in sub-paragraph (A) is pending or threatened or
expected and so far as the Obligors are aware (having made due and careful
enquiry of each member of the Group), there is no fact or circumstance
likely to give rise to any such litigation, arbitration, administrative or
criminal proceedings or to any proceedings against any director or
employee (past or present) of any member of the Group in respect of any
act or default for which that member might be vicariously liable.
16. Investigations and Inquiries
No member of the Group has received notification that any investigation or
inquiry is being or has been conducted by any supranational, national or
local authority or governmental agency in respect of the business or
affairs of any member of the
<PAGE>
46
Group nor, so far as the Obligors are aware, are there any matters or
facts which might reasonably be expected to give rise to such litigation
or proceedings.
17. Property
(A) The Properties are the only real properties owned, used or occupied by the
Company or any member of the Group or in respect of which the Company or
any member of the Group has any estate, interest, right or liability.
(B) In relation to each Property:
(i) the member of the Group set out in Schedule 9 (Property) is solely
legally and beneficially entitled to such Property;
(ii) the member of the Group set out in Schedule 9 (Property) has under
its control all of the title deeds and documents necessary to prove
its title to such Property;
(iii) the member of the Group set out in Schedule 9 (Property) is in
physical possession and actual occupation of the whole of such
Property on an exclusive basis.
(C) (i) There are no mortgages or charges, legal or equitable, fixed or
floating, affecting any of the Properties and no person has or
claims to have any lien on any of the Properties or the documents of
title.
(ii) There have been no notices received of any non-compliance with any
covenants, restrictions and other encumbrances affecting any
Property.
(D) (i) Each Property is presently used for the purpose referred to in
Schedule 9 (Property), which so far as the Managers are aware is a
permitted or lawful use under applicable planning legislation.
(ii) There have been no notices received of any non-compliance with any
conditions to any consent or permission relating to any Property and
the Managers are not aware of any breach of the same.
(iii) No enforcement notice, stop notice, breach of condition notice or
revocation, modification or discontinuance order affecting any
Property has been received.
(E) No notice of non-compliance has been received regarding statutes, orders
or regulations relating to each Property, its current use or development
or the use of any fixtures, machinery or chattels in it.
<PAGE>
47
(F) So far as the Managers are aware no member of the Group has received a
compulsory purchase order, notice to treat or a notice of entry and no
proposals have been published for its compulsory acquisition in respect of
the Properties.
(G) (i) To the best of the Managers' knowledge (having made no specific
enquiry) all buildings or other structures on or comprising each
Property are in good state of repair and condition and none of the
Managers expect that the expenditure of any substantial sum of money
will be required in respect of the Property within two years of the
date of this agreement.
(ii) Neither the Sellers nor the relevant member of the Group that has
the title interest in any Property has received any adverse
surveyors', engineers' or other professionals' reports in respect of
any Property.
(H) None of the Properties is subject to the payment of any outgoings other
than the uniform business rate or water rates (and, in the case of
leaseholds, the rents, insurance and service charge reserved by the Lease)
all of which have been paid to date.
(I) So far as the Managers are aware there are no outstanding disputes,
actions, claims, demands or complaints in respect of any Property and no
notice affecting any Property has been given or received.
(J) In relation to each Property which is leasehold:
(i) the Property is held under the terms of the lease (the "Lease")
briefly referred to in Schedule 9 (Property) and no collateral
assurances, undertakings or concessions have been made by any party
to the Lease;
(ii) there are no rent reviews outstanding or exercisable by the lessor
from a date prior to the Completion Date;
(iii) the rent and all other sums payable under the Lease have been paid
to date. Neither the Managers nor any of the relevant site
management have received any notice of any non-compliance with any
covenants and conditions contained in the Lease or in any licence,
consent or other document entered into supplemental to the Lease;
(iv) neither the tenant nor any other person has carried out any
alterations or improvements which are required by the Lease to be
reinstated or removed on or before the end of the term.
18. Environment
(A) All Environmental permits have been obtained and are in full force and
effect.
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48
(B) No circumstances exist which could result in and the sale of the Shares
under this Agreement will not result in (a) the limitation or revocation
of any Environmental Permit; or (b) any Environmental Permit not being
renewed or granted.
(C) Each member of the Group complies and in the last three years has complied
in all respects with Environmental Law and there are and have been no acts
or omissions of the Company in relation to Environmental Matters which are
reasonably likely to give rise to any fines, penalties, losses, damages,
costs, expenses or liabilities.
(D) No member of the Group is or has been involved in the past 3 years in any
litigation proceedings, claim or complaint by any person under
Environmental Laws and none is threatened or pending. At no time in the
past 3 years has any member of the Group received any written notice or
communication alleging any liability in relation to Environmental Matters.
(E) All environmental audits and other assessments, reviews and reports
published in the last 12 months in the possession or control of any member
of the Group relating to any Property or any of the activities of the
members of the Group have been disclosed.
(F) No member of the Group has any liability to any person in respect of
Environmental Matters under any contract or other agreement entered into
within the last 12 months relating to the sale or other disposal or grant
of any interest or rights in relation to any shares, land or other asset.
19. Intellectual Property
(A) No member of the Group owns any registered Intellectual Property legally
or beneficially.
(B) No member of the Group has granted a licence in respect of any
Intellectual Property used or being developed for use in any of the
Acquired Businesses.
No member of the Group has granted a licence in respect of any
Intellectual Property used or being developed for use in any of the
Acquired Businesses.
(C) So far as the Obligors are aware the processes and methods employed, the
services provided, the businesses conducted and the products manufactured,
used or dealt in by each member of the Group do not infringe and have not
infringed the rights of any other person in any Intellectual Property.
(D) So far as the Obligors are aware, there is no unauthorised use or
infringement by any person of any Intellectual Property owned or otherwise
required for the business of any member of the Group.
<PAGE>
49
20. Competition and trade regulation law
(A) So far as the Obligors are aware, no member of the Group is a party to any
agreement in a manner which:-
(i) contravenes the Competition Act 1998; or
(ii) infringes Article 81 or 82 of the Treaty establishing the European
Union.
(B) No member of the Group is a party to any agreement in respect of which any
undertaking has been given by or any order made against any member of the
Group pursuant to the RTPA 1976 or in respect of which an undertaking has
been given by or an order made against any member of the Group pursuant to
the Resale Prices Act 1976.
(C) No member of the Group has given any assurance or undertaking (which
remains outstanding) to, or is subject to any specific order, decision or
ruling of:-
(i) the Office of Fair Trading or the Competition Commission; or
(ii) the Commission of the European Union under EC competition
legislation.
(D) No member of the Group is a party to or is concerned in any agreement or
arrangement in respect of which an application for negative clearance
and/or exemption has been made to the Commission of the European Union.
(E) No filing is required by any of the Investor Parties as an "acquiring
person" under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of
1976 as amended in connection with his, her or its acquisition of
Consideration Shares.
21. Insurances
Details of the insurance policies in respect of which any member of the
Group has an interest are set out in the Data Room and, no individual or
related claims for amounts in excess of (pound)25,000 are outstanding
thereunder.
22. Employment
(A) A list of the names, jobs and details of the terms of employment
(including the emoluments) of each Employee is set out in the Disclosure
Letter.
(B) Short details of any material benefit received by any Employee otherwise
than in cash, and of any benefit received by any Employee in cash which is
related in whole or in part to sales, profits, turnover or performance, or
which is otherwise variable (other than normal overtime), are set out in
the Disclosure Letter.
<PAGE>
50
(C) Unless provided otherwise by mandatory statutory provisions and in
accordance with applicable law, any contract of employment with any
Employee to which any member of the Group is a party can be terminated by
the employing company without damages or compensation (other than that
payable under statute) by giving at any time no more than three months'
notice in writing to that Employee.
(D) No Senior Employee has given notice terminating his contract of employment
or is under notice of dismissal and no amount due to or in respect of any
such Senior Employee, director or employee or former Senior Employee is in
arrears and unpaid other than his salary for the month current at the date
of this Agreement.
(E) Since the Takeover Date, no change has been made in the emoluments or
other terms of employment of any Senior Employee.
(F) There is no dispute between any member of the Group and any trade union or
other organisation formed for a similar purpose existing nor, pending or
threatened in writing to any member of the Group and there is no
collective bargaining agreement (whether binding or not) to which any
member of the Group is a party.
(G) There is no person who works wholly or predominantly in any Acquired
Business who is not an employee of a member of the Group.
(H) No member of the Group is the employer of any person who does not work
wholly in one or more of the Acquired Businesses.
(I) Any and all arrangements under which benefits of any kind are payable to
or in respect of any employee or former employee of any member of the
Group in the event of disability or sickness are fully insured under a
policy with an insurance company and will not cease to be so insured
before Completion.
(J) The Group complies with all applicable laws and industry guidelines
relating to the health and safety of employees and so far as the Obligors
are aware, no circumstances exist which are likely to endanger the health
and safety of any of the Group's employees.
23. Information Technology
So far as the Obligors are aware:-
(A) in the 12 months prior to the date of this Agreement there has been no
failure or breakdown of any computer software and/or computer hardware
used by any member of the Group which has caused any material disruption
to the Acquired Business.
(B) the computer software and hardware operated by each member of the Group is
adequate for the purposes of running the Acquired Business as currently
carried on.
<PAGE>
51
(C) no member of the Group has experienced any material disruption to its
business or operations as a result of Year 2000 Matters and there is no
fact or circumstance of which the Obligors are aware likely to give rise
to such disruption.
24. Product Liability
No member of the Group has received in the period of two years prior to
the date of this Agreement any material notification or claim which
remains outstanding that it has manufactured, sold or provided any product
or service which does not comply with all applicable laws, regulations or
standards or which is defective or dangerous or not in accordance with any
representation or warranty, express or implied, given by the relevant
member of the Group. So far as the Obligors are aware, no matters or facts
exist which might reasonably be expected to give rise to any such
notification or claim.
25. Pensions
In this paragraph 25:
"Former Schemes" means all occupational pension schemes (as
defined in section 1 of the Pension Schemes Act
1993) to which any member of the Group may be
required to make a payment pursuant to section
75 of the Pensions Act 1995, or otherwise as a
result of the liabilities of the scheme
exceeding the value of its assets,
"Pension Schemes" means:-
(i) the Zlin Electronics Limited Group Personal
Pension Scheme insured with Norwich Union;
(ii) the Guardian Group Life Assurance Scheme;
(iii) the Zlin Electronics Limited Personal
Pension Scheme insured with Scottish
Equitable;
(iv) the Zlin Electronics Limited Staff Pension
Fund;
(v) the Zlin Electronics Limited Directors
Pension Fund;
(vi) the Calne Electronics Ltd Staff Benefit
Scheme insured with Eagle Star;
(vii) the Calne Electronics Limited Directors
Pension Scheme;
<PAGE>
52
(viii) the Calne Electronics Staff Retirement
Benefit Scheme;
(ix) the Sun Life Group Personal Pension Plan
(in relation to the Group);
(x) the Scottish Life Group Money Purchase Plan
(in relation to the Group);
(xi) the AXA Money Purchase Scheme for J.
Harris;
(xii) the Symonds Engineering plc Retirement and
De ath Benefits Scheme; and
(xiii) the Symonds Engineering Retirement Benefit
Scheme insured with Scottish Life.
"Relevant Employee" means an employee or director for the time
being of or a former employee or director of
any member of the Group or a former employee or
director of any other employer to whose
business (or any part thereof) any member of
the Group has succeeded.
(A) Other than the Pension Schemes and the State schemes, there is no
arrangement to which any member of the Group contributes or has
contributed under which benefits of any kind are payable to or in respect
of any of the Relevant Employees on retirement or death (whether
accidental or not).
(B) Full details have been disclosed to the Purchaser of all present officers
and employees of any member of the Group who are members of the Pension
Schemes and of the rates at which any member of the Group is or may be
liable to contribute in respect of each of those members.
(C) No member of the Group is making and no member of the Group has regularly
made or will before Completion make any ex gratia payments to any of the
Relevant Employees or to any spouse, child or dependant of any of them.
(D) Each Pension Scheme:
(i) is an exempt approved scheme (within the meaning of Chapter I of
Part XIV or Chapter IV or Part XII of the Income and Corporation
Taxes Act 1988);
(ii) has at all times complied with and been duly administered in
accordance with, and will until Completion continue to comply with
and to be duly administered in accordance with, all applicable laws,
regulations and requirements (including Revenue and trust
requirements).
<PAGE>
53
(E) Each member of the Group in respect of each Pension Scheme which is
contracted-out (other than any Pension Scheme under which at no time has
any Relevant Employee in the employ of that member of the Group been
entitled to benefit) holds or is named in and will until Completion
continue to hold or be named in an appropriate contracting-out certificate
(within the meaning of the Pension Schemes Act 1993) in respect of those
of its employees who are members of such a Pension Scheme.
(F) All benefits payable under each Pension Scheme on death before normal
pension age of a Relevant Employee while in an employment to which the
Pension Scheme relates are insured fully under a policy with an insurance
company and will not cease to be so insured before Completion.
(G) All contributions to each Pension Scheme have at all times been made in
accordance with the provisions of the Pension Scheme and those which fall
due for payment before the date of Completion will have been paid by that
date.
(H) No undertaking or assurance has been given to any Relevant Employee as to
the continuance or introduction or increase or improvements of any pension
rights or entitlement.
(I) Each Pension Scheme provides only money purchase benefits within the
meaning of section 181(1) of the Pension Schemes Act 1993.
(J) No claims (other than routine claims for benefits), complaints to the
Pensions Ombudsman or reports to the Occupational Pensions Regulatory
Authority have been made or as far as the Obligors are aware are pending
or threatened in respect of the provision of (or failure to provide)
pension, lump sum or death benefits by any member of the Group. There is
no fact or circumstance likely to give rise to such claims or complaints.
(K) No "surplus payment" within the meaning of the Pension Scheme Surpluses
(Administration) Regulations 1987 (S.I. 1987 No. 352) has been, or will
before Completion be, made out of any of the Pension Schemes.
(L) Each member of the Group and each Pension Scheme has complied fully with
all equal pay, equal entitlement, sex and other discrimination legislation
including Article 141 of the Treaty of Rome, all applicable EU directives
and all UK statutes and regulations and statutory instruments.
(M) (i) The identity of every Former Scheme is set out in the Disclosure
Letter.
(ii) No member of the Group has participated in any Former Scheme
immediately before or at a time when that scheme ceased to admit new
members.
<PAGE>
54
(N) The name, registered number and registered office of all companies
participating in any of the Pension Scheme or the Former Schemes at the
date of this Agreement or, if the scheme has ceased to admit new members,
immediately before or at any time after such cessation have been disclosed
to the Purchaser in the Disclosure Letter.
(O) The Symonds Engineering Retirement Benefit scheme is being wound up and
there are sufficient assets in this Scheme to meet all current and future
liabilities of the scheme and after any augmentation of the members'
benefits to discharge any administration fees associated with the winding
up.
26. The Accounts and Tax
Save in respect of accounting periods commencing after the Accounts Date, no
member of the Group has any liability in respect of Taxation (whether actual or
contingent) that is not disclosed or provided for in the Accounts and, in
particular, has no outstanding liability for:-
(A) Taxation in any part of the world assessable or payable by reference to
profits, gains, income or distributions earned, received or paid or
arising or deemed to arise on or at any time prior to the Accounts Date or
in respect of any period starting before the Accounts Date; or
(B) for purchase, value added, sales or other similar tax in any part of the
world referable to transactions effected on or before the Accounts Date,
that is not properly provided for in full in the Accounts.
27. Tax returns, disputes, records and claims etc.
(A) Each member of the Group has made or caused to be made all proper returns
required to be made, and has supplied or caused to be supplied all
information required to be supplied, to any Tax Authority.
(B) So far as the Obligors are aware, there is no dispute or disagreement
outstanding nor is any contemplated at the date of this agreement with any
Tax Authority regarding liability or potential liability to any Tax
(including in each case penalties or interest) recoverable from any member
of the Group or regarding the availability of any relief from Tax to any
member of the Group and there are no circumstances which make it likely
that any such dispute or disagreement will commence.
(C) The amount of Tax chargeable on any member of the Group during any
accounting period ending on or within six years before the Accounts Date
has not, to any material extent, depended on any concession, agreement or
other formal or informal arrangement with any Tax Authority.
<PAGE>
55
(D) No member of the Group has received any written notice from any Tax
Authority which requires such member to withhold Tax from any payment made
since the Accounts Date.
28. Stamp duty
All material documents which are required to be stamped and which are in
the possession of any member of the Group or by virtue of which any member
of the Group has any right have been duly stamped.
29. Value added tax
(A) The Company is registered for the purposes of VATA 1994 and has made,
given, obtained and kept full, complete, correct and up-to-date records,
invoices and other documents appropriate or required for those purposes
and is not in arrears with any payments or returns due and has not been
required by the Commissioners of Customs & Excise to give security under
paragraph 4 of Schedule 11 VATA 1994.
(B) The Company has never been treated as a member of a group under section 43
VATA 1994 and no application has ever been made for the Company so to be
treated.
(C) The Company has not, since the date of its registration for the purposes
of VATA 1994, been in default in respect of any prescribed Accounting
Period, as mentioned in section 59(1) VATA 1994.
(D) Full details of any outstanding claim for bad debt relief under section 36
VATA 1994 or under section 11 Finance Act 1990 made by the Company has
been disclosed in writing to the Purchaser.
30. Tax events since the Accounts Date
Since the Accounts Date:-
(i) no member of the Group has declared, made or paid any distribution
within the meaning of ICTA 1988;
(ii) no accounting period of any member of the Group has ended;
(iii) no member of the Group has been a party to any transaction for which
any tax clearance provided for by statute has been or could have
been obtained from any Revenue Authority;
(iv) no member of the Group has paid or become liable to pay any interest
or penalty in connection with any Tax, has otherwise paid any Tax
after its due date for payment or owes any Tax the due date for
payment of which has passed or will arise in the 30 days after the
date of this Agreement.
<PAGE>
56
31. Duties etc.
All value added tax, import duty and other taxes or charges payable upon
the importation of goods and all excise duties payable to H.M. Customs &
Excise payable in respect of any assets (including trading stock)
imported, owned or used by any member of the Group have been paid in full.
32. Replacement of business assets
Full particulars of each claim under section 115 or 116 CGTA 1979 or under
sections 152 or 153 of the TCGA 1992 made prior to the date of this
Agreement to which section 117 CGTA 1979 or section 154 TCGA 1992 applies
and which affects any asset which was owned by any member of the Group on
or after the Accounts Date (except where the held over gain is treated as
having accrued prior to the Accounts Date) have been disclosed in the
Disclosure Letter.
33. Distributions
Since the date of incorporation of the relevant member of the Group, no
member of the Group has made any repayment of share capital to which
section 210(1) ICTA 1988 applies or issued any share capital or other
security as paid up otherwise than by the receipt of new consideration
within the meaning of Part VI ICTA 1988.
34. Deductions and withholdings
Each member of the Group has made all deductions in respect, or on
account, of any tax from any payments made by it, which it is, obliged or
entitled to make and has accounted in full to the appropriate Tax
Authority for all amounts so deducted.
35. Residence
The country which is given in Schedule 6 or Schedule 7 as the tax
residence of each member of the Group is the only country whose Tax
Authorities seek to charge Tax on the world-wide profits or gains of that
member of the Group and no member of the Group has ever paid Tax on income
profits or gains to any Tax Authority in any other country except that
mentioned in Schedule 6 or Schedule 7 in respect of it.
36. Group arrangements
There are no circumstances by virtue of which section 410 or 413 of ICTA
1988 would prevent each member of the Group resident in the United Kingdom
being treated as a member of the same group of companies as each other
such member so resident within Chapter IV Part X of ICTA 1988 for any
accounting period commencing on or before the date of this Agreement.
<PAGE>
57
37. Exit Charges
No liability to Tax will arise to any member of the Group under section
179 of TCGA 1992 in consequence of the sale and purchase of the Shares
pursuant to this Agreement.
38. Roll-over and Hold-over Relief
No roll-over or hold-over claim or election has been made in respect of
the disposal of the site at Cheshunt (full particulars of such disposal
being set out in the Disclosure Letter).
<PAGE>
58
SCHEDULE 4
(Limitations on liability)
Part 1
1. Limitation on quantum and general
(A) Subject as provided below, the total aggregate liability of the Obligors
under the Warranties, the Indemnities and the Tax Covenant (other than any
claim under the Warranties set out in paragraphs 1 and 2 of Schedule 3)
shall not in any event exceed:
(i) up to the first anniversary of the Completion Date, an amount equal
to 9.85 per cent. of the Provisional Consideration plus in the case
of a Manager an amount equal to that Manager's Liability Cap
Addition; and
(ii) after the first anniversary of the Completion Date, an amount equal
to 3.4 per cent of the Provisional Consideration,
provided that the individual liability of any one Obligor under the
Warranties, the Indemnities and the Tax Covenant (other than any claim
under the Warranties set out in paragraphs 1 and 2 of Schedule 3) in
respect of each claim shall be pro rata to its or his percentage of the
Provisional Consideration and shall not in any event exceed:
(i) up to the first anniversary of the Completion Date, an amount equal
to 9.85 per cent. of the Provisional Consideration attributable to
that particular Obligor plus in the case of a Manager an amount
equal to that Manager's Liability Cap Addition; and
(ii) after the first anniversary of the Completion Date, an amount equal
to 3.4 per cent. of the Provisional Consideration attributable to
that particular Obligor.
In this paragraph the expression "Liability Cap Addition" means:
(i) in the case of Martin Malone, (pound)366,000 (58 per cent.);
(ii) in the case of Martin Glanfield (pound)196,000 (31 per cent.); and
(iii) in the case of John Calvert (pound)68,000 (11 per cent.).
In the event that the total aggregate liability of the Obligors under the
Warranties, the Indemnities and the Tax Covenant (other than any claim
under the Warranties set out in paragraphs 1 and 2 of Schedule 3) exceeds
9.85 per cent. of the Provisional Consideration in respect of the period
up to the first anniversary of the Completion Date, and the Managers are
additionally liable up to the Managers'
<PAGE>
59
Liability Cap Addition, then the liability of each Manager in respect of
that additional liability shall not exceed his pro rata percentage of the
Managers' Liability Cap Addition.
(B) The Purchaser shall not be entitled in any event to damages or other
payment in respect of any claim or claims under the Warranties, the Tax
Covenant or the Indemnities unless and until the amount of all claims made
in respect of the Warranties, the Tax Covenant or the Indemnities or any
of them exceeds GBP 30,000 but, once the amount of all such claims has
exceeded such sum, the Obligors' liability shall arise in respect of the
full amount of all such claims and not merely in respect of the excess
over such sum.
(C) Each provision of this Schedule shall be read and construed without
prejudice to each of the other provisions of this Schedule.
(D) As regards the Tax Covenant the provisions of this Schedule shall operate
to limit the liability of the Obligors only in so far as any provision in
this Schedule is expressed to be applicable to the Tax Covenant.
2. Time limits for bringing claims
(A) No claim shall be brought against the Obligors or any of them in respect
of any of the Warranties, the Tax covenant or the Indemnities unless the
Purchaser shall have given written notice to the Obligors of such claim
specifying (in reasonable detail) the matter which gives rise to the claim
and the nature of the claim:-
(i) subject to sub-paragraphs (ii), (iii) and (iv), on or before the
date falling 12 months after the Completion Date;
(ii) on or before the second anniversary of the Completion Date in
respect of claims relating to Environmental Matters;
(iii) on or before the sixth anniversary of the Completion Date in respect
of any claims under the Tax Warranties or the Tax Covenant;
(iv) at any time after Completion in respect of any claim under the
Warranties set out in paragraphs 1 and 2 of Schedule 3.
(B) the liability of the Obligors in respect of any claim shall absolutely
determine (if such claim has not been previously satisfied, settled or
withdrawn) if legal proceedings in respect of such claim shall not have
been commenced within 12 months of the service of such notice and for this
purpose proceedings shall not be deemed to have been commenced unless they
shall have been properly issued and validly served upon the Obligors or
any of them as relevant.
<PAGE>
60
3. Conduct of litigation
Upon the Purchaser becoming aware that any claim, action or demand against it or
any other matter is reasonably likely to give rise to any claim in respect of
any of the Warranties (except a Tax Warranty), the Purchaser shall:-
(A) as soon as reasonably practicable notify the Investor Parties in writing
as soon as it appears to the Purchaser that any assessment or claim of a
third party received by or coming to the notice of the Purchaser or any
member of the Purchaser's Group may result in a claim under the
Warranties;
(B) save where the Purchaser reasonably believes that to do so would be
reasonably likely to be materially detrimental to the business or affairs
of any member of the Purchaser's Group or where there is a conflict of
interest between the Obligors and any member of the Purchaser's Group (in
which event the Purchaser shall explain the reasons to the Investor
Parties), and subject to the Obligors indemnifying and securing the
Purchaser and each member of the Purchaser's Group to their reasonable
satisfaction against any liability, costs, damages or expenses which may
be incurred thereby (but without prejudice to any rights which the
Purchaser may have against the Obligors in respect of any such claim and
without constituting a waiver of such rights):-
(i) give such information and reasonable access to personnel, premises,
documents and records within the power, possession or control of the
Purchaser, not subject to legal professional privilege, to Obligors
and their professional advisers as it may reasonably request
(subject to confidentiality undertakings reasonably acceptable to
the Purchaser being given by the Obligors and take such reasonable
action and give such reasonable information and assistance as the
Obligors may reasonably request in order to avoid, dispute, resist,
mitigate, settle, compromise, defend or appeal any claim in respect
thereof or adjudication with respect thereto; and
(ii) if the Investor Parties so request, allow the Investor Parties to
take the sole conduct of such actions as the Investor Parties may
deem appropriate in connection with any such assessment or claim in
the name of the Purchaser or any relevant company and in that
connection the Purchaser shall give or cause to be given to the
Investor Parties all such assistance as the Investor Parties may
reasonably require in avoiding, disputing, resisting, settling,
compromising, defending or appealing any such claim and shall
instruct such solicitors or other professional advisers as the
Investor Parties may nominate to act on behalf of the Purchaser or
any relevant company, as appropriate, provided that the Purchaser
shall not be required to commence any legal proceedings where
either:-
(a) the Purchaser has validly assigned all of its rights in
relation to the relevant claim to the Investor Parties in a
manner which entitles the
<PAGE>
61
latter to the same benefits in respect of such rights as the
Purchaser had; or
(b) where sub-paragraph (B)(ii)(a) does not apply the Investor
Parties have not notified the relevant party against whom such
proceedings are brought that such proceedings are being
brought at their instruction; and
(C) save where the Purchaser reasonably believes that failure to do so would
be reasonably likely to be materially detrimental to the business or
affairs of any member of the Purchaser's Group or where there is a
conflict of interest between the Investor Parties and any member of the
Purchaser's Group or where it is required to do so by law, make no
admission of liability, agreement or compromise with any third party in
relation to any such claim or adjudication without prior consultation with
the Investor Parties.
(D) Any failure by the Purchaser to comply or procure compliance with the
provisions of this paragraph 3 due to events beyond its control shall not
prevent any claim by the Purchaser or extinguish any liability of the
Investor Parties in respect of the matter in question.
4. No liability if loss is otherwise compensated for
No liability shall attach to the Obligors by reason of any breach of any
of the Warranties or the Tax Covenant to the extent that the same loss has
been recovered by the Purchaser by a claim under any other Warranty or
under the Tax Covenant.
5. Disclosure
The Purchaser shall not be entitled to claim that any fact, matter or
circumstance causes any of the Warranties to be breached if fairly
disclosed in the Disclosure Letter.
6. Claim to be reduction of Adjusted EnterpriseValue
Any payment made by any of the Obligors or any other person in respect of
any claim under the Warranties shall be deemed to be a reduction of the
Adjusted Enterprise Value.
7. Fraud
None of the limitations contained in this Schedule 4 shall apply to any
claim by the Purchaser pursuant to this Agreement which (or the delay in
discovery of which) is the consequence of fraud or dishonest concealment
by any of the Investor Parties or any of their respective offices or
employees or agents or advisers.
<PAGE>
62
8. Insurance
If, in respect of any matter which would give rise to a claim under the
Warranties (other than a Tax Warranty) the Purchaser and/or any member of
the Group is entitled to claim indemnity against any loss or damage
suffered by it arising out of the subject matter thereof under the terms
of any insurance policy for the time being in force, the Purchaser shall
at the request of the Investor Parties, subject to the Investor Parties
indemnifying and securing the Purchaser and/or any member(s) of the Group
to the Purchaser's reasonable satisfaction against any liability, costs,
damages or expenses (including, without limitation, increased premiums)
which may be incurred, procure that all such steps are taken to enforce
recovery and, if any sum is so recovered, then either:-
(i) the amount payable by the Investor Parties in respect of such claim
shall be reduced by an amount equal to the sum recovered less all
reasonable costs, charges and expenses incurred by the Purchaser
and/or any member(s) of the Group in recovering that sum under the
terms of the insurance policy; or
(ii) (if any amount shall already have been paid by the Investor Parties
in respect of such claim) there shall be repaid to the Investor
Parties an amount equal to the amount recovered or (if less) the
amount of such payment less all reasonable costs, charges and
expenses incurred by the Purchaser and/or the relevant member of the
Group in recovering that sum from such other person,
PROVIDED THAT
(i) nothing in this sub-paragraph shall oblige the Purchaser and/or any
member of the Group to take such steps prior to making a claim or
recovering from the Investor Parties under the Warranties; and
(ii) to the extent that any such amount recovered from insurers does not
cover the entire loss, the Purchaser shall be entitled to recover
the shortfall from the Obligors up to the full extent of their
liability under this Agreement.
9. Company Taxation Liability Reduced
In calculating the liability of the Obligors for any breach of the Warranties,
there shall be taken into account the amount by which any Taxation for which the
Company or any of the Subsidiaries is now or in the future accountable or liable
to be assessed is reduced or extinguished as a result of the matter giving rise
to such liability.
10. Tax Warranties
Clause 3 (Limits on Clause 2) of the Tax Covenant shall apply to any claims made
in respect of the Tax Warranties. The provisions of Clause 6 (Claims Procedure)
shall apply
<PAGE>
63
in respect of any claim, action or demand in relation to the Tax Warranties as
if any such claim, action or demand were a Claim (as defined in the Tax
Covenant).
11. Provisions
The Purchaser shall not be entitled to make any claim under the Warranties in
respect of any matter in respect of which a full and specific provision has been
made in the Accounts or the Management Accounts.
<PAGE>
64
SCHEDULE 5
(Ownership of the Shares and Entitlement to Consideration Shares)
[DETAIL OMITTED]
<PAGE>
92
SCHEDULE 8
(Agreed Calculation of the Provisional Consideration as at 31st March, 2000)
(A) Calculation of Provisional Consideration
<PAGE>
93
(B) The Investor Loans are (in GBP):
[DETAIL OMITTED]
- ----------------------------------------------=================================
TOTAL 14,868,000
=================================
<PAGE>
94
(C) The Assumed Liabilities are (in GBP):
- -------------------------------------------------------------------------------
The outstanding BOS loans (18,500,000) ((pound))
- -------------------------------------------------------------------------------
The Estimated Net Cash 4,150,000
- -------------------------------------------------------------------------------
The Calne loan notes (573,000)
- -------------------------------------------------------------------------------
An agreed figure for finance leases (300,000)
- -------------------------------------------------------------------------------
TOTAL 15,223,000
================================
<PAGE>
95
SCHEDULE 9
(Property)
Part A
Relevant Properties
Freehold Properties with registered titles
<TABLE>
<CAPTION>
Registered proprietor (owner) Title number Nature of title Short description Use
<S> <C> <C> <C> <C>
Zlin Electronics Ltd GR117211 Absolute Land on the east side of Vacant - bare land
Alexandra Way, Ashchurch
Rd, Tewkesbury, Gloucs.
</TABLE>
Leasehold Properties with registered titles
<TABLE>
<CAPTION>
Registered Title number Nature and Parties Term Current rental Short description Use
proprietor (owner) Date of title
lease
<S> <C> <C> <C> <C> <C> <C> <C>
Zlin Electronics GR164514 11 April 1994 N P I Trustee 25 years (pound)126,000 Unit 17, Classes B1(c),
Ltd Services Limited expires 24 p.a. Alexandra Way, B2, B8
& P V L Vlcek & March 2019 Ashchurch
F A Kozuibik (1) Industrial
Zlin Electronics Estate,
Ltd (2) Tewkesbury,
Gloucs.
</TABLE>
<PAGE>
96
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Calne Electronics
Ltd WT177524 3 August 1998 RYU Limited (1) 25 years (pound)205,000 32 Harris Rd, Class B1(b)
Calne expiring 2 p.a. Porte Marsh and/or (c)
Electronics Ltd August 2023 Industrial and/or B2
(2) Symonds Plc Estate, Calne, and/or B8 and
(3) Wiltshire in each case
with ancillary
offices
Symonds Limited BD199250 9 April 1997 London Pensions 25 years (pound)104,000 Premises at Class B1
Fund Authority expiring 8 p.a. from 9 April Postley Road, (Business)
(1) Finishing April 2022 1999 to 8 April Woburn Road
Services Limited 2000 Industrial
(2) Symonds Plc Estate, Kempston,
Bedfordshire
</TABLE>
Leasehold Properties with unregistered titles
<TABLE>
<CAPTION>
Present lessee (owner) Date of lease Parties Term Current rental Short description Use
<S> <C> <C> <C> <C> <C> <C>
Classical Circuits Ltd 2 November 1994 Thorn High Street Expires 27 (pound)127,500 214 Red Lion Road, Class B1(c)
Properties (1) September p.a. (Believed Tolworth,
Classical Circuits 2012 not finalised) Surbiton, Surrey
Limited (2) Ravenscroft
Industrial Estates
Limited (3) and Thorn
EMI Business
Electronics Limited (in
liquidation (4)
</TABLE>
<PAGE>
97
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Calne Electronics Ltd 18 June 1993 R G & J H Willis (1) Extended (pound)17,592 21-23 Harris Road, Light
Calne Electronics Ltd until 24 p.a. Porte Marsh industrial and
(2) December Industrial Estate, B1
L R & A Buckland (3) 2001 Calne, Wiltshire
A term of
Symonds Precision Ltd 6 November British Aluminium years from (pound)84,538 Unit C, Belcon B1, B2, B8
1997 Limited (1) 8 p.a. Industrial Estate,
Symonds Engineering September Bingley Road,
(Precision) Ltd (2) 1997 Hoddesdon, Herts
expiring 8 (18,338 square
November feet)
2001
Symonds Precision Ltd 1 September Standard Life 20 years (pound)331,259 Axis 10, John Tate B2, B8 (general
1997 Investment Fund Limited from 24 p.a. Road, Foxholes industrial
(1) June 1997 Business Park, purposes and
Symonds Engineering until 20 Hertford for storage, or
(Precision) Ltd (2) June 2017 as a
Symonds Plc (3) distribution
centre
respectively)
</TABLE>
<PAGE>
98
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Calne Electronics Ltd 24 January 1994 R G & J H Willis (1) Extended (pound)7,380 Unit 8, Harris B1 light
Calne Electronics Ltd until 24 p.a. Road, Porte Marsh industrial
(2) December Industrial Estate, purposes which
2001 Calne, Wiltshire can be carried
out within a
residential
area without
detriment to
the amenity of
the area
Calne Electronics Ltd 13 April 1995 R G & J H Willis (1) Extended (pound)7,830 Unit 9, Harris B1 as above
Calne Electronics Ltd until 24 p.a. Road, Porte Marsh
(2) December Industrial Estate,
Leslie Robert Buckland 2001 Calne, Wiltshire
and Anita Buckland (3)
Calne Electronics Ltd 24 November R G & J H Willis (1) Extended (pound)11,262 Unit 10, Harris B1 as above
1995 Calne Electronics Ltd until 24 p.a. Road, Porte Marsh
(2) December Industrial Estate,
L.R. and Buckland (3) 2001 Calne, Wiltshire
Calne Electronics Ltd 19 November MacDonald Hydratools Current (pound)6,000 Unit 2, Harris Light
1998 Limited (1) tenant in p.a. Road, Porte Marsh industrial
Calne Electronics Ltd occupation Industrial Estate, premises and/or
(2) until 24 Calne, Wiltshire warehouse
John Macdonald & March premises and
Company (Pneumatic 2000. for all
Tools) Ltd (3) Lease not ancillary
renewed. purposes
</TABLE>
<PAGE>
99
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Calne Electronics Ltd 22 October 1991 D J Webster Limited (1) Tenant (pound)5,670 Unit 5, Harris Light
Calne Electronics Ltd holding p.a. paid Road, Porte Marsh industrial
(2) over quarterly Industrial Estate, purposes
Calne, Wiltshire
Calne Electronics Ltd 1 February 1990 Peter Hewins (1) Tenant (pound)10,000 Unit 1, Harris B1, B2, B8
Calne Electronics Ltd holding p.a. paid Road, Porte Marsh
(2) over quarterly Industrial Estate,
Leslie Robert Buckland Calne, Wiltshire
(3)
From 11
Symonds Limited 17 December Chapter One Group December (pound)20,000 1st Floor, Phase 4 B1 other than
1998 Limited (1) 1998 to 30 p.a. Building Racal for any
Symonds Plc (2) September Site, Northway industrial
2002 Industrial Estate, purposes
Green Lane,
Tewkesbury, Gloucs.
Calne Electronics Ltd 14 July 1987 Peter Hewins (1) 11 years (pound)3,000 Unit 4, Harris Storage
Calne Electronics Ltd from 1 licence fee Road, Porte Marsh
(2) July 1987 (one off Industrial Estate,
Leslie Robert Buckland which payment) Calne, Wiltshire
(3) expired 30
June 1998
- by
letter
licence
granted to
23 June
2000
</TABLE>
<PAGE>
100
Part B
Letting documents
<TABLE>
<CAPTION>
Relevant Property Part let/letting Date of letting Nature of letting Current landlord Current rental Current occupier
of whole document document and and current and next rent
parties tenant review
<S> <C> <C> <C> <C> <C> <C>
Land at Postley Lease of whole 30 April, 1999 Underlease Symonds Limited (pound)104,000 Finishing
Road, Woburn between Symonds (1) p.a. - 9 April, Services Limited
Industrial Estate, PLC (1) Finishing 2004
Kempston, Finishing Services Limited
Bedfordshire Services Limited (2)
(2)
</TABLE>
<PAGE>
101
SCHEDULE 10
(Adjustments to the Provisional Consideration)
1. Preparation of Adjustment Statement
(A) As soon as possible after the later of (i) the end of the Adjustment
Period and (ii) the Completion Date, the Investor Parties shall procure
that the Investor Parties' Auditors prepare and deliver to the Purchaser's
Auditors (i) a statement of EBITDA for the Adjustment Period drawn up in
accordance with the provisions of this Schedule 10 and (ii) the aggregate
amount of the liabilities of the Group, set out in Schedule 8 as at 31st
March, 2000 which has been calculated in accordance with Generally
Accepted Accounting Principles in the UK except in the case of finance
leases which shall be deemed to be GBP 3,000,000 (the "Final Net Debt
Amount).
(B) "EBITDA" for the Adjustment Period means the profit of the Group for that
period:
(a) before taking into account all extraordinary items (whether
positive or negative) but after taking into account all
exceptional items (whether positive or negative) except for,
specifically, the exceptional items relating to Invision
Microsystems bad debt (GBP 378,000) and the expenses of
Symonds Limited related to the Takeover (GBP 518,000) which
shall not be deducted for the purposes of calculating EBITDA;
(b) before deducting corporation tax;
(c) before taking into account interest accrued, whether or not
paid, deferred or capitalised during the period;
(d) after deducting any gain, and adding back any loss, relative
to book value arising on the sale, lease or other disposal of
any capital asset during that period and after deducting any
gain, and adding back any loss, arising on revalution or any
asset during that period, in each case to the extent that it
would otherwise be taken into account;
(e) before deducting amortisation of any goodwill and other
intangibles; and
(f) before deducting depreciation,
calculated in accordance with generally accepted accounting principles in
the United Kingdom.
(C) The Purchaser shall procure that the Purchaser's Auditors shall as soon as
possible review the Adjustment Statement and, within 15 Business Days of
receipt, confirm to the Investor Parties' Auditors whether or not they
agree with the Adjustment Statement, giving written details of any matters
in dispute.
<PAGE>
102
(D) If the Purchaser, or the Purchaser's Auditors on behalf of the Purchaser,
confirm their agreement with the Adjustment Statement (either as presented
to them or as modified in such manner as they and the Purchaser shall
agree) the Adjustment Statement shall be final and binding on the parties
to this Agreement.
(E) If the Purchaser's Auditors are unable to agree with part or all of the
Adjustment Statement, and if such matter remains unresolved for a period
of 5 Business Days after the end of the 15 Business Day period set out in
paragraph (C) above, any matter in dispute shall be referred by either the
Purchaser or the Investor Parties (acting collectively) to the Independent
Auditors for determination. The Independent Auditors shall act as experts
and not as arbitrators.
(F) The Independent Auditors shall be requested to make and communicate their
decision to the Investor Parties and the Purchaser within 30 days of
appointment and it shall be final and binding on the parties to this
Agreement (in the absence of manifest error) for the purposes of this
Agreement.
(G) Following settlement of any such matter which the Investor Parties and BOS
shall have disputed (whether settled under paragraph (E) above or
otherwise by agreement between the Investor Parties and BOS and the
Purchaser), EBITDA for the Adjustment Period shall be finalised in
accordance with that settlement and the resulting statement of EBITDA
shall be final and binding on the parties to this Agreement.
(H) The "EBITDA Adjustment" shall be equal to the amount (if any) by which (i)
EBITDA (having been finalised in accordance with the provisions of this
Schedule 10) multiplied by 7.96 is less than (ii) GBP52,800,000.
(I) The Investor Parties and BOS and the Purchaser shall give each other, the
Investor Parties' Auditors, the Purchaser's Auditors or the Independent
Auditors, as the case may be, reasonable access to those books of account,
documents, files and papers (including the working papers of the Investor
Parties' Auditors or the Purchasers' Auditors (as the case may be)) which
the requesting party or firm may reasonably require to prepare or review
the Adjustment Statement and/or determine whether the Adjustment Statement
has been prepared in accordance with the provisions of this Schedule 10.
(J) The Investor Parties and BOS shall be responsible for the charges of the
Investor Parties' Auditors and the Purchaser shall be responsible for the
charges of the Purchaser's Auditors. The charges of any Independent
Auditors shall be shared equally by the Purchaser and the Investor Parties
unless the Independent Auditors shall determine otherwise.
<PAGE>
103
2. Net Debt at Completion
(A) "Positive Debt Adjustment" means the total amount of the difference
between the Estimated Net Debt and the Final Net Debt if the Estimated Net
Debt exceeds the Final Net Debt by GBP300,000 or more.
(B) "Negative Debt Adjustment" means the total amount of the difference
between the Estimated Net Debt and the Final Net Debt if the Final Net
Debt exceeds the Estimated Net Debt by GBP300,000 or more.
3. Calculation and Payment of the Adjustment Amount
(A) "Adjusted Enterprise Value" means the result of the following calculation:
GBP 52,800,000;
less the EBITDA Adjustment (if any); and either
plus the Positive Debt Adjustment (if any); or
less the Negative Debt Adjustment (if any).
(B) The difference between the Adjusted Enterprise Value and GBP52,800,000
shall be the "Adjustment Amount"
(C) If the Adjusted Enterprise Value is greater than GBP 52,800,000 the
Purchaser shall pay 97 per cent. of the Adjustment Amount to the Sellers'
Account and 3 per cent of the Adjustment Amount to BOS's Account, in each
case within 7 days of the Adjustment Statement being finally agreed or
determined in accordance with paragraph 1.
(D) If the Adjusted Enterprise Value is less than GBP 52,800,000, the Sellers
shall pay the amount of the Adjustment Amount to the Purchasers' Account
within 7 days of the Adjustment Statement being finally agreed or
determined in accordance with paragraph 1. Each Seller shall be liable for
that percentage of the Adjustment Amount set forth opposite his or its
name in column (5) of Part A of Schedule 5.
(E) At the option of the Purchaser, the liability of the Sellers for the
Adjustment Amount shall be satisfied by the surrender to the Purchaser of
that number of their Consideration Shares equal to their share of the
Adjustment Amount divided by the IPO Price.
<PAGE>
104
SCHEDULE 11
(Consideration Shares)
PART A
The number of Consideration Shares to which each Seller shall be entitled shall
be calculated in accordance with the following formula:
A / B
where:
A = the USD Equivalent of the GBP amount set opposite that Seller's name in
column (10) of Part A of Schedule 5; and
B = the IPO Price.
PART B
In the event that the IPO Price exceeds USD 18.50, the number of additional
Consideration Shares to which the Sellers are entitled shall be calculated in
accordance with the following table:
Aggregate Number of
IPO Price Additional Shares
--------- -----------------
$18.50 0
$19.00 17,000
$20.00 46,000
$21.00 75,000
$22.00 100,000
$23.00 123,000
$24.00 144,000
$25.00 164,000
$26.00 182,000
$27.00 198,000
$28.00 214,000
$29.00 228,000
$30.00 241,000
Each Seller shall be entitled to the percentage set forth opposite his or its
name in column (5) of Part A of Schedule 5 of the aggregate number of additional
Consideration Shares calculated in accordance with the above table.
<PAGE>
105
In lieu of its percentage of additional Consideration Shares, BOS shall be
entitled to the cash equivalent of 3% of the aggregate number of additional
Consideration Shares calculated in accordance with the following formula:
3% of the aggregate number of additional Consideration Shares multiplied by the
IPO Price.
That amount, being a USD amount shall be translated into the USD Equivalent of
GBP and paid by the Purchaser to the BOS Account.
The parties acknowledge that if the IPO Price is not a whole dollar amount the
aggregate number of additional shares shall be pro rated by reference to the
immediately higher and the immediately lower full dollar IPO Price on the
foregoing table. For example, if the IPO Price were USD 22.50 the aggregate
number of additional shares would be 111,500.
<PAGE>
106
NWEP
EXECUTED AS A DEED )
by )
as attorney for and on )
behalf of NATWEST EQUITY )
PARTNERS LIMITED )
in the presence of: )
THE BENEFICIAL OWNERS
EXECUTED AS A DEED )
by )
as attorney for and on )
behalf of NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of THE EUROPEAN PRIVATE )
EQUITY FUND in the )
presence of: )
EXECUTED AS A DEED )
by )
as attorney for and on )
behalf of NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of THE EUROPEAN PRIVATE )
EQUITY FUND "B" in the )
presence of: )
<PAGE>
107
EXECUTED AS A DEED )
by )
as attorney for and on )
behalf of NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of THE EUROPEAN PRIVATE )
EQUITY FUND "C" )
in the presence of: )
EXECUTED AS A DEED )
by )
as attorney for and on )
behalf of )
NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of THE EUROPEAN PRIVATE )
EQUITY FUND "D" )
in the presence of: )
<PAGE>
108
EXECUTED AS A DEED )
by )
as attorney )
for and on behalf of )
NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager of NATWEST )
EQUITY PARTNERS )
NO. 5 FUND )
in the presence of: )
EXECUTED AS A DEED )
by )
as attorney )
for and on behalf of )
NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of NATWEST EQUITY )
PARTNERS NO. 4 FUND )
in the preseence of: )
EXECUTED AS A DEED )
by )
as attorney )
for and on behalf of )
NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of NATWEST EQUITY )
PARTNERS NO. 5 FUND )
in the presence of: )
<PAGE>
109
EXECUTED AS A DEED )
by )
as attorney )
for and on behalf of )
NATWEST EQUITY )
PARTNERS LIMITED in )
its capacity as the )
manager )
of THE NATWEST EQUITY )
PARTNERS PARTNERSHIP )
in the presence of: )
EXECUTED AS A DEED )
by )
as attorney )
for and on behalf of )
NATWEST EQUITY PARTNERS )
CO-INVESTMENT PLAN )
LIMITED in the presence )
of: )
NATWEST NOMINEES
EXECUTED AS A DEED )
by )
as attorney )
for and on behalf of )
NATWEST VENTURES NOMINEES )
LIMITED in )
the presence of: )
<PAGE>
110
THE MANAGERS
Signed by M. MALONE )
)
)
Signed by M. GLANFIELD )
)
)
Signed by J. CALVERT )
)
)
BOS
Signed by )
for and on behalf of )
BANK OF SCOTLAND )
THE B SHAREHOLDERS
Signed by )
as duly authorised )
attorney for an ond on )
behalf of P. JACKSON
<PAGE>
111
Signed by )
as duly authorised )
attorney for and on )
behalf of C. LEA
Signed by )
as duly authorised )
attorney for and on )
behalf of C. REILLY
Signed by )
as duly authorised )
attorney for and on )
behalf of N. McLAREN
Signed by )
as duly authorised )
attorney for and on )
behalf of A. ROGERS
Signed by )
as duly authorised )
attorney for and on )
behalf of T. JOHNSTON
Signed by )
as duly authorised )
attorney for and on )
behalf of M. CAMPBELL
<PAGE>
112
Signed by )
as duly authorised )
attorney for and on )
behalf of N. POTTER
Signed by )
as duly authorised )
attorney for and on )
behalf of P. FOWLER
Signed by )
as duly authorised )
attorney for and on )
behalf of D. CULLINANE
Signed by )
as duly authorised )
attorney for and on )
behalf of V. MAKWANA
Signed by )
as duly authorised )
attorney for and on )
behalf of K. BOLTON
Signed by )
as duly authorised )
attorney for and on )
behalf of M. WOORE
<PAGE>
113
Signed by by )
as duly authorised )
attorney for and on )
behalf of G. HOLDEN
Signed by )
as duly authorised )
attorney for and on )
behalf of P. DICKSON
Signed by )
as duly authorised )
attorney for and on )
behalf of U. DIGE
Signed by )
as duly authorised )
attorney for and on )
behalf of P. STONEHAM
Signed by )
as duly authorised )
attorney for and on )
behalf of R. BARTLETT
<PAGE>
114
Signed by )
as duly authorised )
attorney for and on )
behalf of B. CHAPPELL
MANAGERS' FAMILY PARTIES
Signed by )
as duly authorised )
attorney )
for and on behalf of )
BRYONIE GLANFIELD )
Signed by )
as duly authorised )
attorney )
for and on behalf of )
JEANNE GLANFIELD
Signed by )
as duly authorised )
attorney )
for and on behalf of )
LESLIE GLANFIELD
Signed by )
as duly authorised )
attorney )
for and on behalf of )
OLIVE BANKS
<PAGE>
115
Signed by )
as duly authorised )
attorney )
for and on behalf of )
HENRY BANKS
Signed by )
as duly authorised )
attorney )
for and on behalf of )
CHRISTINE MALONE
Signed by )
as duly authorised )
attorney )
for and on behalf of )
RYAN MALONE
Signed by )
as duly authorised )
attorney )
for and on behalf of )
DARREN MALONE
Signed by )
as duly authorised )
attorney )
for and on behalf of )
KATHERINE CALVERT
<PAGE>
116
PURCHASER
Signed by )
for and on behalf of )
DDi Corp )
<PAGE>
CONTENTS
Page
1. INTERPRETATION...................................................2
2. SALE AND PURCHASE................................................2
3. CONDITIONS.......................................................3
4. CONSIDERATION....................................................6
5. COMPLETION.......................................................6
6. INVESTOR PARTIES' AND BOS's WARRANTIES, INDEMNITIES AND
UNDERTAKINGS AND PURCHASER'S REMEDIES............................7
7. OBLIGORS' INDEMNITIES AND COVENANTS..............................9
8. PURCHASER'S WARRANTIES..........................................11
9. CONDUCT OF BUSINESS BEFORE COMPLETION...........................12
10. RESTRICTIONS ON THE MANAGERS AND THE NATWEST PARTIES...........14
11. PROVISION RELATING TO RESTRICTIONS.............................15
12. EFFECT OF COMPLETION...........................................15
13. REMEDIES AND WAIVERS...........................................15
14. ASSIGNMENT.....................................................15
15. FURTHER ASSURANCE..............................................16
16. ENTIRE AGREEMENT...............................................16
17. NOTICES........................................................17
18. ANNOUNCEMENTS..................................................18
19. CONFIDENTIALITY................................................19
20. COSTS AND EXPENSES.............................................20
21. COUNTERPARTS...................................................20
22. INVALIDITY.....................................................21
<PAGE>
23. GOVERNING LAW..................................................21
24. JURISDICTION...................................................21
25. AGENT FOR SERVICE..............................................21
SCHEDULE 1 (Interpretation).........................................23
SCHEDULE 2 (Completion arrangements)................................35
1. The Investor Parties' Obligations...............................35
2. BOS Obligations.................................................36
3. Purchaser's obligations.........................................37
SCHEDULE 3 (The Warranties).........................................38
1. Ownership of the Shares.........................................38
2. Capacity of the Investor Parties................................38
3. Arrangements between the Group and the Investor Parties.........39
4. Group structure, etc............................................39
5. Ownership of Assets.............................................40
6. Accuracy of information.........................................41
7. Accounts and Statutory Accounts.................................41
8. Events since the Takeover Date..................................42
9. Contracts and commitments.......................................43
10. Bank accounts and borrowings...................................43
11. Powers of attorney.............................................44
12. Grants and allowances..........................................44
13. Substantial dependence.........................................45
14. Licences.......................................................45
15. Litigation.....................................................45
16. Investigations and Inquiries...................................45
<PAGE>
17. Property.......................................................45
18. Environment....................................................47
19. Intellectual Property..........................................48
20. Competition and trade regulation law...........................48
21. Insurances.....................................................49
22. Employment.....................................................49
23. Information Technology.........................................50
24. Product Liability..............................................50
25. Pensions.......................................................50
26. The Accounts and Tax...........................................53
27. Tax returns, disputes, records and claims etc..................54
28. Stamp duty.....................................................54
29. Value added tax................................................54
30. Tax events since the Accounts Date.............................55
31. Duties etc.....................................................55
32. Replacement of business assets.................................55
33. Distributions..................................................55
34. Deductions and withholdings....................................56
35. Residence......................................................56
36. Group arrangements.............................................56
37. Exit Charges...................................................56
38. 38. Roll-over and Hold-over Relief.............................56
SCHEDULE 4 (Limitations on liability)...............................57
Part 1..............................................................57
1. Limitation on quantum and general...............................57
<PAGE>
2. Time limits for bringing claims.................................58
3. Conduct of litigation...........................................59
4. No liability if loss is otherwise compensated for...............60
5. Disclosure......................................................60
6. Claim to be reduction of Adjusted EnterpriseValue...............60
7. Fraud...........................................................60
8. Insurance.......................................................61
9. Company Taxation Liability Reduced..............................61
10. Tax Warranties.................................................61
11. Provisions.....................................................62
SCHEDULE 5 (Ownership of the Shares and Entitlement to
Consideration Shares)....................................63
SCHEDULE 6 (The Company)............................................65
SCHEDULE 7 (The Subsidiaries).......................................67
SCHEDULE 8 (Agreed Calculation of the Provisional Consideration
as at 31st March, 2000)..................................89
SCHEDULE 9 (Property)...............................................93
SCHEDULE 10 (Adjustments to the Provisional Consideration)..........99
1. Preparation of Adjustment Statement.............................99
2. Net Debt at Completion.........................................101
3. Calculation and Payment of the Adjustment Amount...............101
SCHEDULE 11 (Consideration Shares).................................102
PART A.............................................................102
PART B.............................................................102
<PAGE>
Attachments
I Accounts
II Tax Covenant
III Data Room List
IV Press Announcements
V Lock-Up Agreement
VI Management Accounts
<PAGE>
DATED , 2000
--------------------------
NatWest Equity Partners Limited
The Beneficial Owners
NatWest Ventures Nominees Limited
The Managers
Bank of Scotland
The "B" Shareholders
The Managers' Family Parties
and
DDi Corp
-----------------------------------------------
SHARE PURCHASE AGREEMENT
relating to the issued share capital of
MCM Electronics Limited
-----------------------------------------------
Slaughter and May
35 Basinghall Street
London EC2V 5DB
(PMO/KSM)
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333-95623) of our report dated April 6, 2000 relating to the
consolidated financial statement of DDi Merger Co., which appears in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Costa Mesa, California
April 6, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333-95623) of our reports dated February 14, 2000 relating to the
consolidated financial statements of DDi Corp., which appear in such
Registration Statement. We also consent to the reference to us under the
headings "Experts" and "Selected Consolidated Financial and Other Data" in such
Registration Statement.
PricewaterhouseCoopers LLP
Costa Mesa, California
April 6, 2000
<PAGE>
Exhibit 23.3
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1
(File No. 333-95623) of our report dated February 20, 1998 relating to the
consolidated financial statements of Dynamic Circuits Inc. which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
April 6, 2000
<PAGE>
Exhibit 23.5
Independent Auditors' Consent
We consent to the inclusion of our report dated October 28, 1999, except with
the matters discussed in Note 29 and 30, with respect to the consolidated
balance sheet of Symonds Limited as of March 31, 1999 and the related
consolidated profit and loss account, reconciliation of movements in
shareholders' funds, and cash flow statements for the year then ended, which
report appears in the Registration Statement on Form S-1 of DDi Corp. dated
April 6, 2000. We also consent to the references to our firm appearing under
the headings "Experts" in the registration statement.
KPMG Audit Plc
Chartered Accountants
Birmingham, England
April 6, 2000
