<PAGE>
As filed with the Securities and Exchange Commission on April 11, 2000
Registration No. 333-95623
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
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
Delaware (Primary Standard 06-1576013
(State or other Industrial (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........ 13,800,000 $14.00 $193,200,000 $51,005(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 11, 2000
12,000,000 Shares
[DDi LOGO APPEARS HERE]
DDi Corp.
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "DDIC."
The underwriters have an option to purchase a maximum of 1,800,000 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>
Underwriting
Price to Discounts and Proceeds to
Public Commissions DDi Corp.
------------ ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $14.00 $0.945 $13.055
Total...................................... $168,000,000 $11,340,000 $156,660,000
</TABLE>
Delivery of the shares of common stock will be made on or about April 14,
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 April 11, 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................ 13
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
Statements...................... F-1
</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 May 6, 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...... 12,000,000 shares of common stock by DDi Corp.
Over-allotment option..... Up to 1,800,000 shares of common stock offered by
DDi Corp.
Common stock to be
outstanding after the
offering................. 38,957,143 shares of common stock. See "The
Reclassification." In calculating the number of
shares of common stock, we included 2,207,143
shares of common stock we will issue in connection
with our acquisition of MCM Electronics. 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 $10.97 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 4,255,948 shares of common stock available
for future grant under our stock plans.
Use of proceeds........... We intend to use the approximately $153.8 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 38.8
------ ------- ------ ------
Loss before taxes and extraordinary
loss.................................... (27.9) (53.2) (24.8) (19.1)
Income tax benefit....................... 10.9 3.5 7.4 3.6
------ ------- ------ ------
Loss before extraordinary loss........... (17.0) (49.7) (17.4) (15.5)
Extraordinary loss....................... (1.6) (2.4) -- --
------ ------- ------ ------
Net loss................................. $(18.6) $ (52.1) $(17.4) $(15.5)
====== ======= ====== ======
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 27.5
Total assets.................................................. 354.3 463.5
Total debt, including current maturities...................... 476.7 390.0
Stockholders' deficit......................................... (187.1) (6.6)
</TABLE>
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(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 $390.0 million, our ratio of total debt to total
capitalization would have been 1.02 to 1 and we would have had approximately
$40.5 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.
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
11
<PAGE>
38.0% 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, 24,705,106 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.
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.
12
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 12,000,000 shares of
common stock in this offering will be approximately $153.8 million. We intend
to use:
. approximately $24.7 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 $23.9 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 $5.2 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 14, 2000 for the DDi Intermediate senior
discount notes, the Dynamic Details senior credit facility and the MCM
Electronics investor loans and as of May 14, 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 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 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.
13
<PAGE>
As of April 14, 2000, the expected closing date of this offering, the
preference amount will be $487.12 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 2.8076 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 2.8076 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 14, 2000, 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 14, 2000 and that the
initial public offering price per share is $14.00); 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 $14.00 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 $ 10.8 $ 12.2
Long-term obligations, net of current
maturities:
Dynamic Details senior credit
facility............................ 245.8 145.8 145.8
Dynamic Details senior subordinated
notes............................... 100.0 100.0 100.0
DDi Capital senior discount notes.... 77.7 55.4 55.4
DDi Intermediate senior discount
notes............................... 40.8 40.8 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................ 469.7 347.4 377.8
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 36,750,000 shares
issued and outstanding on a
pro forma basis; 75,000,000 shares
authorized and 38,957,143 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........... -- 316.3 347.2
Stockholder receivables.............. (0.6) (0.6) (0.6)
Accumulated deficit.................. (349.4) (353.6) (353.6)
----------- ----------- ----------
Total stockholders'(deficit) equity ... (187.1) (37.5) (6.6)
----------- ----------- ----------
Total capitalization................... $ 289.6 $ 320.7 $ 383.4
=========== =========== ==========
</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 $(291.8)
million, or $(7.49) per share. This represents an immediate increase in pro
forma net tangible book value of $8.93 per share to our existing stockholders
and an immediate dilution in pro forma net tangible book value of $21.49 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........... $14.00
Pro forma net tangible book value per share at December
31, 1999 ................................................ (16.42)
Increase per share attributable to public and MCM
Electronics investors.................................... 8.93
-------
Pro forma net tangible book value per share after this
offering and our acquisition of MCM Electronics.......... (7.49)
------
Dilution of net tangible book value per share to public
and MCM Electronics investors............................ $21.49
======
</TABLE>
The table below assumes an initial public offering price of $14.00 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 45% $6.58
Public investors........ 12,000,000 35% 168,000,000 46% 14.00
MCM Electronics
investors.............. 2,207,143 5% 30,900,000 9% 14.00
---------- --- ------------ ---
Total................. 38,957,143 100% $361,800,000 100%
========== === ============ ===
</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 $10.97 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
1,654,037 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."
17
<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 a prepayment penalty in
connection with the prepayment of debt upon completion of the offering
estimated at $2.5 million and $2.8 million, respectively. The unaudited pro
forma consolidated balance sheet, however, does reflect such charges and the
related tax benefit of $1.0 million and $1.1 million, respectively.
The unaudited pro forma consolidated statements of operations do not reflect
a loss of $3.8 million resulting from the final payment of the Bain management
fee associated with the termination of the management agreement and the bank
amendment fee due upon completion of the offering. The unaudited pro forma
consolidated balance sheet, however, does reflect this loss and the related tax
asset of $1.5 million.
The unaudited pro forma consolidated statements of operations do not reflect
an extraordinary gain resulting from the recognition of deferred swap income
estimated at $2.1 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 $0.8 million.
As discussed further in note (h) 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 (g) Combined Adjustments Combined
---------- ----------- --------- -------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents........... $ 0.6 $ 168.0 (a) $ 29.3 $ 6.6 $ 35.9 $ (5.1)(a)(h) $ 7.2
(14.2)(a) (23.6)(a)(h)
(122.3)(a)
(2.8)(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 1.1 (b) 8.0 -- 8.0 0.4 (i) 8.4
1.0 (c) --
(0.8)(d) --
1.5 (e)
------- ------- ------ ----- ------ ------ ------
Total current assets... 71.3 31.5 102.8 27.4 130.2 (28.3) 101.9
Property, plant and
equipment, net......... 63.2 -- 63.2 12.7 75.9 -- 75.9
Debt issue costs, net... 13.8 (2.5)(c) 11.3 2.4 13.7 (1.3)(i) 12.4
Goodwill and other
intangible, net........ 205.5 -- 205.5 32.0 237.5 67.3 (h) 272.8
-- (32.0)(h)
Other................... 0.5 -- 0.5 -- 0.5 -- 0.5
------- ------- ------ ----- ------ ------ ------
Total assets........... $ 354.3 $ 29.0 $383.3 $74.5 $457.8 $ 5.7 $463.5
======= ======= ====== ===== ====== ====== ======
Liabilities and
stockholders' (deficit)
equity:
Current liabilities:
Current maturities of
long-term debt and
capital lease
obligations........... $ 7.0 $ 3.8 (e) $ 10.8 $ 1.4 $ 12.2 $ -- $ 12.2
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)(h) 26.2
Income tax payable..... 0.9 -- 0.9 2.9 3.8 -- 3.8
------- ------- ------ ----- ------ ------ ------
Total current
liabilities........... 52.3 3.8 56.1 19.0 75.1 (0.7) 74.4
Long-term debt and
capital lease
obligations............ 469.7 (122.3)(a) 347.4 53.3 400.7 (22.9)(a)(h) 377.8
Deferred interest rate
swap income............ 3.9 (2.1)(d) 1.8 -- 1.8 -- 1.8
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 $(120.6) $420.8 $72.9 $493.7 $(23.6) $470.1
------- ------- ------ ----- ------ ------ ------
Stockholders' (deficit)
equity:
Class L common stock... 147.2 (147.2)(f) -- -- -- -- --
Class A common stock... 15.7 (15.7)(f) -- -- -- -- --
Common stock........... -- 0.4 (f) 0.4 -- 0.4 -- 0.4
Additional paid-in-
capital............... -- 153.8 (a) 316.3 2.0 318.3 30.9 (h) 347.2
147.2 (f) (2.0)(j)
15.7 (f) --
(0.4)(f) --
Stockholder
receivables........... (0.6) -- (0.6) -- (0.6) -- (0.6)
Accumulated deficit.... (349.4) (1.7)(b) (353.6) (0.4) (354.0) 1.3 (j) (353.6)
(1.5)(c) (0.9)(i)
1.3 (d) --
(2.3)(e)
------- ------- ------ ----- ------ ------ ------
Total stockholders'
(deficit) equity...... (187.1) 149.6 (37.5) 1.6 (35.9) 29.3 (6.6)
------- ------- ------ ----- ------ ------ ------
$ 354.3 $ 29.0 $383.3 $74.5 $457.8 $ 5.7 $463.5
======= ======= ====== ===== ====== ====== ======
</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 12,000,000 shares of common stock generating gross
proceeds of $168.0 and the use of the estimated net proceeds of $153.8,
net of the estimated underwriting discount and the offering expenses
totaling $14.2, to repay:
. a portion 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 premium of $2.8 related to 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 premium of $2.8, before $1.1 of related income
tax benefit (at a 40% effective tax rate), on the DDi Capital senior
discount notes resulting from the partial 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 $2.5 in capitalized debt issuance costs,
before $1.0 of related income tax benefit (at a 40% effective tax rate),
resulting in an extraordinary loss of $1.5 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 $2.1 in deferred swap income, before $0.8 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) Represents an increase in debt necessary to make the final payment of the
Bain management fee associated with the termination of the management
agreement and the bank amendment fee totalling $3.8 before $1.5 of
related income tax benefit (at a 40% effective tax rate).
(f) Adjusted to give effect to the reclassification.
(g) 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)
(h) 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, and the
liabilities assumed. Accordingly, the final allocations could be different
from the amounts reflected herein, and such differences may be
significant. 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 (2,207,143 shares at $14.00 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 $14.00 per share, the price at which
shares are being sold to the public in this offering.
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 2,207,143 at $14.00 per
share.
(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
(66,643 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.
(i) 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.
(j) 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 (10.6)(c) 36.1 4.2 40.3 (1.5)(f) 38.8
------ ----- ------ ----- ------ ---- ------
Income (loss) from
continuing operations
before provision for
income taxes and
extraordinary loss..... (24.8) 11.7 (13.1) (5.8) (18.9) (0.2) (19.1)
Income tax benefit
(expense).............. 7.4 (4.7)(d) 2.7 0.5 3.2 0.4 (g) 3.6
------ ----- ------ ----- ------ ---- ------
Net income (loss) from
continuing operations.. $(17.4) $ 7.0 $(10.4) $(5.3) $(15.7) $0.2 $(15.5)
====== ===== ====== ===== ====== ==== ======
Pro forma loss per share
of common and common
equivalent stock (basic
and diluted): $(0.40)
======
Pro forma weighted
average number of
shares of common and
common equivalent stock
outstanding (in
thousands) (basic and
diluted): 38,885
======
</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 a portion of the historical interest on
the DDi Capital senior discount notes................... (2.6)
Elimination of historical interest on the Dynamic Details
senior credit facility.................................. (7.5)
Elimination of amortization of debt issuance costs....... (0.5)
-----
Net decrease in historical interest expense from the
offering................................................ (10.6)
-----
Pro forma interest expense after the offering............ $36.1
=====
</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>
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>
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
may be required to borrow under our revolving credit facility to make the final
payment under our management agreement with Bain Capital. 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;
36
<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 10.2% 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.
38
<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.
39
<PAGE>
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.
42
<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.
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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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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
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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."
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<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 $14.00 per share and a closing
date of April 14, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------- ---------------------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Salary Bonus Compensation Awards Options Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------- ------------ ---------- ---------- ------------
<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) 135,343(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) -- 109,521(9) 387,496(14)
39,684(5) 5,972(10) 1,815,690(15)
816,721(6) 142,725(11)
1997 -- -- -- -- -- --
Joseph P. Gisch......... 1999 272,057 20,000 -- (1) -- -- --
Chief Financial 1998 269,346 18,967 -- (1) -- 28,077(12) --
Officer 1997 262,847 62,077 651,791(2) 40,171(7) 22,557(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) -- 39,006(9) 315,778(14)
10,547(5) 2,127(10) 650,688(15)
126,363(6) 50,831(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) -- 145,849(9) 1,523,861(14)
48,460(5) 7,954(10) 1,992,703(15)
198,975(6) 190,067(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) 105,267(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 13,328 shares, 1,900 shares and 11,090 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 142,124 shares, 23,687 shares
and 110,541 shares of restricted common stock by Mr. McMaster, Mr. Gisch
and Mr. Muse, respectively, at a purchase price of $1.78 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 $21.79 per share, substantially
above the current fair market value of the common stock ($1.78 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
6,781 shares, 1,130 shares and 5,274 shares of common stock,
respectively, at an exercise price of $21.79 per share. Additionally, in
1998 each of Mr. McMaster and Mr. Muse agreed to permit us to cancel
options to purchase 5,335 and 3,650 shares, respectively, of common stock
at an exercise price of $21.79 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 16,004 and 12,073 shares of common stock, respectively, at an
exercise price of $21.79 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 $0.56 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 $21.79 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 $12.64 per share issued in connection with the
DCI merger to replace options to purchase shares of DCI common stock.
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<PAGE>
(12) The options represent options to purchase shares of common stock at an
exercise price of $21.79 issued to Mr. Gisch after each of Mr. McMaster
and Mr. Muse agreed to permit us to cancel options to purchase 16,004 and
12,073 shares of common stock, respectively, at an exercise price of
$21.79 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 $14.00 per share and a closing date of April 14,
2000.
AGGREGATE OPTION EXERCISES IN 1999
AND YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options At
Shares Acquired Options At Fiscal Year-End Fiscal Year-End
On Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
Name (#) ($)(2) (#) ($)(2)
---- --------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Bruce D. McMaster....... -- -- 61,753/52,252(3) 0/0
121,129/0(4) 79,353/0
Charles D. Dimick....... 9,280(1) 11,304 13,920/10,916(5) 16,956/13,297
31,704/843(6) 0/0
128,586/20,155(7) 0/0
Joseph P. Gisch......... -- -- 27,427/23,207(3) 0/0
17,268/0(4) 11,313/0
John Peters............. 2,519(1) 3,068 5,044/12,612(5) 6,144/15,363
11,108/688(6) 0/0
34,395/16,436(7) 0/0
Greg Halvorson.......... 10,442(1) 12,719 10,326/33,740(5) 12,578/41,098
6,114/1,840(6) 0/0
146,099/43,968(7) 0/0
Lee W. Muse, Jr......... -- -- 48,503/41,041(3) 0/0
100,792/0(4) 66,030/0
</TABLE>
50
<PAGE>
- --------
(1) Represents shares of common stock purchased at an exercise price of $0.56
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 ($1.78 per share) was determined by the board of
directors.
(3) Represents options to purchase shares of common stock at an exercise
price of $21.79 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 $2.44 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 $0.56 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 4,550 shares of common
stock with an exercise price of $0.56, options to purchase 5,930 shares
of common stock with an exercise price of $12.64 and options to purchase
248 shares of common stock with an exercise price of $21.79 which options
were subsequently granted to another of our employees.
(6) Represents options to purchase shares of common stock at an exercise
price of $21.79 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 $12.64 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 13,328 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 109,521
Series A cash bonus units valued at $0.5601 per unit and 142,725 Series L cash
bonus units valued at $12.6062 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 1,900 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 39,006
Series A cash bonus units valued at $0.5601 per unit and 50,832 Series L cash
bonus units valued at $12.6062 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 103,594 Tranche A Series A cash bonus units valued at $0.5601 per unit,
42,255 Tranche B Series A cash bonus units valued at $0.2195 per unit, 135,002
Tranche A Series L cash bonus units valued at $12.6062 per unit and 55,066
Tranche B Series L cash bonus units valued at $4.3162 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 11,090 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
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<PAGE>
aggregate of 659,799 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 $0.56, $12.64
or $21.79. 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 1,440,425 shares of
common stock, in the case of the Details Holdings Corp.- Dynamic Circuits 1996
Stock Option Plan, and 297,715 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 105,948 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 21,338 and 15,723 shares, respectively, of common stock at
an exercise price of $21.79 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 4,550 shares of common stock at an exercise
price of $0.56 per share, 5,930 shares of common stock at an exercise price of
$12.64 per share and 248 shares of common stock at an exercise price of $21.79
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.
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<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 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.
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<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 $14.00 per share and a closing date of April 14,
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 $14.00 per share and a closing date of April 14,
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.
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<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).. 10,251,866 49,162 10,301,028 41.6% 26.4%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts
02116
Celerity Partners, 2,010,771 26,841 2,037,612 8.2 5.2
L.L.C. (2).............
11111 Santa Monica
Boulevard; Suite 1111
Los Angeles, California
90025
Chase Manhattan 3,328,351 -- 3,328,351 13.4 8.5
Entities (3)...........
c/o Chase Manhattan
Capital, LLC
380 Madison Avenue
12th Floor
New York, New York
10017
KB Mezzanine Fund II, 1,464,975 31,092 1,496,067 6.0 3.8
L.P. ..................
c/o Equinox Investment
Partners LLC
19 Olde Kings Highway
South Darien, CT 06820
Directors and Executive Officers:
Bruce D. McMaster....... 1,084,815 190,005 1,274,820 4.8 3.1
Charles D. Dimick (4)... 1,324,824 174,582 1,488,176 5.9 3.8
Joseph P. Gisch......... 184,106 47,860 231,966 * *
John Peters............. 476,903 52,526 529,429 2.1 1.4
Greg Halvorson.......... 101,784 170,777 272,561 1.1 *
Lee W. Muse, Jr. ....... 751,034 154,890 905,924 3.4 2.2
Christopher Behrens
(5).................... 3,043,819 -- 3,043,819 12.3 7.8
Edward W. Conard (6).... 2,669,415 7,716 2,707,131 10.9 6.9
David Dominik (6)....... 2,669,415 7,716 2,707,131 10.9 6.9
Stephen G. Pagliuca
(6).................... 2,669,415 7,716 2,707,131 10.9 6.9
Prescott Ashe (7)....... 2,669,415 7,716 2,707,131 10.9 6.9
Stephen Zide (7)........ 2,669,415 7,716 2,707,131 10.9 6.9
Mark R. Benham (8)...... 2,010,771 26,841 2,037,612 8.2 5.2
All Directors and execu-
tive officers
as a group (13 per-
sons) (6)(7)(8)........ 11,085,708 718,359 11,804,067 46.7 29.9
</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 11,230 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.
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<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."
DDi Intermediate Senior Discount Notes
In July 1998, DDi Intermediate issued senior discount notes due 2008. The
DDi Intermediate senior discount notes have a stated maturity of June 30, 2008,
an interest rate of 13.5% per annum and a stated principal amount at maturity
of approximately $67 million, although approximately 43% of the stated
principal amount of the debt is due December 2003. The debt is redeemable at
DDi Intermediate's option at specified redemption prices. As of December 31,
1999, the outstanding accreted value of these senior discount notes
61
<PAGE>
was $40.8 million. The DDi Intermediate senior discount notes impose
restrictions on the incurrence of indebtedness by DDi Intermediate, DDi Capital
and Dynamic Details, Incorporated. The note purchase agreement contains
covenants limiting, among other things, dividends, asset sales, and
transactions with affiliates. These restrictions apply both to Intermediate,
DDi Capital and Dynamic Details, Incorporated.
Under the terms of the indenture relating to the DDi Intermediate senior
discount notes, we may be required to use the net proceeds of equity offerings
to redeem a portion 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 Intermediate senior discount notes are held
by investment funds advised by Sankaty Advisors, Inc., an affiliate of Bain
Capital.
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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<PAGE>
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 $14.00
per share, a closing date of April 14, 2000 and our acquisition of MCM
Electronics as of December 31, 1999, we will have 38,957,143 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.
Our common stock has been 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 "interested
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 38,957,143 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 24,705,106
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 389,571 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
5,655,948 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 April 11, 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............................... 4,885,277
FleetBoston Robertson Stephens Inc................................... 2,714,043
Chase Securities Inc................................................. 1,628,426
Lehman Brothers Inc.................................................. 1,628,426
Deutsche Bank Securities Inc......................................... 163,404
Donaldson, Lufkin & Jenrette Securities Corporation.................. 163,404
E*Offering Corp...................................................... 163,404
Invemed Associates LLC............................................... 163,404
Needham & Company, Inc............................................... 163,404
Tucker Anthony Incorporated.......................................... 163,404
Thomas Weisel Partners LLC........................................... 163,404
----------
Total.............................................................. 12,000,000
==========
</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 1,800,000 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 $0.565 per share. The
underwriters and selling group members may allow a discount of $0.10 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..................... $0.945 $0.945 $11,340,000 $13,041,000
Expenses payable by us.. $0.240 $0.208 $ 2,875,000 $ 2,875,000
</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
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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.
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 600,000 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.
The shares of common stock have been approved for listing 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.
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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 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 66,318 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)..... $ (0.71)
===========
Pro forma weighted average shares outstanding (unaudited)...... 24,677,563
===========
Supplemental pro forma basic and diluted net loss per share
(unaudited)................................................... $ (0.33)
===========
Supplemental pro forma weighted average shares outstanding
(unaudited)................................................... 33,413,277
===========
</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 $14.00 per share to be effective prior to the closing of the
anticipated initial public offering.
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 initial public offering price of $14.00
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 $6,360 for
the year ended December 31, 1999. The pro forma weighted average shares
outstanding assumes that the proceeds of the sale of 8,735,714 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.
F-31
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
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.
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.
F-32
<PAGE>
DDi CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
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>
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
redeemable 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>
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 and the acquisition meets the
requirements of EITF 88-16 (Basis in Leveraged Buyout Transactions).
Accordingly, 2.36% (ownership percentage of management in Symonds Limited) was
carried over at the investors' predecessor basis, and the remaining 97.64%
(various institutional and private shareholders) was accounted for under the
purchase method of accounting. In the tables below, the caption "Valuation of
Interest in Leveraged Buyout Transactions" for the 31 December 1999 period
reflects the reduced goodwill amortization of $12 and the adjustment ($484)
attributable to the reduction in goodwill associated with the acquisition.
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.
F-69
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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.
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.
F-70
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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 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.
F-71
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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>
<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>
F-72
<PAGE>
SYMONDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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-73
<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.................................. 200,000
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.................................................... 221,481
----------
Total.......................................................... $2,875,000
==========
</TABLE>
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 31, 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 22, 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.
10.39.1 Note Purchase Agreement dated as of July 23, 1998 between Details
Intermediate Holdings Corp. and Sankaty High Asset Partners, L.P.
10.39.2 Form of Indenture.
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 11th 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 11, 2000
______________________________________ Officer (Principal
Bruce D. McMaster Executive Officer) and
Director
/s/ Joseph P. Gisch Chief Financial Officer April 11, 2000
______________________________________ (Principal Financial and
Joseph P. Gisch Accounting Officer)
* Director April 11, 2000
______________________________________
Charles D. Dimick
* Director April 11, 2000
______________________________________
David Dominik
* Director April 11, 2000
______________________________________
Edward W. Conard
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director April 11, 2000
______________________________________
Stephen G. Pagliuca
* Director April 11, 2000
______________________________________
Prescott Ashe
* Director April 11, 2000
______________________________________
Stephen M. Zide
* Director April 11, 2000
______________________________________
Mark R. Benham
* Director April 11, 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 11th day of April, 2000.
DDi Merger Co.
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 11, 2000
______________________________________ Officer (Principal
Bruce D. McMaster Executive Officer) and
Director
/s/ Joseph P. Gisch Chief Financial Officer April 11, 2000
______________________________________ (Principal Financial and
Joseph P. Gisch Accounting Officer)
/s/ Charles D. Dimick Director April 11, 2000
______________________________________
Charles D. Dimick
Director April 11, 2000
______________________________________
David Dominik
Director April 11, 2000
______________________________________
Edward W. Conard
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen G. Pagliuca Director April 11, 2000
______________________________________
Stephen G. Pagliuca
/s/ Prescott Ashe Director April 11, 2000
______________________________________
Prescott Ashe
Director April 11, 2000
______________________________________
Stephen M. Zide
/s/ Mark R. Benham Director April 11, 2000
______________________________________
Mark R. Benham
/s/ Christopher Behrens Director April 11, 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 31, 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 22, 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.
10.39.1 Note Purchase Agreement dated as of July 23, 1998 between Details Intermediate
Holdings Corp. and Sankaty High Asset Partners, L.P.
10.39.2 Form of Indenture.
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 10.39.1
Execution Version
NOTE PURCHASE AGREEMENT
Dated as of July 23, 1998
Between
DETAILS INTERMEDIATE HOLDINGS CORP.
as Issuer,
and
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
__________________________________________________________________
$66,809,539.40 IN AGGREGATE STATED PRINCIPAL AMOUNT AT MATURITY
OF
13 1/2% SERIES A SENIOR DISCOUNT NOTES DUE 2008
*********************
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS......................................................................................... 1
1.1. Certain Defined Terms............................................................................... 1
1.2. Defined Terms from the Indenture.................................................................... 2
SECTION 2. PURCHASE AND SALE OF THE ORIGINAL DISCOUNT NOTES.................................................... 3
2.1. Purchase and Sale of Notes.......................................................................... 3
2.2. Purchase Price for Notes............................................................................ 3
2.3. The Closing......................................................................................... 3
2.4. Payment of Purchase Price........................................................................... 3
2.5. Use of Proceeds..................................................................................... 4
SECTION 3. TERMS OF THE ORIGINAL DISCOUNT NOTES................................................................ 4
3.1. Form................................................................................................ 4
3.2. Title and Terms..................................................................................... 4
3.3. Denominations....................................................................................... 5
3.4. Execution, Delivery and Dating...................................................................... 5
3.5. Registration, Registration of Transfer and Exchange................................................. 6
3.6. Mutilated, Destroyed, Lost and Stolen Discount Notes................................................ 7
3.7. Payment of Interest; Interest Rights Preserved..................................................... 8
3.8. Persons Deemed Owners............................................................................... 9
3.9. Cancellation........................................................................................ 9
3.10. Computation of Interest............................................................................. 9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER......................................................... 9
4.1. Legal Capacity; Due Authorization; Binding Effect................................................... 9
4.2. Restrictions on Transfer............................................................................ 9
4.3. Accredited Investor, etc............................................................................ 10
4.4. Brokerage Fees, etc................................................................................. 10
4.6. Counsel............................................................................................. 10
SECTION 5. REPRESENTATIONS AND WARRANTIES OF INTERMEDIATE HOLDINGS............................................. 11
5.1. Corporate Existence and Power....................................................................... 11
5.2. Corporate Authority................................................................................. 11
5.3. Binding Effect...................................................................................... 11
5.4. Litigation.......................................................................................... 11
5.5. Compliance with Laws................................................................................ 11
5.6. No Violation........................................................................................ 12
5.7. Consents............................................................................................ 12
5.8. No Default.......................................................................................... 13
5.9. Private Offering.................................................................................... 13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.10. Governmental Regulations.......................................................... 13
5.11. ERISA............................................................................. 13
5.12. Margin Securities, etc............................................................ 14
5.13. Exchange Act...................................................................... 14
5.14. Not Investment Company............................................................ 14
5.15. Counsel........................................................................... 14
SECTION 6. CLOSING CONDITIONS................................................................ 14
6.1. Obligations of the Purchaser...................................................... 14
6.2. Obligations of Intermediate Holdings............................................. 17
SECTION 7. REMEDIES.......................................................................... 18
7.1. Events of Default................................................................. 18
7.2. Acceleration of Maturity; Rescission and Annulment................................ 20
7.3. Unconditional Right of Holders to Receive Principal, Premium and Interest......... 20
7.4. Restoration of Rights and Remedies................................................ 21
7.5. Rights and Remedies Cumulative.................................................... 21
7.6. Delay or Omission Not Waiver...................................................... 21
7.7. Waiver of Past Defaults........................................................... 21
SECTION 8. MERGER, CONSOLIDATION OR SALE OF ASSETS........................................... 22
SECTION 9. COVENANTS......................................................................... 22
9.1. Payment of Principal, Premium, if any, and Interest............................... 22
9.2. Corporate Existence............................................................... 22
9.3. Payment of Taxes and Other Claims................................................. 22
9.4. Compliance with Statutes.......................................................... 23
9.5. Limitation on Restricted Payments................................................. 23
9.6. Limitation on Indebtedness by the Issuer.......................................... 23
9.7. Limitations on Indebtedness by Details Capital.................................... 23
9.8. Limitation on Indebtedness by Non-Capital Subsidiaries............................ 23
9.9. Limitation on Indebtedness by the Company......................................... 23
9.10. Limitation on Affiliate Transactions.............................................. 23
9.11. Limitation on Restrictions on Distributions from Restricted Subsidiaries.......... 23
9.12. Limitation on the Sale or Issuance of Preferred Stock of Restricted Subsidiaries.. 23
9.13. Change of Control................................................................. 23
9.13A. Qualifying Public Offering........................................................ 23
9.14. Limitation on Sales of Assets and Subsidiary Stock................................ 24
9.15. Limitation on Lines of Business................................................... 24
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
9.16. Financial Statements............................................................ 24
9.17. Statement by Officers as to Default............................................. 24
9.18. Post-Closing Matters............................................................ 24
9.19. Further Assurances.............................................................. 24
SECTION 10. REDEMPTION OF ORIGINAL DISCOUNT NOTES........................................... 25
10.1. Optional Redemption............................................................. 25
10.2. Applicability of Section........................................................ 25
10.3. Election to Redeem.............................................................. 25
10.4. Selection by of Original Discount Notes to Be Redeemed.......................... 25
10.5. Notice of Redemption............................................................ 25
10.6. Deposit of Redemption Price..................................................... 26
10.7. Original Discount Notes Payable on Redemption Date.............................. 26
10.8. Original Discount Notes Redeemed in Part........................................ 27
SECTION 11. SPECIAL TRANSFER PROVISIONS..................................................... 27
11.1. Assignments of Notes............................................................ 27
11.2. Restrictive Legend.............................................................. 28
11.3. Special Transfer Provisions..................................................... 29
11.4. General......................................................................... 30
11.5. Termination of Restrictions..................................................... 30
SECTION 12. EXCHANGE RIGHTS................................................................. 30
12.1. Exchange Rights................................................................. 30
12.2. Exchange Procedures............................................................. 31
12.3. Registration Rights............................................................. 32
SECTION 13. MISCELLANEOUS................................................................... 32
13.1. Expenses........................................................................ 32
13.2. Indemnity....................................................................... 32
13.3. No Personal Liability........................................................... 33
13.4. Amendment and Waiver............................................................ 33
13.5. Notices......................................................................... 34
13.6. Survival of Warranties and Certain Agreements................................... 34
13.7. Severability.................................................................... 35
13.8. Headings........................................................................ 35
13.9. Governing Law................................................................... 35
13.10. Legal Holidays.................................................................. 35
13.11. Successors and Assigns. Subsequent Holders...................................... 35
13.12. Counterparts; Effectiveness..................................................... 36
13.13. Entirety........................................................................ 36
</TABLE>
SCHEDULE I Purchasers
SCHEDULE 5.6.2 Other Agreements
-iii-
<PAGE>
EXHIBIT A Form of Original Discount Note
EXHIBIT B Form of Indenture
EXHIBIT C Form of Registration Rights Agreement
EXHIBIT D Form of Opinion of Ropes & Gray
EXHIBIT E Form of Opinion of Stradling Yocca Carlson & Rauth
EXHIBIT F Chart of Optional Redemption Prices
-iv-
<PAGE>
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (this "Agreement" or this "Note Purchase
--------- -------------
Agreement") is made as of July 23, 1998 by and among Details Intermediate
- ---------
Holding Corp., a California corporation ("Intermediate Holdings" or the
---------------------
"Issuer") and Sankaty High Yield Asset Partners, L.P. (the "Purchaser").
------ ---------
WHEREAS, Details Holding Corp. has entered into the Stock Contribution and
Merger Agreement dated as of the date hereof among Details Holding Corp.,
Dynamic Circuits, Inc. and the other parties thereto (the "DCI Contribution
----------------
Agreement"); and
- ---------
WHEREAS, in connection with the transactions contemplated by the DCI
Contribution Agreement, Intermediate Holdings wishes to sell and the Purchaser
wishes to purchase, on the terms set forth herein $66,809,539.40 in aggregate
stated principal amount at maturity of Intermediate Holdings 13 1/2% Series A
Senior Discount Notes due 2008.
AGREEMENT
Now therefore, in consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1. Certain Defined Terms. The following capitalized terms used in
---------------------
this Agreement shall have the meanings set forth below:
"Incorporated By Reference" means, with respect to any referenced provision
-------------------------
of the Indenture, the incorporation of that provision to the Agreement with the
same effect and for all purposes as if set forth in full in the Agreement,
together with any referenced definitions or schedules and any cross referenced
provisions included in such referenced provision of the Indenture, except that,
where any such included cross referenced provision has been likewise
Incorporated By Reference and as so incorporated has been modified or
supplemented, such cross reference shall be
-1-
<PAGE>
deemed to be to the cross referenced provision as so Incorporated By Reference,
as so modified or supplemented.
"Indenture" means the form of Indenture attached hereto as Exhibit B.
---------
"Initial Purchasers" means Sankaty High Yield Asset Partners, L.P. and
------------------
the TCW Funds.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, operations or financial or other condition of Intermediate Holdings
and its Subsidiaries taken as a whole (b) Intermediate Holdings's ability to pay
any of the Original Discount Notes in accordance with their terms or the terms
of this Agreement, or (c) the Purchaser's rights and remedies under the Note
Documents.
"Purchaser" has the meaning set forth in the preamble to the Agreement, and
---------
shall mean and include the Purchaser and any assignees of the Original Discount
Notes (or, when applicable, their successor New Discount Notes) pursuant to
Section 11 of the Agreement.
"Registration Rights Agreement" means a Registration Rights Agreement dated
-----------------------------
the date hereof between the Issuer and the Purchaser, substantially in the form
attached hereto as Exhibit C.
"TCW Funds" means TCW Shared Opportunity Fund III, L.P., TCW Leveraged
---------
Income Trust II, L.P. and TCW Leveraged Income Trust, L.P.
1.2. Defined Terms from the Indenture. The following capitalized terms
--------------------------------
used in this Agreement not defined herein shall have the meanings assigned to
such terms in the Indenture, which definitions are hereby Incorporated by
Reference:
"Accreted Value"
"Affiliate"
"Aggregate Initial Accreted Value"
"Asset Disposition"
"Business Day"
"Capital Discount Notes"
-2-
<PAGE>
"Change of Control"
"Code"
"DCI Contribution Agreement"
"DCI Transactions"
"Default"
"Discount Notes"
"Exchange Act"
"GAAP"
"Holder"
"Holdings"
"Initial Accreted Value"
"Issue Date"
"Officer"
"Person"
"QIB"
"Qualified Institutional Buyers"
"Qualifying Public Offering"
"Registrable Discount Notes"
"Regular Record Date"
"Securities Act"
"Senior Credit Agreement"
"Senior Subordinated Notes"
"Significant Subsidiary"
"Stated Maturity"
"Subsidiary"
1.3. All accounting terms not otherwise defined herein have the meanings
assigned to such terms in accordance with GAAP (as defined herein).
SECTION 2. PURCHASE AND SALE OF THE ORIGINAL DISCOUNT NOTES.
2.1. Purchase and Sale of Notes. Subject to the terms and conditions of
--------------------------
this Agreement and on the basis of the representations and warranties set forth
herein, Intermediate Holdings hereby agrees to sell to the Purchaser, and by its
acceptance hereof the Purchaser agrees to purchase from Intermediate Holdings
for investment, at a closing (the "Closing"), the principal amount of its 13 1/2
-------
Series A Senior Discount Notes due 2008 (the "Original Discount Notes") set
-----------------------
forth opposite the name of such Purchaser on Schedule I hereto.
----------
-3-
<PAGE>
2.2. Purchase Price for Notes. The purchase price to the Purchaser for
------------------------
the Original Discount Notes purchased by it hereunder is the amount set forth
opposite the Purchaser's name on Schedule I hereto. Intermediate Holdings and
----------
the Purchaser agree that, for purposes of Sections 1271 through 1275 of the
Code, the aggregate original purchase price of the Notes is as set forth on
Schedule I and such price will be appropriately used by Intermediate Holdings
- ----------
and the Purchaser for financial reporting and income tax purposes.
2.3. The Closing. The purchase and sale of the Original Discount Notes
-----------
shall be substantially contemporaneous with the closing pursuant to the DCI
Contribution Agreement. If, prior to the Closing hereunder, the DCI Contribution
Agreement shall be terminated and the transactions contemplated thereby shall
not be consummated, this Agreement shall automatically terminate and be without
further force and effect; provided, however, that no such termination of this
-------- -------
Agreement shall relieve any party from liability for breach prior to such
termination.
2.4. Payment of Purchase Price. At the Closing, against payment of the
-------------------------
purchase price to Intermediate Holdings by wire transfer of immediately
available funds, Intermediate Holdings will deliver Original Discount Notes
registered in the name of the Purchaser in accordance with Schedule I.
----------
2.5. Use of Proceeds. The proceeds of the sale by Intermediate Holdings
---------------
of the Original Discount Notes hereunder shall be (i) invested in Dynamic
Circuits, Inc. ("DCI") and used by DCI to repay a portion of its outstanding
---
indebtedness and (ii) for general corporate purposes. No portion of the proceeds
of the sale of the Original Discount Notes hereunder shall be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any "margin stock" within the meaning of any regulation,
interpretation or ruling of the Board of Governors of the Federal Reserve
System, all as from time to time in effect, refunding of any indebtedness
incurred for such purpose, or
-4-
<PAGE>
making any investment prohibited by foreign trade regulations. Without limiting
the foregoing, Intermediate Holdings agrees that in no event shall any proceeds
of the sale of the Original Discount Notes hereunder be used in any manner which
might cause the Original Discount Notes, or, if applicable the New Discount
Notes, or the application of such proceeds to violate any of Regulations U or X
of the Board of Governors of the Federal Reserve System or any other regulation
of the Board of Governors of the Federal Reserve System, or to violate the
Exchange Act, in each case as in effect as of the Closing and as of such use of
proceeds.
SECTION 3. TERMS OF THE ORIGINAL DISCOUNT NOTES
3.1. Form. The Original Discount Notes shall be in substantially the
----
forms set forth in Exhibit A hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Note Purchase Agreement, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required by law or as may, consistently herewith, be determined by the officers
executing such Original Discount Notes, as evidenced by their execution of the
Original Discount Notes. Any portion of the text of any Original Discount Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Original Discount Note.
3.2. Title and Terms.
---------------
3.2.1. The Original Discount Notes are known as the "13 1/2%
Series A Senior Discount Notes due 2008" of the Issuer. The Original
Discount Notes will have a Stated Maturity of June 30, 2008 and will be
issued pursuant to this Agreement at a discount from the Initial Accreted
Value. The Aggregate Initial Accreted Value will reflect a discount from
the aggregate stated principal amount of the Intermediate Holdings Discount
Notes at maturity, and the Original Discount Notes will accrete in value
from Aggregate Initial Accreted Value until June 30, 2003 at a rate per
annum of 13 1/2%, compounded semiannually, to an aggregate principal amount
at June 30, 2003 of $66,809,539.40. Cash interest will not accrue on the
Original Discount Notes prior to June 30, 2003. Thereafter, interest will
accrue at a rate per annum of 13.5% and will be payable semiannually in
cash and in arrears to the Holders of record on each June 15 or December 15
immediately preceding the interest payment
-5-
<PAGE>
date on June 30 and December 31 of each year, commencing December 31, 2003.
Cash interest on the Original Discount Notes will accrue from the most
recent interest payment date to which interest has been paid or, if no
interest has been paid, from June 30, 2003. For convenience, all references
to the principal amount at maturity of the Original Discount Notes herein
are references to the principal amount at final maturity without taking
into account the payment required by clause Section 3.2.2 hereof and
Section 2 of the Original Discount Notes. All references herein to
outstanding principal amount for the purposes of calculating interest and
principal payments and redemption prices shall take into account any
payment pursuant to Section 3.2.2 hereof and Section 2 of the Original
Discount Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months, until the principal thereof is paid or
duly provided for. Interest on any overdue principal, interest (to the
extent lawful) or premium, if any, shall be payable on demand.
3.2.2. For each $1,000 in principal amount of Original Discount
Notes outstanding on December 31, 2003, $427.16 will be due and payable in
cash on December 31, 2003, representing a payment of a portion of the
principal of such Original Discount Notes.
3.2.3. The principal of (and premium, if any) and interest on the
Discount Notes shall be payable by either check mailed to addresses of or
wire transfer to the Persons entitled thereto at such addresses as shall
appear on the Note Register or pursuant to such wire transfer instructions
as provided to the Issuer.
3.2.4. Holders shall have the right to require the Issuer to
purchase their Original Discount Notes, in whole or in part, in the event
of a Change of Control pursuant to Section 9.13 and in the event of a
Qualifying Public Offering pursuant to Section 9.13A. The Original Discount
Notes shall be subject to repurchase by the Issuer pursuant to an Asset
Disposition as provided in Section 9.14. The Original Discount Notes shall
be redeemable as provided in Section 10 and in the Original Discount Notes.
3.3. Denominations.
-------------
The Original Discount Notes shall be issuable only in fully registered
form, without coupons, and, unless otherwise agreed to by the Issuer, only in
denominations of $100,000 and any integral multiple thereof.
3.4. Execution, Delivery and Dating.
------------------------------
-6-
<PAGE>
The Original Discount Notes shall be executed on behalf of the Issuer by
two Officers, of which at least one Officer shall be the President or the Chief
Financial Officer of the Issuer. The signature of any Officer on the Original
Discount Notes shall be manual signatures of the present or any future such
authorized officer and may be imprinted or otherwise reproduced on the Original
Discount Notes.
In case the Issuer, pursuant to Section 8, shall be consolidated or merged
with or into any other Person or shall convey, transfer, lease or otherwise
dispose of its properties and assets substantially as an entirety to any Person,
and the successor Person resulting from such consolidation, or surviving such
merger, or into which the Issuer shall have been merged, or the Person which
shall have received a conveyance, transfer, lease or other disposition as
aforesaid, shall have executed assumed the obligations of the Issuer pursuant to
this Note Purchase Agreement and the Original Discount Notes pursuant to Section
8, any of the Original Discount Notes delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to time,
at the request of the successor Person, be exchanged for other Original Discount
Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Original Discount Notes surrendered for such exchange and of like
principal amount. If Original Discount Notes shall at any time be authenticated
and delivered in any new name of a successor Person pursuant to this Section 3.3
in exchange or substitution for or upon registration of transfer of any Original
Discount Notes, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Original Discount Notes
at the time outstanding for Discount Notes authenticated and delivered in such
new name.
3.5. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Issuer shall cause to be kept at its office a register (herein
sometimes referred to as the "Note Register") in which, subject to such
-------------
reasonable regulations as it may prescribe, the Issuer shall provide for the
registration of Original Discount Notes and of transfers of Original Discount
Notes. The Note Register shall be in written form or any other form capable of
being converted into written form within a reasonable time.
Upon surrender for registration of transfer of any Original Discount Note,
the Issuer shall execute and deliver, in the name of the designated transferee
or transferees, one or more Original Discount Notes of any authorized
denomination or denominations of a like aggregate principal amount at maturity.
At the option of the Holder, Original Discount Notes may be exchanged for
other Original Discount Notes of any authorized denomination (not less than
$100,000) and of a like aggregate principal amount at maturity, upon surrender
of the Original Discount Notes to be exchanged at such office or agency.
Whenever any Discount Notes are so surrendered for exchange the Issuer shall
execute and deliver the Original Discount Notes which the Holder making the
exchange is entitled to receive.
-7-
<PAGE>
All Original Discount Notes issued upon any registration of transfer or
exchange of Original Discount Notes shall be the valid obligations of the
Issuer, evidencing the same debt, and entitled to the same benefits under this
Note Purchase Agreement, as the Original Discount Notes surrendered upon such
registration of transfer or exchange.
Every Discount Note presented or surrendered for registration of transfer
or for exchange shall (if so required by the Issuer) be duly endorsed, or be
accompanied by a written instrument of transfer, in form satisfactory to the
Issuer, duly executed by the Holder thereof or his attorney duly authorized in
writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Original Discount Notes, but the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Discount Notes.
3.6. Mutilated, Destroyed, Lost and Stolen Discount Notes.
----------------------------------------------------
If (i) any mutilated Original Discount Note is surrendered to the Issuer or
(ii) the Issuer receives evidence to its satisfaction of the destruction, loss
or theft of any Original Discount Note, and there is delivered to the Issuer
such security or indemnity, as may be required by it to save it harmless, then,
in the absence of notice to the Issuer that such Original Discount Note has been
acquired by a bona fide purchaser, the Issuer shall execute and deliver, in
exchange for any such mutilated Original Discount Note or in lieu of any such
destroyed, lost or stolen Original Discount Note, a new Original Discount Note
of like tenor and principal amount at maturity, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Original Discount
Note has become or is about to become due and payable, the Issuer in its
discretion may, instead of issuing a new Original Discount Note, pay such
Original Discount Note.
Upon the issuance of any new Original Discount Note under this Section, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses in connection therewith.
Every Original Discount Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Original Discount Note shall constitute an
original additional contractual obligation of the Issuer and any other obligor
upon the Original Discount Notes, whether or not the mutilated, destroyed, lost
or stolen Original Discount Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Note Purchase Agreement equally and
proportionately with any and all other Original Discount Notes duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Original Discount Notes.
-8-
<PAGE>
3.7. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Original Discount Note which is payable, and is punctually
paid or duly provided for, on any interest payment date shall be paid to the
Person in whose name such Original Discount Note (or one or more Predecessor
Discount Notes) is registered at the close of business on the Regular Record
Date for such interest at the office or the Issuer; provided, however, that each
installment of interest may at the Issuer's option be paid by (i) mailing a
check for such interest, payable to or upon the written order of the Person
entitled thereto pursuant to Section 3.6, to the address of such Person as it
appears in the Note Register or (ii) wire transfer to an account located in the
United States maintained by the payee.
Any interest on any Original Discount Note which is payable, but is not
paid when the same becomes due and payable and such nonpayment continues for a
period of 30 days shall forthwith cease to be payable to the Holder on the
Regular Record Date by virtue of having been such Holder, and such defaulted
interest and (to the extent lawful) interest on such defaulted interest at the
rate borne by the Original Discount Notes (such defaulted interest and interest
thereon herein collectively called "Defaulted Interest") shall be paid by the
------------------
Issuer, at its election in each case, as provided in clause (a) or (b) below:
a. the Issuer may elect to make payment of any Defaulted Interest to
the Persons in whose names the Original Discount Notes (or their
respective Predecessor Original Discount Notes) are registered at
the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following
manner. The Issuer shall notify the Holders in writing of the amount
of Defaulted Interest proposed to be paid on each Original Discount
Note, the date (not less than 30 days after such notice) of the
proposed payment (the "Special Interest Payment Date"), and a record
-----------------------------
date (the "Special Record Date") for the payment of such Defaulted
-------------------
Interest which shall be not more than 15 days and not less than 10
days prior to the Special Interest Payment Date and not less than 10
days after the delivery of the notice. The Issuer shall then pay on
the Special Interest Payment Date to the Persons in whose names the
Original Discount Notes (or their respective Predecessor Original
Discount Notes) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (b).
b. the Issuer may make payment of any Defaulted Interest in any other
lawful manner as agreed to by Holders of a majority of the
outstanding Original Discount Notes.
Subject to the foregoing, each Original Discount Note delivered under this
Indenture upon registration of transfer of or in exchange for or in lieu of any
other Original Discount Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Original Discount Note.
3.8. Persons Deemed Owners.
---------------------
-9-
<PAGE>
Prior to the due presentment of a Original Discount Note for registration
of transfer, the Issuer may treat as the owner of such Original Discount Note
the Person in whose name such Original Discount Note is registered for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Sections 3.5 and 3.7) interest on such Original Discount Note and for all
other purposes whatsoever, whether or not such Original Discount Note be
overdue, and neither the Issuer nor any agent of the Issuer shall be affected by
notice to the contrary.
3.9. Cancellation.
------------
All Original Discount Notes surrendered for payment, redemption,
registration of transfer or exchange shall be delivered to the Issuer and be
promptly canceled by it. No Original Discount Notes shall be delivered in
exchange for any Original Discount Notes canceled as provided in this Section,
except as expressly permitted by this Note Purchase Agreement.
3.10. Computation of Interest.
-----------------------
Interest on the Original Discount Notes shall be computed on the
basis of a 360-day year of twelve 30-day months.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants that:
4.1. Legal Capacity; Due Authorization; Binding Effect. The Purchaser has
-------------------------------------------------
full legal capacity, power and authority to execute and deliver this Agreement
and the Registration Rights Agreement and to perform its obligations hereunder
and thereunder. This Agreement has been duly executed and delivered by the
Purchaser. This Agreement is, and the Registration Rights Agreement will be when
duly executed and delivered by the Purchaser, the legal, valid and binding
obligation of the Purchaser enforceable against it in accordance with the terms
hereof.
4.2. Restrictions on Transfer. The Purchaser has been advised that the
------------------------
Original Discount Notes have not been registered under the Securities Act or any
state securities laws and, therefore, cannot be resold unless they are
registered under the Securities Act and applicable state securities laws or
unless an exemption from such registration requirements is
-10-
<PAGE>
available. The Purchaser is aware that Intermediate Holdings is under no
obligation to effect any such registration with respect to the Original Discount
Notes or to file for or comply with any exemption from registration, except as
provided in the Registration Rights Agreement. The Purchaser has advised
Intermediate Holdings that it proposes to offer a portion of the Original
Discount Notes to the TCW Funds for resale upon the terms and subject to the
conditions set forth herein. The Purchaser has not solicited offers for, or
offered or sold, and will not, solicit offers for, or offer or sell, the
Original Discount Notes by means of any form of general solicitation or general
advertising within the meaning of Rule 502(c) of Regulation D under the
Securities Act ("Regulation D") or in any manner involving a public offering
------------
within the meaning of Section 4(2) of the Securities Act.
4.3. Accredited Investor, etc. The Purchaser has such knowledge and
------------------------
experience in financial and business matters so as to be capable of evaluating
the merits and risks of such investment, is able to incur a complete loss of
such investment and to bear the economic risk of such investment for an
indefinite period of time. Such Purchaser is an "accredited investor" as that
term is defined in Regulation D under the Securities Act and a Qualified
Institutional Buyer.
4.4. Brokerage Fees, etc. The Purchaser represents and warrants that no
-------------------
broker's, finders's or placement fee or commission will be payable to any Person
alleged to have been retained by the Purchaser with respect to its purchase of
Original Discount Notes.
4.5. Certain Tax Matters. The Purchaser agrees to deliver to Intermediate
-------------------
Holdings an appropriate tax form certifying that it is exempt from withholding
tax, such as Form W-9 (or a successor form) (if the Purchaser is a U.S. person)
or Forms W-8, 1001 or 4224 (or appropriate successor forms) (if the Purchaser is
not a U.S. person). If the Purchaser fails to deliver an appropriate tax form to
Intermediate Holdings, or if the form delivered by the Purchaser is not adequate
to provide an exemption from withholding for any reason, Intermediate Holdings
hereby reserves the right to withhold all taxes required to be withheld under
applicable law.
-11-
<PAGE>
4.6. Counsel. The Purchaser acknowledges that Ropes & Gray has
-------
represented the Issuer with respect to this Agreement and the transactions,
documents and other agreements contemplated hereby. The Purchaser understands
that Ropes & Gray has represented and represents the Purchaser and certain
equity funds advised by Bain Capital, Inc which hold Common Stock of Holdings,
with respect to various matters from time to time. Without limiting the
generality of the foregoing, Ropes & Gray has acted and is acting as counsel to
such equity funds with respect to the transactions contemplated by the DCI
Contribution Agreement. The Purchaser acknowledges that it has been informed of
potential conflicts with respect to the representation of the Issuer by Ropes &
Gray and hereby confirms its consent to such representation.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF INTERMEDIATE HOLDINGS.
In order to induce the Purchaser to enter into this Agreement and to
purchase the Original Discount Notes to be purchased by the Purchaser hereunder,
Intermediate Holdings represents, warrants and agrees for the benefit of the
Purchaser that as of the date of the Closing (the "Closing Date"):
------------
5.1. Corporate Existence and Power. Intermediate Holdings (i) is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California, (ii) is duly qualified to do business in each
additional jurisdiction where the failure to so qualify would have a Material
Adverse Effect, and (iii) has all requisite corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted, and to execute, deliver and perform its obligations under this
Agreement and the Notes.
5.2. Corporate Authority. The execution, delivery and performance by
-------------------
Intermediate Holdings of this Agreement, the Registration Rights Agreement and
the Original Discount Notes, are within the corporate powers of Intermediate
Holdings and have been duly authorized by all necessary corporate action on the
part of the Board and stockholders of Intermediate Holdings.
5.3. Binding Effect. This Agreement is, and when executed and delivered
--------------
by Intermediate
-12-
<PAGE>
Holdings, the Registration Rights Agreement and each Original Discount Note will
be, the legal, valid and binding obligation of Intermediate Holdings,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relative to or affecting the
enforcement of creditors' rights generally in effect from time to time and by
general principles of equity.
5.4. Litigation. There are no actions, suits or proceedings pending or,
----------
to the knowledge of Intermediate Holdings, threatened against or affecting
Intermediate Holdings or against any officer or director of Intermediate
Holdings which are likely to have, individually or in the aggregate, a Material
Adverse Effect, or which seek to enjoin, or otherwise prevent the consummation
of, the DCI Transactions or to recover any damages or obtain any relief as a
result of any of the DCI Transactions in any court or before any arbitrator of
any kind or by any governmental body.
5.5. Compliance with Laws. Intermediate Holdings and its Subsidiaries are
--------------------
not in violation of any statute, judgment, decree or government order or
regulation applicable to Intermediate Holdings, except such violations as may
not, singly or in the aggregate, have a Material Adverse Effect. Intermediate
Holdings and its Subsidiaries have obtained and hold all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of their properties or the conduct of its business as currently
conducted, except such failures as would not, singly or in the aggregate, have a
Material Adverse Effect.
5.6. No Violation.
------------
5.6.1. Existing Violations.
-------------------
Intermediate Holdings and its Subsidiaries are not (i) in violation of
their certificates of incorporation or by- laws or (ii) in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any indenture,
mortgage, deed of trust or any other agreement or instrument to which any of
-13-
<PAGE>
them is a party other than such defaults that could not, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect. There
exists no condition that, with the passage of time or otherwise, would
constitute a violation of their certificates of incorporation or by-laws or a
default under any such document or instrument or result in the imposition of any
penalty or the acceleration of any indebtedness or other obligation other than
such defaults that would not, singly or in the aggregate, result in a Material
Adverse Effect.
5.6.2. Execution of Agreement.
----------------------
None of the execution or delivery by Intermediate Holdings of this
Agreement or the Registration Rights Agreement, the issuance, sale or delivery
of the Original Discount Notes, or the performance by Intermediate Holdings of
its obligations pursuant to this Agreement, the Original Discount Notes and the
Registration Rights Agreement, will conflict with, violate, constitute a breach
of or a default (with the passage of time or otherwise) under, require the
consent of any Person (other than consents already obtained or as may be
required to be obtained or made under the Securities Act and applicable state
securities laws, as contemplated in the Registration Rights Agreement) under,
result in the imposition of any penalty, or result in the imposition of a lien,
other than liens permitted hereby, upon any property or assets of Intermediate
Holdings or any of its Subsidiaries, or an acceleration of indebtedness or other
obligation of Intermediate Holdings or its Subsidiaries pursuant to, (i) the
certificate of incorporation or by-laws of Intermediate Holdings, (ii) except as
set forth on Schedule 5.6.2 hereto, any bond, debenture, note or any other
--------------
evidence of indebtedness or any indenture, mortgage, deed of trust or any other
agreement or instrument to which Intermediate Holdings or any of its
Subsidiaries is a party or by which any of them are bound or to which any of
their property or assets is subject, or (iii) any law, statute, judgment, decree
or government order applicable to Intermediate Holdings or its Subsidiaries,
except in any case where such violation, default, breach or conflict, or the
absence of such consent or the creation of such lien, would not, singly or in
the aggregate, result in a Material Adverse Effect.
5.7. Consents.
--------
No consent, approval or authorization of, or filing, registration or
qualification with, any Person or any governmental or regulatory authority or
body is required in connection with or as a condition to the execution and
delivery of this Agreement or the Registration Rights Agreement or the offer,
issuance, sale or delivery of the Original Discount Notes at the Closing, except
for such consents, approvals, authorizations, filings, registrations or
qualifications as have been made or obtained on or before the Closing Date and
except to the extent that the failure to obtain any such consents, approvals,
authorizations or qualifications or to make any such filings or registrations
could not, singly or in the aggregate, have a Material Adverse Effect.
5.8. No Default. No event has occurred and is continuing which
----------
constitutes a Default or an Event of Default hereunder.
-14-
<PAGE>
5.9. Private Offering. Intermediate Holdings has not (nor has anyone
----------------
acting on its behalf) offered the Original Discount Notes or any part thereof or
any similar securities for issue or sale to, or solicited any offer to acquire
any of the same from, anyone so as to bring the issuance and sale of any of the
Original Discount Notes within the provisions of Section 5 of the Securities
Act.
5.10. Governmental Regulations.
------------------------
Intermediate Holdings is not subject to regulation, and will not become subject
to regulation upon the issuance of the Original Discount Notes as contemplated
by this Agreement, under the Investment Company Act of 1940, as amended, or any
Federal or state statute or regulation limiting its ability to incur or assume
indebtedness for borrowed money or consummate the transactions contemplated
hereby.
5.11. ERISA. No "prohibited transaction" (as defined in Section 406 of the
-----
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section 4975
-----
of the Internal Revenue Code of 1986, as amended from time to time (the "Code"))
----
or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any
of the events set forth in Section 4043(b) of ERISA (other than events with
respect to which the 30-day notice requirement under Section 4043 of ERISA has
been waived) has occurred with respect to any employee benefit plan of
Intermediate Holdings or any of its subsidiaries which could reasonably be
expected to have a Material Adverse Effect; each such employee benefit plan is
in compliance in all material respects with applicable law, including ERISA and
the Code; Intermediate Holdings and each of its subsidiaries have not incurred
and do not expect to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any pension plan for which Intermediate
Holdings or any of its subsidiaries would have any liability; and each such
pension plan that is intended to be qualified under Section 401(a) of the Code
is so qualified in all
-15-
<PAGE>
material respects and nothing has occurred, whether by action or by failure to
act, which could reasonably be expected to cause the loss of such qualification.
5.12. Margin Securities, etc. Neither Intermediate Holdings nor any of its
----------------------
subsidiaries owns any "margin securities" as that term is defined in Regulations
G and U of the Board of Governors of the Federal Reserve System (the "Federal
-------
Reserve Board"), and none of the proceeds of the sale of the Original Discount
- -------------
Notes will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Original Discount
Notes to be considered a "purpose credit" within the meanings of Regulation G,
T, U or X of the Federal Reserve Board.
5.13. Exchange Act. There are no securities of Intermediate Holdings
------------
registered under the Exchange Act, or listed on a national securities exchange
or quoted in a U.S. automated inter-dealer quotation system.
5.14. Not Investment Company. Neither Intermediate Holdings nor any of its
----------------------
Subsidiaries is (A) an "investment company" or a company "controlled by" an
investment company within the meaning of the Investment Company Act of 1940, as
amended and the rules and regulations of the Securities and Exchange Commission
thereunder, or (B) a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
5.15. Counsel. The Issuer acknowledges that Ropes & Gray has acted and does
-------
act as counsel to the Purchaser and certain equity funds advised by Bain
Capital, Inc which hold Common Stock of Holdings, with respect to various
matters from time to time. Without limiting the generality of the foregoing,
Ropes & Gray has acted and is acting as counsel to such equity funds with
respect to the transactions contemplated by the DCI Contribution Agreement. The
Issuer acknowledges that it has been informed of potential conflicts involved in
the representation of it by Ropes & Gray with respect to this Agreement and the
transactions, documents and other agreements contemplated hereby, and the Issuer
confirms that it has waived and does waive any conflicts which may arise out the
representation by Ropes & Gray of the Purchaser and such equity funds.
SECTION 6. CLOSING CONDITIONS
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<PAGE>
6.1. Obligations of the Purchaser. The obligation of the Purchaser to
----------------------------
purchase and pay for the Original Discount Notes provided for hereunder is
subject to the satisfaction of the following conditions, each as of the Closing
Date:
6.1.1. Representations and Warranties; No Default. All
------------------------------------------
representations and warranties of Intermediate Holdings contained in
this Agreement shall be true and correct in all material respects,
including, without limitation, that there shall exist no Default or
Event of Default as of the Closing Date, including after giving effect
to the issuance of the Original Discount Notes contemplated herein.
6.1.2. Documents Satisfactory; DCI Transactions Consummated. The DCI
----------------------------------------------------
Transactions, except for the matters referred to in Section 9.18 hereof
which are to occur following the closing under the DCI Contribution
Agreement, shall have been consummated or be consummated simultaneously
with Closing hereunder, in accordance with the terms of the DCI
Contribution Agreement and all applicable laws. Each of the Documents
shall have been duly executed and delivered by the respective parties
thereto and shall be in full force and effect.
6.1.3. Registration Rights Agreement. The Issuer shall have duly
-----------------------------
executed and delivered to the Purchaser the Registration Rights
Agreement.
6.1.4. Delivery of Documents. The Purchaser shall have received the
---------------------
following items, each of which shall be in form and substance reasonably
satisfactory to the Purchaser and, unless otherwise noted, dated the
Closing Date:
6.1.4.1. Executed copies of this Agreement, the Registration
Rights
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<PAGE>
Agreement and the Original Discount Notes issued in the name of the
Purchaser as set forth on Schedule I.
----------
6.1.4.2. Resolutions of the board of directors of Intermediate
Holdings approving and authorizing the execution, delivery and
performance of this Agreement and the issuance and sale of the Original
Discount Notes and the execution, delivery and payment of the Original
Discount Notes, certified as of the Closing Date by the secretary or an
assistant secretary of Intermediate Holdings as being in full force and
effect without modification or amendment.
6.1.4.3. Copies of a certificate of the secretary of the State of
California dated a recent date prior to the Closing Date, listing the
charter documents of Intermediate Holdings and any amendments thereto on
file in the office of said secretary and certifying that (A) such
charter is a true and correct copy thereof, (B) such amendments are the
only amendments to such charter on file in his office, (C) Intermediate
Holdings has paid all franchise taxes to the date of such certificate
and (D) Intermediate Holdings is duly incorporated and in good standing
under the laws of such state.
6.1.4.4. A certificate of Intermediate Holdings, signed on its
behalf by an officer duly authorized, dated the Closing Date (the
statements made in which certificate shall be true on and as of such
date) certifying as to (A) the absence of any amendment to the
certificate of incorporation of Intermediate Holdings since the date of
the secretary of state's certificate referred to in Section 6.1.3.3
above), (B) a true and correct copy of the bylaws of Intermediate
Holdings as in effect on the Closing Date, (C) the due incorporation and
good standing of
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<PAGE>
Intermediate Holdings as a corporation organized under the laws of the
jurisdiction of its incorporation and the absence of any proceeding for
the dissolution or liquidation of Intermediate Holdings, (D) the
completeness and accuracy of the representations and warranties
contained in this Agreement as of the Closing Date and (E) incumbency
and true signatures of officers of Intermediate Holdings.
6.1.4.5. The Purchaser and the TCW Funds shall have received an
opinion, dated the Closing Date, from Ropes & Gray, substantially in the
form set forth as Exhibit D hereto.
6.1.4.6. The Purchaser and the TCW Funds shall have received an
opinion, dated the Closing Date, from Stradling Yocca Carlson & Rauth,
substantially in the form set forth as Exhibit E hereto.
6.1.5. Consents and Permits. Intermediate Holdings shall have received
--------------------
all consents, permits and other authorizations, and made all such filings
and declarations, as may be required pursuant to any statute, judgment,
decree or government order or regulation applicable to it, for consummation
of the transactions contemplated by this Agreement, including the issuance
and sale of the Original Discount Notes, and pursuant to all other
agreements, orders and decrees to which it is a party or to which it is
subject, in connection with the transactions to be consummated on or prior
to the Closing Date contemplated by this Agreement.
6.1.6. Proceedings Satisfactory. All corporate proceedings taken in
------------------------
connection with the sale of the Original Discount Notes and all documents
relating thereto, shall be reasonably satisfactory in form and substance to
the Purchaser. The Purchaser shall have received
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<PAGE>
copies of such documents as they may reasonably request in connection with
the Closing.
6.1.7. No Material Adverse Change. Nothing shall have occurred (and the
--------------------------
Purchaser shall not be aware of any facts or conditions not previously
known) which reasonably could be expected to have a Material Adverse
Effect.
6.1.8. No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any
ruling of any agency of the Federal, state or local government that would
prohibit the sale or issuance of the Original Discount Notes hereunder or
subject Intermediate Holdings or the Purchaser to any material penalty if
the Original Discount Notes were to be issued and sold hereunder.
6.1.9. Certain Expenses. On the Closing Date, all reasonable
----------------
attorney's fees and expenses of the Purchaser incurred in connection with
the negotiation and execution of this Agreement and the documents
contemplated hereby shall have been paid by Intermediate Holdings to the
extent due.
6.1.10. No Violation of Regulations U or X. The issuance of the
----------------------------------
Original Discount Notes shall not violate Regulations U or X of the Board
of Governors of the Federal Reserve Board.
6.2. Obligations of Intermediate Holdings. The obligations of
------------------------------------
Intermediate Holdings to sell the Original Discount Notes to be delivered to the
Purchaser at the Closing shall be subject to the satisfaction of the following
conditions:
6.2.1. Purchaser's Representations and Warranties. The Purchaser's
------------------------------------------
payment of the purchase price for the Original Discount Notes purchased
by it at the Closing shall constitute a certification by such Purchaser
that all of its representations and warranties made herein shall be true
and correct in all material respects at and as of the Closing Date, after
giving effect to the transactions contemplated by this Agreement, as if
made at and as of such date.
-20-
<PAGE>
6.2.2. No Material Judgment or Order. There shall not be on the
-----------------------------
Closing Date any judgment or order of a court of competent jurisdiction
or any ruling of any agency of the Federal, state or local government
that would prohibit the sale or issuance of the Original Discount Notes
hereunder or subject the Purchaser or Intermediate Holdings to any
material penalty if the Original Discount Notes were to be issued and
sold hereunder.
6.2.3. The Sale by Intermediate Holdings Permitted by Applicable
---------------------------------------------------------
Laws. The sale by Intermediate Holdings of the Original Discount Notes to
----
be purchased by the Purchaser (a) shall not be prohibited by any
applicable law or governmental regulation, release, interpretation or
opinion (including, without limitation, Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System), (b) shall not subject
Intermediate Holdings to any penalty under or pursuant to any applicable
law or governmental regulation, and (c) shall be permitted by the laws
and regulations of the jurisdictions to which Intermediate Holdings is
subject.
6.2.4. Consents and Permits. The Purchaser shall have received all
--------------------
consents, permits and other authorizations, and made all such filings and
declarations, as may be required pursuant to any statute, judgment,
decree or government order or regulation applicable to it, for the
consummation of the transactions contemplated by this Agreement,
including the issuance and sale of the Original Discount Notes, and
pursuant to all other agreements, orders and decrees to which it is a
party or to which it is subject, in connection with the transactions to
be consummated on or prior to the Closing Date contemplated by this
Agreement.
SECTION 7 REMEDIES.
7.1. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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<PAGE>
(i) a default in any payment of interest on any Original Discount Note
when due, continued for 30 days;
(ii) a default in the payment of principal of any Original Discount Note
when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise; provided that this clause (ii)
shall not be deemed to include as an Event of Default any failure by the
Issuer to pay any amounts that are due and payable solely pursuant to Section
3.2.2 hereof and Section 2 of the Original Discount Notes;
(iii) the failure by the Issuer to comply for 30 days after the notice
specified below with any of its obligations under Section 8 and Sections 9.5
through 9.16 (other than a failure to purchase Original Discount Notes when
required under Sections 9.13, 9.13A and 9.14 which shall constitute an Event
of Default under clause (ii) above);
(iv) the failure by the Issuer to comply for 60 days after the notice
specified below with any of its other agreements contained in this Note
Purchase Agreement or the Original Discount Note (other than those referred
to in (i), (ii) or (iii) above); provided that this clause (iv) shall not be
deemed to include as an Event of Default any failure by the Issuer to pay any
amounts that are due and payable solely pursuant to Section 3.2.2 hereof and
Section 2 of the Original Discount Notes;
(v) Indebtedness of the Issuer or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by
holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10 million;
-22-
<PAGE>
(vi) the Issuer or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property;
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Issuer or any Significant Subsidiary
in an involuntary case;
(B) appoints a Custodian of the Issuer or any Significant
Subsidiary for all or substantially all of its property; or
(C) orders the winding up or liquidation of the Issuer or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 90 consecutive days;
(viii) any judgment or decree for the payment of money in excess of
$10 million is rendered against the Issuer or any Significant Subsidiary
and such judgment or decree remains undischarged or unstayed for a period
of 60 days after such judgment becomes final and non-appealable; or
-23-
<PAGE>
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body; provided, however, a default under clauses (iii) and (iv) will not
constitute an Event of Default until or the holders of 25% in principal amount
of the outstanding Original Discount Notes notify the Issuer of the default and
the Issuer does not cure such default within the time specified in clauses (iii)
and (iv) after receipt of such notice. Such notice must specify the Default,
demand that it is to be remedied and state that such notice is a "Notice of
Default."
The Issuer also is required to deliver to the Holders, within 30 days
after the occurrence thereof, written notice of any events that would become an
Event of Default under clause (iii), (iv) or (vii) above, their status and what
action the Issuer is taking or proposes to take in respect thereof.
7.2 Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than by reason of an Event of Default
specified in clause (vi) or (vii) of Section 7.1) occurs and is continuing, the
Holders of at least 25% in principal amount of the Original Discount Notes
outstanding may declare the principal (or if prior to June 30, 2003, the
Accreted Value of) (and premium, if any), accrued and unpaid interest and any
other monetary obligations on all such then outstanding Original Discount Notes
to be due and payable immediately, by a notice in writing to the Issuer. Upon
the effectiveness of such declaration, such principal (or Accreted Value) (and
premium, if any) and interest will be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default specified in
Section 7.1(vi) or (vii) occurs and is continuing, then the outstanding
principal amount of all the Original
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<PAGE>
Discount Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of any Holder.
The Holders of a majority in principal amount of the outstanding Original
Discount Notes by notice to the Issuer may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
The failure of the Issuer to pay any amounts that are due and payable
solely pursuant to Section 3.2.2 of this Agreement and Section 2 of the Original
Discount Notes shall give the Holders of Original Discount Notes a right to sue
for failure to pay such amounts when due and payable, but shall not give such
Holders the right to declare the principal of and accrued and unpaid interest on
the Original Discount Notes, if any, to be due and payable.
No one or more Holders shall have any right in any manner whatever by
virtue of, or by availing of, any provision of this Note Purchase Agreement or
any Original Discount Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Note Purchase Agreement or any
Original Discount Note, except in the manner herein provided and for the equal
and ratable benefit of all the Holders.
7.3. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Note Purchase Agreement the
Holder of any Original Discount Note shall have the right, which is absolute and
unconditional, to receive payment, as provided herein (including, if applicable,
Section 10) and in such Original Discount Note of the principal of (and
-25-
<PAGE>
premium, if any) and (subject to Section 3.7) interest on such Original Discount
Note on the respective Stated Maturities expressed in such Original Discount
Note (or, in the case of redemption or repurchase, on the Redemption Date or
repurchase) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
7.4. Restoration of Rights and Remedies.
----------------------------------
If any Holder has instituted any proceeding to enforce any right or remedy
under this Agreement and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to such Holder, then and in every
such case, subject to any determination in such proceeding, the Issuer, any
other obligor on the Original Discount Notes, and the Holders shall be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Holders shall continue as though no such
proceeding had been instituted.
7.5. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Original Discount Notes in Section 3.6, no
right or remedy herein conferred upon or reserved to the Holders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
7.6. Delay or Omission Not Waiver.
----------------------------
No delay or omission of any Holder to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or
-26-
<PAGE>
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Section or by law to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Holders.
7.7. Waiver of Past Defaults.
-----------------------
Subject to Section 7.4 and Section 13.4, the Holders of a majority in
aggregate principal amount of the outstanding Original Discount Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Original Discount Notes) may on behalf of the Holders of all the Original
Discount Notes, by written notice to the Issuer, waive any existing Default or
Event of Default and its consequences under this Note Purchase Agreement except
a continuing Default or Event of Default in the payment of interest on, premium,
if any, or the principal of (or if prior to June 30, 2003, the Accreted Value),
any such Original Discount Note held by a non-consenting Holder, or in respect
of a covenant or a provision which cannot be amended or modified without the
consent of all Holders.
In the event that any Event of Default specified in Section 7.1(v) shall
have occurred and be continuing, such Event of Default and all consequences
thereof (including without limitation any acceleration or resulting payment
default) shall be annulled, waived and rescinded, automatically and without any
action by the Holders of the Original Discount Notes, if within 30 days after
such Event of Default arose (i) the Indebtedness that is the basis for such
Event of Default has been discharged, or (ii) the holders thereof have rescinded
or waived the acceleration, notice or action (as the case may be) giving rise to
such Event of Default, or (iii) if the Default that is the basis for such Event
of Default has been cured.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall
-27-
<PAGE>
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 8. MERGER, CONSOLIDATION OR SALE OF ASSETS.
8.1. Section 801 of the Indenture is hereby incorporated by reference,
except that:
8.1.1. all text of clause (i) after "expressly assume" shall be
deemed deleted and replaced with "by an executed writing in a form
satisfactory to the holders of a majority of the outstanding Original
Discount Notes, all obligations of the Issuer under the Original Discount
Notes and this Note Purchase Agreement."
8.1.2. the word "Trustee" in the first line of clause (iv) shall be
deemed replaced with the word "Holders."
8.2. Section 802 of the Indenture is hereby Incorporated by Reference.
SECTION 9. COVENANTS.
9.1. Payment of Principal, Premium, if any, and Interest. Section 1001 of
---------------------------------------------------
the Indenture is hereby Incorporated by Reference, except that (i) any
references to "New Discount Notes" shall deemed to be a reference to "Original
Discount Notes" and (ii) any reference to "this Indenture" shall be deemed to be
a reference to "this Note Purchase Agreement."
9.2. Corporate Existence. Section 1004 of the Indenture is hereby
-------------------
Incorporated by Reference, except that reference to Article 8 shall deemed to be
a reference to Section 8 hereof.
9.3. Payment of Taxes and Other Claims. Section 1005 of the Indenture is
---------------------------------
hereby Incorporated by Reference.
9.4. Compliance with Statutes. Section 1008 of the Indenture is hereby
------------------------
Incorporated by Reference.
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<PAGE>
9.5 Limitation on Restricted Payments. Section 1009 of the Indenture is
---------------------------------
hereby Incorporated by Reference, except that each reference to "the Trustee"
shall deemed to be a reference to "the Holders of Discount Notes".
9.6. Limitation on Indebtedness by the Issuer. Section 1010 of the
----------------------------------------
Indenture is hereby Incorporated by Reference.
9.7 Limitations on Indebtedness by Details Capital. Section 1010A of the
----------------------------------------------
Indenture is hereby Incorporated by Reference.
9.8. Limitation on Indebtedness by Non-Capital Subsidiaries. Section 1010B
------------------------------------------------------
of the Indenture is hereby Incorporated by Reference.
9.9 Limitation on Indebtedness by the Company. Section 1011 of the
-----------------------------------------
Indenture is hereby Incorporated by Reference.
9.10. Limitation on Affiliate Transactions. Section 1012 of the
------------------------------------
Indenture is hereby Incorporated by Reference.
9.11. Limitation on Restrictions on Distributions from Restricted
-----------------------------------------------------------
Subsidiaries. Section 1013 of the Indenture is hereby Incorporated by Reference,
- ------------
except that any reference to "New Discount Notes" shall be deemed to be a
reference to "Original Discount Notes."
9.12 Limitation on the Sale or Issuance of Preferred Stock of
--------------------------------------------------------
Restricted Subsidiaries. Section 1014 of the Indenture is hereby
- -----------------------
Incorporated by Reference.
9.13. Change of Control. Section 1015 of the Indenture is hereby
-----------------
Incorporated by Reference, except that (i) any reference to "New Discount Notes"
shall be deemed to be a reference to "Original Discount Notes"; (ii) the words
"with a copy to the Trustee" appearing in Section 1015 shall be deemed
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<PAGE>
to be deleted; (iii) the reference to Section 1101 shall be deemed to be a
reference to Section 10.1 hereof; and (iv) the reference to Section 1105 shall
be deemed to be a reference to Section 10.5 hereof.
9.13A. Qualifying Public Offering. Section 1015A of the Indenture is
--------------------------
hereby Incorporated by Reference, except that (i) any reference to "New Discount
Notes" shall be deemed to be a reference to "Original Discount Notes"; (ii) the
words "with a copy to the Trustee" appearing in Section 1015A shall be deemed to
be deleted; (iii) the reference to Section 1101 shall be deemed to be a
reference to Section 10.1 hereof; and (iv) the reference to Section 1105 shall
be deemed to be a reference to Section 10.5 hereof.
9.14. Limitation on Sales of Assets and Subsidiary Stock. Section 1016
--------------------------------------------------
of the Indenture is hereby Incorporated by Reference, except that any reference
to "New Discount Notes" shall be deemed to be a reference to "Original Discount
Notes."
9.15. Limitation on Lines of Business. Section 1018 of the Indenture
-------------------------------
is hereby Incorporated by Reference.
9.16. Financial Statements. As long as Original Discount Notes are
--------------------
outstanding, until such time as Intermediate Holdings enters into the Indenture
and is required to file reports with SEC pursuant to Section 1017 of the
Indenture, Intermediate Holdings and its Restricted Subsidiaries will maintain a
system of accounts in accordance with GAAP, keep full and complete financial
records and furnish to Holders of Original Discount Notes (i) within ninety (90)
days after the end of each fiscal year, a copy of the balance sheet of
Intermediate Holdings and its Restricted Subsidiaries as at the
end of such year, together with a statement of income and cash flows of
Intermediate Holdings and its Restricted Subsidiaries for such year, certified
by an independent public accountant of recognized national standing, prepared in
accordance with GAAP and (ii) within forty-five (45) days after the end of each
of the first three quarters of each fiscal year, a copy of the balance sheet of
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<PAGE>
Intermediate Holdings and its Restricted Subsidiaries as of the end of such
quarter and statements of income and of cash flows of Intermediate Holdings and
its Restricted Subsidiaries for the fiscal quarter and for the portion of the
fiscal year ending on the last day of such quarter, each of the foregoing
balance sheets and statements to set forth in comparative form the corresponding
figures for the same period of the prior fiscal year, to be in reasonable detail
(provided, however, such financial statements may not contain all footnotes
-----------------
required under generally accepted accounting principles) and to be certified,
subject to normal year-end audit adjustments, by the chief financial officer of
Intermediate Holdings that to the best of his knowledge they are true and
accurate in all material respects as of their dates.
9.17. Statement by Officers as to Default. Section 1019 of the
-----------------------------------
Indenture is hereby Incorporated by Reference, except that the word "Trustee"
shall deemed to be a reference to "the Holders of Original Discount Notes" and
each reference to "this Indenture" shall be deemed to be a reference to "this
Note Purchase Agreement."
9.18. Post-Closing Matters. Within thirty Business Days following the
--------------------
Closing, as contemplated by the DCI Contribution Agreement, (i) DCI will become
a wholly owned subsidiary of Intermediate Holdings and (ii) Holdings will
contribute to Intermediate Holdings all of the capital stock of Details Capital
Corp.
9.19. Further Assurances. Intermediate Holdings agrees that it shall,
------------------
at its expense and upon request of the Purchaser, duly execute and deliver, or
cause to be executed and delivered, to the Purchaser such further instruments
and do and cause to be done such further acts as may be necessary or proper in
the reasonable opinion of the Purchaser to carry out more effectively the
provisions and purposes of this Agreement.
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<PAGE>
SECTION 10. REDEMPTION OF ORIGINAL DISCOUNT NOTES.
10.1. Optional Redemption. The Original Discount Notes may or shall, as
-------------------
the case may be, be redeemed, as a whole or from time to time in part, subject
to the conditions and at the Redemption Prices specified in the Form of Original
Discount Note attached hereto as Exhibit A, together with accrued interest to
the redemption date. Exhibit F hereto sets forth examples of Redemption Prices
as of certain dates in connection with a redemption pursuant to this Section
10.1 and is included for illustrative purposes only.
10.2. Applicability of Section. Redemption of Original Discount Notes at
------------------------
the election of the Issuer or otherwise, as permitted or required by any
provision of this Note Purchase Agreement, shall be made in accordance with such
provision and this Section 10.
10.3. Election to Redeem. The election of the Issuer to redeem any
------------------
Original Discount Notes pursuant to Section 10.1 shall be evidenced by a Board
Resolution.
10.4. Selection by of Original Discount Notes to Be Redeemed. If less than
------------------------------------------------------
all the Original Discount Notes are to be redeemed at any time pursuant to an
optional redemption, the particular Original Discount Notes to be redeemed shall
be selected not more than 90 days prior to the Redemption Date by Issuer, from
the outstanding Original Discount Notes not previously called for redemption on
a pro rata basis which such selection may provide for redemption of portions of
the principal of (or Accreted Value of) the Original Discount Notes; provided,
however, that no such partial redemption shall reduce the portion of the
principal amount of (or Accreted Value of) an Original Discount Note not
redeemed to less than $100,000.
For all purposes of this Note Purchase Agreement, unless the context
otherwise requires, all provisions relating to redemption of Original Discount
Notes shall relate, in the case of any Original Discount Note redeemed or to be
redeemed only in part, to the portion of the principal amount of (or Accreted
Value of) such Original Discount Note which has been or is to be redeemed.
10.5. Notice of Redemption. Notice of redemption shall be given by the
--------------------
Issuer not less than 30 nor more than 90 days prior to the Redemption Date, to
each Holder of Original Discount Notes to be redeemed.
All notices of redemption shall state:
10.5.1. the Redemption Date,
10.5.2. the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 10, if any,
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10.5.3. if less than all outstanding Original Discount Notes are to
be redeemed, the identification of the particular Original Discount Notes
(or portion thereof) to be redeemed, as well as the aggregate principal
amount of (or Accreted Value of) Original Discount Notes to be redeemed and
the aggregate principal amount of (or Accreted Value of) Original Discount
Notes to be outstanding after such partial redemption,
10.5.4. in case any Original Discount Note is to be redeemed in part
only, the notice which relates to such Original Discount Note shall state
that on and after the Redemption Date, upon surrender of such Original
Discount Note, the holder will receive, without charge, a new Original
Discount Note or Original Discount Notes of authorized denominations for
the principal amount thereof (or Accreted Value thereof) remaining
unredeemed,
10.5.5. that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
10.7) will become due and payable upon each such Original Discount Note, or
the portion thereof, to be redeemed, and, unless the Issuer defaults in
making the redemption payment, that interest on Original Discount Notes
called for redemption (or the portion thereof) will cease to accrue on and
after said date,
10.5.6. the place or places where such Original Discount Notes are to
be surrendered for payment of the Redemption Price and accrued interest, if
any,
10.5.7. that Original Discount Notes called for redemption must be
surrendered to the Issuer to collect the Redemption Price,
10.5.8. the CUSIP number (if any), and that no representation is made
as to the accuracy or correctness of the CUSIP number (if any) listed in
such notice or printed on the Original Discount Notes, and
10.5.9. the paragraph of the Original Discount Notes or Section of
the Note Purchase Agreement pursuant to which the Original Discount Notes
are to be redeemed.
10.6. Deposit of Redemption Price. Prior to any Redemption Date, the Issuer
---------------------------
shall segregate and hold in trust as an amount of money sufficient to pay the
Redemption Price of, and accrued interest on, all the Original Discount Notes
which are to be redeemed on that date.
10.7. Original Discount Notes Payable on Redemption Date. Notice of
--------------------------------------------------
redemption having been given as aforesaid, the Original Discount Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified (together with accrued interest, if any, to the
Redemption Date), and from and after such date (unless the Issuer shall default
in the payment of the Redemption Price and accrued interest) such Original
Discount Notes shall cease to bear interest. Upon surrender of any such Original
Discount Note for redemption in accordance with said notice, such Original
Discount Note shall be paid by the Issuer at the Redemption Price, together
with accrued interest, if any, to the Redemption
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<PAGE>
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Original Discount Notes, or one or more Predecessor Original Discount Notes,
registered as such at the close of business on the relevant Regular Record Date
or Special Record Date, as the case may be, according to their terms and the
provisions of Section 3.7.
If any Original Discount Note called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Original Discount Notes.
10.8. Original Discount Notes Redeemed in Part. Any Original Discount Note
----------------------------------------
which is to be redeemed only in part (pursuant to the provisions of this Section
10) shall be surrendered to the Issuer (with, if the Issuer so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Issuer duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing), and the Issuer shall execute, and deliver to the Holder
of such Original Discount Note at the expense of the Issuer, a new Original
Discount Note or Original Discount Notes, of any authorized denomination as
requested by such Holder, in an aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Original Discount
Note so surrendered, provided, that each such new Note will be in a principal
amount of $100,000 or integral multiple thereof.
SECTION 11. SPECIAL TRANSFER PROVISIONS.
11.1. Assignments of Notes.
--------------------
11.1.1. In the case of any sale, assignment, transfer or negotiation
of all or part of the Original Discount Notes authorized under this Section
11 (but not in the case of a participation), the assignee, transferee or
recipient shall have, to the extent of such sale, assignment, transfer or
negotiation, the same rights, benefits and obligations under this
Agreement, the Registration Rights Agreement and such Original Discount
Notes as it would if it were a Purchaser on the Closing Date with respect
to such Original Discount Notes.
11.1.2. Intermediate Holdings shall keep at its principal office a
register in which Intermediate Holdings shall provide for the registration
of the Original Discount Notes and for the transfer of the same. Upon
surrender for registration of transfer of any such Original Discount Notes
at the principal office of
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<PAGE>
Intermediate Holdings, Intermediate Holdings shall, at its expense,
promptly execute and deliver one or more new Original Discount Notes of
like tenor and of a like principal amount, registered in the name of such
transferee or transferees and, in the case of a transfer in part, a new
Original Discount Note in the appropriate amount registered in the names of
such transferor.
11.1.3. In connection with any sales, assignments or transfers of any
Original Discount Note, the transferor shall give notice to Intermediate
Holdings of the identity of such parties and obtain agreements, if so
requested by Intermediate Holdings, from the transferees that all nonpublic
information given to such parties pursuant to this Agreement will be held
in strict confidence pursuant to a confidentiality agreement reasonably
satisfactory to Intermediate Holdings.
11.1.4. While the Original Discount Notes are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, Intermediate
Holdings will, during any period in which it is not subject to Section 13
or 15(d) of the Exchange Act, make available to the Purchaser in connection
with any sale thereof and, subject to the provisions of Section 15(d) of
the Exchange Act, any prospective purchaser of Original Discount Notes in
each case as soon as is reasonably practicable upon written request of such
holder, the information specified in, and meeting the requirements of Rule
144A under the Securities Act.
11.2 Restrictive Legend. Unless and until an Original Discount Note is sold
------------------
under an effective registration statement or sold to the public pursuant to Rule
144 under the Securities Act, such Original Discount Note shall bear the
following legend (the "Private Placement Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
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<PAGE>
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
---------- ---
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
------------------
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF JULY 23, 1998 AND THE
- ----------------
LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF
THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SECTION 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
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<PAGE>
ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL
AMOUNT OF $250,000 OF SUCH SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F)
ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF THE FOREGOING CLAUSE
(E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE ISSUER. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
11.3. Special Transfer Provisions. The following provisions shall apply
---------------------------
with respect to any proposed transfer of an Original Discount Note, prior to the
expiration of July 23, 2000, which has not been sold in a public offering
registered under the Securities Act or to the public pursuant to Rule 144 under
the Securities Act.
11.3.1. A transfer of such Original Discount Note to a QIB (as defined
herein) shall be made upon the representation of the transferee that it is
purchasing the Original Discount Note for its own account or an account
with respect to which it exercises sole investment discretion and that it
and any such account is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act and is aware that the sale to
it is being made in reliance on Rule 144A and acknowledges that it has
received such
-37-
<PAGE>
information regarding the Issuer as the undersigned has requested pursuant
to Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by Rule 144A;
11.3.2. A transfer of such Original Discount Note or a beneficial
interest therein to an institutional accredited investor shall be made upon
receipt by the Issuer of a certificate substantially in the form set forth
in Section 308 of the Indenture (with appropriate changes to reflect that
such certificate is in regard to an Original Discount Note as opposed to a
New Discount Note) from the proposed transferee and, if requested by the
Issuer, the delivery of an opinion of counsel, certification and/or other
information satisfactory to it; and
11.3.3. A transfer of such Original Discount Note or a beneficial
interest therein to a Non-U.S. Person shall be made upon receipt by the
Issuer of a certificate substantially in the form set forth in Section 309
of the Indenture (with appropriate changes to reflect that such certificate
is in regard to an Original Discount Note as opposed to a New Discount
Note) from the proposed transferee and, if requested by the Issuer, the
delivery of an opinion of counsel, certification and/or other information
satisfactory to it.
11.4. General. By its acceptance of any Original Discount Note bearing the
-------
Private Placement Legend, each Holder of such a Original Discount Note
acknowledges the restrictions on transfer of such Original Discount Note set
forth in this Note Purchase Agreement and in the Private Placement Legend and
agrees that it will transfer such Original Discount Note only as provided in
this Note Purchase Agreement and the Private Placement Legend.
11.5. Termination of Restrictions. The restrictions imposed by the Private
---------------------------
Placement Legend
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<PAGE>
upon the transferability of the Original Discount Notes shall cease and
terminate as to the Original Discount Notes (i) when, in the opinion of Ropes &
Gray or other counsel reasonably acceptable to Intermediate Holdings, such
restrictions are no longer required in order to assure compliance with the
Securities Act or (ii) when such Original Discount Notes shall have been
registered under the Securities Act or transferred pursuant to Rule 144
thereunder. Whenever such restrictions shall cease and terminate as to any
Original Discount Notes or such Original Discount Notes shall be transferable
under paragraph (k) of Rule 144, the holder thereof shall be entitled to receive
from Intermediate Holdings, without expense, replacement Original Discount Notes
not bearing the Private Placement Legend.
SECTION 12 EXCHANGE RIGHTS.
12.1. Exchange Rights. Intermediate Holdings (i) may, upon providing thirty
---------------
days notice to the Holders of Original Discount Notes, and (ii) shall, as
promptly as practicable after being requested to do so at any time after the
Closing Date and prior to 180 days before the Stated Maturity of the Discount
Notes by either (x) the Holders of a majority in principal amount of the
Original Discount Notes or (y) the Initial Purchasers holding at least 25% in
principal amount of the outstanding Original Discount Notes (the "Indenture
---------
Request"), select a trustee meeting the requirements of Section 608 of the
- -------
Indenture and enter into an indenture is substantially the form of the Indenture
(the "Executed Indenture"). Upon the execution of the Executed Indenture, each
Original Discount Note outstanding immediately prior to the time of the
execution of the Executed Indenture shall be converted into a New Discount Note
------------------
dated the date of the Executed Indenture (the "Indenture Date") payable to the
--------------
order of the Holder of the Original Discount Note which was converted into such
New Discount Note, in the principal amount equal to 100% of the aggregate
principal amount of the Original Discount Note from which such New Discount Note
was converted, and all Original Discount Notes shall automatically be canceled
and retired and cease to exist.
12.2. Exchange Procedures.
-------------------
12.2.1. If the exchange of New Discount Notes for Original Discount
Notes is occurring
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<PAGE>
pursuant to an Indenture Request, after receipt of the Indenture
Request, the Issuer shall promptly deliver to each Holder of record of
Original Discount Notes a notice (the "Indenture Notice") that such
--------- ------
request was made and that it will enter the Executed Indenture.
12.2.2. On the Indenture Date, each Holder of any theretofore
outstanding Original Discount Notes shall surrender the same to
Intermediate Holdings for cancellation (in each case with a duly
executed letter of transmittal in form reasonably acceptable to
Intermediate Holdings) and shall be entitled upon such surrender to
receive in exchange therefor the New Discount Notes into which such
Original Discount Notes have converted pursuant to Section 12.1 hereof.
Until so surrendered on or after the Indenture Date, each certificate
representing an Original Discount Note prior to the Indenture Date,
shall be deemed to evidence the right to receive the New Discount Notes
into which such Original Discount Note has converted pursuant to
Section 12.1 hereof; provided, however, that, notwithstanding the
foregoing, Intermediate Holdings shall have no obligation to make any
payments of interest, principal or otherwise with respect to any New
Discount Note until such time as the certificate which evidenced the
predecessor Original Discount Note has been surrendered to the Issuer
and the New Discount Note has been issued in accordance with the
Executed Indenture.
12.2.3. Each letter of transmittal accompanying Original
Discount Notes shall specify the principal amount of the Original
Discount Notes to be exchanged and shall include the following
representations and warranties and such other representations and
warranties as Intermediate Holdings may reasonably request:
(a) The Holder is acquiring the New Discount Notes for investment
for its own account, and not with a view to selling or otherwise
distributing the New Discount Note in violation of the Securities
Act. The Holder is an accredited investor as defined in Rule
501(a) under the Securities Act, and the disposition of such
Holder's property shall at all times be and remain in its control
(provided that such representation and warranty shall not
prohibit such Holder from transferring the New Discount Note in
accordance with the Indenture and the Securities Act and other
applicable laws).
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<PAGE>
(b) Such Holder is the exclusive owner of the certificates being
surrendered, has full authority to transfer such certificates, is
entitled to all rights evidenced thereby, and the securities
evidenced by such certificates are free and clear of any liens,
restrictions, charges and encumbrances and not subject to any
adverse claim.
12.3. Registration Rights. If New Discount Notes are issued pursuant to
-------------------
the terms hereof, then the holders of such New Discount Notes shall have the
registration rights set forth in the Registration Rights Agreement.
SECTION 13. MISCELLANEOUS.
13.1. Expenses. Whether or not the transactions contemplated hereby
--------
shall be consummated, Intermediate Holdings agrees to promptly pay (i) all the
actual and reasonable costs and expenses of preparation of this Agreement and
related documents and all costs of furnishing all opinions by counsel for
Intermediate Holdings and of Intermediate Holdings' performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with; (ii) the reasonable fees, expenses and disbursements
of counsel to the Initial Purchasers in connection with the negotiation,
preparation, and execution of this Agreement and the documents contemplated
hereby and with the review of other documents related to the transactions, and
any amendments and waivers hereto or thereto, and (iii) after the occurrence of
an Event of Default, all costs and expenses (including reasonable attorneys'
fees) incurred by the Initial Purchasers in enforcing any obligations of or in
collecting any payments due hereunder or under the Original Discount Notes by
reason of such Event of Default or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a workout, or any insolvency or bankruptcy proceedings. The fees,
costs, expenses and disbursements set forth in Clauses (i) and (ii) of this
Section 13.1 shall be paid by Intermediate Holdings on the Closing Date.
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<PAGE>
13.2. Indemnity. In addition to the payment of expenses pursuant to
---------
Section 13.1, whether or not the transactions contemplated hereby shall be
consummated, Intermediate Holdings (as "Indemnitor") agrees to indemnify, pay
----------
and hold the Purchaser, and the officers, directors, employees, agents, and
Affiliates of the Purchaser (collectively called the "Indemnitees") harmless
-----------
from and against any and all losses, claims, costs, expenses liabilities,
damages, and disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of one counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto), which may be imposed on, incurred by, or asserted
against that Indemnitee, in any manner relating to or arising out of this
Agreement, the Discount Notes or the other documents related to the
transactions, the Purchaser's agreement to purchase the Discount Notes or the
use or intended use of the proceeds of any of the proceeds thereof to
Intermediate Holdings (the "Indemnified Liabilities"); provided, that Indemnitor
----------------------- --------
shall not have any obligation to an Indemnitee hereunder with respect to an
Indemnified Liability to the extent that such Indemnified Liability arises from
the gross negligence or willful misconduct of that Indemnitee. Each Indemnitee
shall give the Indemnitor prompt written notice of any claim that might give
rise to Indemnified Liabilities setting forth a description of those elements of
such claim of which such Indemnitee has knowledge; provided, that any failure to
--------
give such notice shall not affect the obligations of the Indemnitor unless (and
then solely to the extent) such Indemnitor is prejudiced. The Indemnitor shall
have the right at any time during which such claim is pending to select counsel
to defend and control the defense thereof and settle any claims for which they
are responsible for indemnification hereunder (provided that the Indemnitor will
not settle any such claim without (i) the appropriate Indemnitee's prior written
consent which consent shall not be unreasonably withheld or (ii) obtaining an
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unconditional release of the appropriate Indemnitee from all claims arising out
of or in any way relating to the circumstances involving such claim) so long as
in any such event the Indemnitor shall have stated in a writing delivered to the
Indemnitee that, as between the Indemnitor and the Indemnitee, the Indemnitor is
responsible to the Indemnitee with respect to such claim to the extent and
subject to the limitations set forth herein; provided, that the Indemnitor shall
--------
not be entitled to control the defense of any claim in the event that in the
reasonable opinion of counsel for the Indemnitee there are one or more material
defenses available to the Indemnitee which are not available to the Indemnitor;
provided, further, that with respect to any claim as to which the Indemnitee is
- -------- -------
controlling the defense, the Indemnitor will not be liable to any Indemnitee for
any settlement of any claim pursuant to this Section 13.2 that is effected
without its prior written consent. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Intermediate
Holdings shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnities or any of them.
13.3. No Personal Liability. No director, officer, employee,
---------------------
incorporator or stockholders, as such, of the Issuer shall have any liability
for any obligations of the Issuer under the Original Discount Notes, this Note
Purchase Agreement or for any claim based on, in respect of, or by reason of,
such obligations or their creations. Each Holder by accepting an Original
Discount Note waives and releases all such liability. Such waiver and release
are part of the consideration for the issuance of the Original Discount Notes.
13.4. Amendment and Waiver. Prior to the Closing Date, this Agreement
--------------------
may be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may be given, provided that the same are in writing
and signed by the Purchaser and Intermediate Holdings. Thereafter, this
Agreement may only be amended, and such waivers be given, with the consent of
the holders of a majority of the then outstanding aggregate principal amount of
the Discount Notes.
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<PAGE>
13.5. Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and delivered personally, mailed by certified or registered mail, return
receipt requested and postage prepaid, sent via a nationally recognized
overnight courier, or via facsimile. Such notices, demands and other
communications will be sent to the address indicated below:
If to Intermediate Holdings to:
Details Intermediate Holdings Corp.
c/o Details, Inc.
1231 Simon Circle
Anaheim, California 92806
Attention: Chief Financial Officer
Facsimile: (714) 630-0407
Telephone: (714) 640-6933
With a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Alfred O. Rose, Esq.
Telecopier No.: (617) 951-7050
If to the Purchaser, to the address
set forth in Schedule I
----------
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party;
provided that the failure to deliver copies of notices as indicated above shall
- --------
not affect the validity of any notice. Any such communication shall be deemed to
have been received when delivered or refused, if personally delivered, sent by
nationally recognized overnight courier, sent via facsimile, or sent by
certified or registered mail.
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13.6. Survival of Warranties and Certain Agreements. All agreements,
---------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the execution and delivery of the Original
Discount Notes, and shall continue (but, with respect to representations and
warranties, such representations and warranties are made only as of the Closing
Date) until the repayment of the Discount Notes (including without limitation
the New Discount Notes) in full; provided, that (i) if all or any part of such
--------
payment is set aside, the representations and warranties contained herein shall
continue as if no such payment had been made and (ii) the exchange of all
Original Discount Notes for New Discount Notes pursuant to Section 12 hereof and
the execution of the Executed Indenture, the New Discount Notes shall be
governed by their terms and the terms of the Executed Indenture and the
provisions of Sections 7, 8, 9, 10 and 11 hereof shall be of no further force
and effect. Without limiting the foregoing, the provisions of Sections 13.1 and
13.2 hereof shall survive the exchange of Original Discount Notes for New
Discount Notes. Sections 13.1 and 13.2 shall survive the payment of the Discount
Notes and the termination of this Agreement.
13.7. Severability. If and to the extent that any provision in this
------------
Agreement or the Original Discount Notes shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions of this Agreement or of the other obligations of
Intermediate Holdings under such provisions, or of such provision or obligation
in any other jurisdiction, or of such provision to the extent not invalid,
illegal or unenforceable shall not in any way be affected or impaired thereby.
13.8. Headings. Section and subsection headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
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13.9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
13.10. Legal Holidays. In any case where any interest payment date, any
--------------
date established for payment of Defaulted Interest or redemption date or Stated
Maturity of any Discount Note shall not be a Business Day, then (notwithstanding
any other provision of this Note Purchase Agreement or of the Discount Notes)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the interest payment date or date established for
payment of Defaulted Interest pursuant hereto, Redemption Date, or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
and after such interest payment date, redemption date or date established for
payment of Defaulted Interest pursuant hereto, Stated Maturity or Maturity, as
the case may be, to the next succeeding Business Day.
13.11. Successors and Assigns. Subsequent Holders. This Agreement shall
------------------------------------------
be binding upon the parties hereto and their respective successors and assigns
and shall inure to the benefit of the parties hereto and their successors and
assigns. The terms and provisions of this Agreement and all certificates
delivered pursuant hereto shall inure to the benefit of any assignee or
transferee of the Discount Notes, to the extent the assignment is permitted
hereunder, and in the event of such transfer or assignment, the rights and
privileges herein conferred upon the Purchaser shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions hereof.
13.12. Counterparts; Effectiveness. This Agreement and any amendments,
---------------------------
waivers, consents or supplements may be executed in any number of counterparts
and by different parties hereto in
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<PAGE>
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto, and written or
telephonic notification of such execution and authorization of delivery thereof
has been received by Intermediate Holdings and the Purchaser.
13.13. Entirety. This Agreement, together with the documents referred to
--------
herein, embodies the entire agreement among the parties and supersedes all prior
agreements and understandings, if any, relating to the subject matter hereof.
-47-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase
Agreement to be executed by the respective duly authorized officers of the
undersigned and by the undersigned as of the date first written above.
DETAILS INTERMEDIATE
HOLDINGS CORP.
By: ___________________________
Name:
Title:
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By:_______________________________________________________
Title:
<PAGE>
SCHEDULE I
- ----------
Purchaser
---------
- --------------------------------------------------------------------------
Purchaser STATED PURCHASE
--------- PRINCIPAL PRICE
AMOUNT AT -----
MATURITY
--------
- --------------------------------------------------------------------------
SANKATY HIGH YIELD $66,809,539.40 $33,425,000
ASSET PARTNERS, L.P.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Diane Exter
- --------------------------------------------------------------------------
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<PAGE>
SCHEDULE 5.6.2
- --------------
Other Agreements
----------------
The Senior Credit Agreement, the Senior Subordinated Notes and the
indenture related thereto, and the Capital Discount Notes and the indenture
related thereto may limit the ability of the Issuer to fulfill its repurchase
obligations under Sections 9.13, 9.13A and 9.14 of the Note Purchase Agreement.
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<PAGE>
EXHIBIT 10.39.2
Exhibit B
---------
FORM OF INDENTURE
================================================================================
DETAILS INTERMEDIATE HOLDINGS CORP.,
as Issuer
and
_________________________,
as Trustee
Indenture
dated as of __________
$___________ Stated Principal Amount at Maturity
13 1/2% Series B Senior Discount Notes due 2008
================================================================================
<PAGE>
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of _______*
Trust Indenture
Act Section Indenture Section
(S)310(a)(1) ............................. 608
(a)(2) ............................. 608
(b) ............................. 609
(S)312(a) ............................. 701
(c) ............................. 702
(S)313(a) ............................. 703
(c) ............................. 703
(S)314(a)(4) ............................. 1010(a)
(c)(1) ............................. 102
(c)(2) ............................. 102
(e) ............................. 102
(S)315(a) ............................. 601(a)
(b) ............................. 602
(c) ............................. 601(b)
(d) ............................. 601(c), 603
316(a)(last sentence) .............................
101 ("outstanding")
(a)(1)(A) ............................. 502, 512
(a)(1)(B) ............................. 513
(b) ............................. 508
(c) ............................. 104(d)
(S)317(a)(1) ............................. 503
(a)(2) ............................. 504
(b) ............................. 1003
(S)318(a) ............................. 111
___________________
*Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
TABLE OF CONTENTS,
------------------
<TABLE>
<S> <C>
ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions............................................................................. -1-
SECTION 102. Compliance Certificates and Opinions.................................................... -15-
SECTION 103. Form of Documents Delivered to Trustee.................................................. -15-
SECTION 104. Acts of Holders......................................................................... -16-
SECTION 105. Notices, Etc., to Trustee and the Issuer................................................ -17-
SECTION 106. Notice to Holders; Waiver............................................................... -17-
SECTION 107. Effect of Headings and Table of Contents................................................ -17-
SECTION 108. Successors and Assigns.................................................................. -17-
SECTION 109. Separability Clause..................................................................... -18-
SECTION 110. Benefits of Indenture................................................................... -18-
SECTION 111. Governing Law........................................................................... -18-
SECTION 112. Legal Holidays.......................................................................... -18-
SECTION 113. No Personal Liability of Directors, Officers, Employees, Stockholders or
Incorporators.................................................................................... -18-
SECTION 114. Counterparts............................................................................ -18-
SECTION 115. Communications by Holders with Other Holders............................................ -18-
ARTICLE TWO. NOTE FORMS
SECTION 201. Forms Generally......................................................................... -19-
SECTION 202. Restrictive Legends..................................................................... -19-
SECTION 203. Form of New Discount Note............................................................... -21-
SECTION 204. Form of Trustee's Certificate of Authentication......................................... -32-
SECTION 205. [Intentionally Omitted]................................................................. -33-
ARTICLE THREE. THE NEW DISCOUNT NOTES
SECTION 301. Title and Terms......................................................................... -33-
SECTION 302. Denominations........................................................................... -34-
SECTION 303. Execution, Authentication, Delivery and Dating.......................................... -34-
SECTION 304. Temporary New Discount Notes............................................................ -35-
SECTION 305. Registration, Registration of Transfer and Exchange..................................... -35-
SECTION 306. Book-Entry Provisions for Global Discount Notes......................................... -36-
SECTION 307. Special Transfer Provisions............................................................. -37-
SECTION 308. Form of Certificate to Be Delivered in Connection with Transfers to Institutional
Accredited Investors............................................................................. -39-
SECTION 309. Form of Certificate to Be Delivered in Connection with Transfers Pursuant to
Regulation S..................................................................................... -40-
SECTION 310. Mutilated, Destroyed, Lost and Stolen New Discount Notes................................ -41-
SECTION 311. Payment of Interest; Interest Rights Preserved.......................................... -42-
SECTION 312. Persons Deemed Owners................................................................... -43-
SECTION 313. Cancellation............................................................................ -43-
SECTION 314. Computation of Interest................................................................. -43-
SECTION 315. CUSIP Numbers........................................................................... -43-
ARTICLE FOUR. SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture................................................. -44-
SECTION 402. Application of Trust Money.............................................................. -45-
</TABLE>
___________________
. Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
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<PAGE>
<TABLE>
<S> <C>
ARTICLE FIVE. REMEDIES
SECTION 501. Events of Default....................................................................... -45-
SECTION 502. Acceleration of Maturity; Rescission and Annulment...................................... -47-
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee......................... -47-
SECTION 504. Trustee May File Proofs of Claim........................................................ -47-
SECTION 505. Trustee May Enforce Claims Without Possession of New Discount Notes..................... -48-
SECTION 506. Application of Money Collected.......................................................... -48-
SECTION 507. Limitation on Suits..................................................................... -49-
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest............... -49-
SECTION 509. Restoration of Rights and Remedies...................................................... -49-
SECTION 510. Rights and Remedies Cumulative.......................................................... -49-
SECTION 511. Delay or Omission Not Waiver............................................................ -50-
SECTION 512. Control by Holders...................................................................... -50-
SECTION 513. Waiver of Past Defaults................................................................. -50-
SECTION 515. Undertaking for Costs................................................................... -51-
ARTICLE SIX. THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities..................................................... -51-
SECTION 602. Notice of Defaults...................................................................... -52-
SECTION 603. Certain Rights of Trustee............................................................... -52-
SECTION 604. Trustee Not Responsible for Recitals or Issuance of New Discount Notes.................. -53-
SECTION 605. May Hold New Discount Notes............................................................. -54-
SECTION 606. Money Held in Trust..................................................................... -54-
SECTION 607. Compensation and Reimbursement.......................................................... -54-
SECTION 608. Corporate Trustee Required; Eligibility................................................. -55-
SECTION 609. Resignation and Removal; Appointment of Successor....................................... -55-
SECTION 610. Acceptance of Appointment by Successor.................................................. -56-
SECTION 611. Merger, Conversion, Consolidation or Succession to Business............................. -56-
SECTION 612. Trustee's Application for Instructions from the Issuer.................................. -57-
ARTICLE SEVEN. HOLDERS LISTS AND REPORTS BY TRUSTEE AND THE ISSUER
SECTION 701. the Issuer to Furnish Trustee Names and Addresses....................................... -57-
SECTION 702. Disclosure of Names and Addresses of Holders............................................ -57-
SECTION 703. Reports by Trustee...................................................................... -57-
ARTICLE EIGHT. MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. the Issuer May Consolidate, Etc., Only on Certain Terms................................. -58-
SECTION 802. Successor Substituted................................................................... -58-
ARTICLE NINE. SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders...................................... -59-
SECTION 902. Supplemental Indentures with Consent of Holders......................................... -59-
SECTION 903. Execution of Supplemental Indentures.................................................... -60-
SECTION 904. Effect of Supplemental Indentures....................................................... -60-
SECTION 905. Conformity with Trust Indenture Act..................................................... -60-
SECTION 906. Reference in New Discount Notes to Supplemental Indentures.............................. -60-
SECTION 907. Notice of Supplemental Indentures....................................................... -60-
ARTICLE TEN. COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.................................... -61-
SECTION 1002. Maintenance of Office or Agency........................................................ -61-
SECTION 1003. Money for Note Payments to Be Held in Trust............................................ -61-
SECTION 1004. Corporate Existence.................................................................... -62-
SECTION 1005. Payment of Taxes and Other Claims...................................................... -62-
SECTION 1006. [Intentionally Omitted]................................................................ -63-
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 1007. [Intentionally Omitted]............................................................................... -63-
SECTION 1008. Compliance with Statutes.............................................................................. -63-
SECTION 1009. Limitation on Restricted Payments..................................................................... -63-
SECTION 1010. Limitation on Indebtedness by the Issuer.............................................................. -65-
SECTION 1010A. Limitations on Indebtedness by Details Capital........................................................ -65-
SECTION 1010B. Limitation on Indebtedness by Non-Capital Subsidiaries................................................ -65-
SECTION 1011. Limitation on Indebtedness by the Company............................................................. -66-
SECTION 1012. Limitation on Affiliate Transactions.................................................................. -67-
SECTION 1013. Limitation on Restrictions on Distributions from Restricted Subsidiaries.............................. -68-
SECTION 1014. Limitation on the Sale or Issuance of Preferred Stock of Restricted Subsidiaries...................... -69-
SECTION 1015. Change of Control..................................................................................... -69-
SECTION 1015A. Qualifying Public Offering............................................................................ -69-
SECTION 1016. Limitation on Sales of Assets and Subsidiary Stock.................................................... -70-
SECTION 1017. SEC Reports........................................................................................... -71-
SECTION 1018. Limitation on Lines of Business....................................................................... -72-
SECTION 1019. Statement by Officers as to Default................................................................... -72-
ARTICLE ELEVEN. REDEMPTION OF NEW DISCOUNT NOTES
SECTION 1101. Optional Redemption................................................................................... -72-
SECTION 1102. Applicability of Article.............................................................................. -72-
SECTION 1103. Election to Redeem; Notice to Trustee................................................................. -73-
SECTION 1104. Selection by Trustee of New Discount Notes to Be Redeemed............................................. -73-
SECTION 1105. Notice of Redemption.................................................................................. -73-
SECTION 1106. Deposit of Redemption Price........................................................................... -74-
SECTION 1107. New Discount Notes Payable on Redemption Date......................................................... -74-
SECTION 1108. New Discount Notes Redeemed in Part................................................................... -74-
ARTICLE TWELVE. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. the Issuer's Option to Effect Legal Defeasance or Covenant Defeasance................................. -75-
SECTION 1202. Legal Defeasance and Discharge........................................................................ -75-
SECTION 1203. Covenant Defeasance................................................................................... -75-
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance................................................. -76-
SECTION 1205. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions........ -77-
SECTION 1206. Reinstatement......................................................................................... -77-
</TABLE>
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<PAGE>
INDENTURE, dated as of _________, between DETAILS INTERMEDIATE
HOLDINGS CORP., a California corporation ("Intermediate Holdings"), having its
principal office at 1231 Simon Circle, Anaheim, California 92806, and
_______________, as trustee (the "Trustee"), having its principal corporate
trust office at ________________.
RECITALS OF INTERMEDIATE HOLDINGS
Intermediate Holdings has duly authorized the creation of and issuance
of (i) Intermediate Holdings' 13 1/2% Series B Senior Discount Notes due 2008
(the "New Discount Notes" or the "Exchange Discount Notes") to be issued in
exchange for Intermediate Holdings' 13 1/2% Series A Senior Discount Notes due
2008 (the "Original Discount Notes") (collectively, the New Discount Notes and
the Original Discount Notes are referred to herein as the "Discount Notes") of
substantially the tenor and amount thereof and as hereinafter set forth, and to
provide therefor Intermediate Holdings has duly authorized the execution and
delivery of this Indenture.
Upon the effectiveness of a Seller Registration Statement (as defined
herein), this Indenture will be subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939, as amended, that are required or
deemed to be part of and to govern indentures qualified thereunder.
All things necessary have been done to make the New Discount Notes,
when executed and duly issued by Intermediate Holdings and authenticated and
delivered hereunder by the Trustee or the Authenticating Agent, the valid
obligations of Intermediate Holdings and to make this Indenture a valid
agreement of Intermediate Holdings in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Discount Notes by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the New Discount Notes, as
follows:
100. ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and words in the singular include the plural as well
as the singular, and words in the plural include the singular as well as
the plural;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, or defined by SEC
rule and not otherwise defined herein have the meanings assigned to them
therein, and the terms "cash transaction" and "self-liquidating paper", as
used in TIA Section 311, shall have the meanings assigned to them in the
rules of the SEC adopted under the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (as defined herein);
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) the word "or" is not exclusive; and
(f) provisions of this Indenture apply to successive events and
transactions.
Certain terms, used principally in Articles Two, Ten and Twelve, are
defined in those Articles.
<PAGE>
"Accreted Value" means as of a date of determination prior to June 30,
2003, with respect to any Discount Note, the sum of (a) the Initial Accreted
Value of such Discount Note and (b) the portion of the excess of the principal
amount of such Discount Note over such Initial Accreted Value which shall have
been accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 13.5% per annum of the Initial Accreted Value of such
Discount Note, compounded semi-annually on each June 30 and December 31 from the
Issue Date through the date of determination, computed on the basis of a 360-day
year of twelve 30-day months. The Accreted Value of any Discount Note on June
30, 2003 shall be 100% of the stated principal amount at maturity thereof.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Issuer or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Issuer or a Restricted Subsidiary of the Issuer; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of the Issuer; provided, however, that, in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Aggregate Initial Accreted Value" means $35,000,000.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Issuer or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Issuer or by the
Issuer or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale of
Cash Equivalents or Temporary Cash Investments in the ordinary course of
business, (iii) a disposition of inventory or a licensing of intellectual
property in the ordinary course of business, (iv) a disposition of obsolete or
worn out equipment or equipment that is no longer useful or to be used in the
conduct of the business of the Issuer and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (v) transactions
permitted under Section 801, (vi) for purposes of Section 1016 only, a
disposition subject to Section 1009 and (vii) the sale, discount or factoring,
in each case without recourse, of accounts receivable arising in the ordinary
course of business.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
greater of (i) the interest rate implicit in such Sale/Leaseback Transaction and
(ii) the interest rate borne by the Senior Subordinated Notes, in each case,
compounded semi-annually) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Bank Indebtedness" means any and all amounts, whether outstanding on
the Issue Date or thereafter incurred, payable by the Company under or in
respect of the Senior Credit Agreement and any related notes, collateral
documents, letters of credit and guarantees, including principal, premium, if
any, interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof and refinancings thereof.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banking institutions are authorized or required by law to
close in New York City or Boston, Massachusetts.
-2-
<PAGE>
"Capital Discount Notes" means the $110 million aggregate principal
amount of 12.5% Senior Discount Notes due 2007 of Details Capital.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Ratings Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Ratings Group or "P-2" or the equivalent thereof by
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Change of Control" means (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Issuer (or its successor by merger, consolidation or
purchase of all or substantially all of its assets) (for the purposes of this
clause, such person shall be deemed to beneficially own any Voting Stock of the
Issuer held by a parent corporation, if such person "beneficially owns" (as
defined above), directly or indirectly, more than 50% of the voting power of the
Voting Stock of such parent corporation); (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Issuer or Parent (together with any new directors
whose election by such Board of Directors or whose nomination for election by
the shareholders of the Issuer or Parent was approved by a vote of at least a
majority of the directors of the Issuer then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved or is a designee of the Permitted Holders or
was nominated or elected by such Permitted Holders or any of their designees)
cease for any reason to constitute a majority of the Board of Directors of the
Issuer or Parent then in office; (iii) the sale, lease, transfer, conveyance or
other disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the assets of the
Issuer and its Restricted Subsidiaries taken as a whole to any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a
Permitted Holder or Parent; or (iv) the adoption by the stockholders of a plan
for the liquidation or dissolution of the Issuer or Parent.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Details, Inc., a California corporation and any and
all successors thereto.
"Consolidated Coverage Ratio" as of any date of determination means,
with respect to any Person, the ratio of (i) the aggregate amount of
Consolidated EBITDA of such Person for the period of the
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<PAGE>
most recent four consecutive fiscal quarters ending prior to the date of such
determination to (ii) Consolidated Interest Expense for such four fiscal
quarters (in each case, determined, for each fiscal quarter (or portion thereof)
of the four fiscal quarters ending prior to or including the Issue Date, on a
pro forma basis to give effect to the Recapitalization Transactions, the Initial
Offerings and the application of the proceeds thereof, the NTI Acquisition, the
Cuplex Acquisition, DCI Transactions, the Offering and the application of the
proceeds thereof as if they had occurred at the beginning of such four-quarter
period (adjusted for any pro forma expense and cost reductions and related
adjustments that are directly attributable to the Recapitalization Transactions,
the Initial Offerings and the application of the proceeds thereof, the NTI
Acquisition, the Cuplex Acquisition, the DCI Transactions and the Offering));
provided, however, that (1) If the Issuer or any Restricted Subsidiary (x) has
Incurred any Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period (except that in making such computation, the amount of Indebtedness under
any revolving credit facility outstanding on the date of such calculation shall
be computed based on (A) the average daily balance of such Indebtedness during
such four fiscal quarters or such shorter period for which such facility was
outstanding or (B) if such facility was created after the end of such four
fiscal quarters, the average daily balance of such Indebtedness during the
period from the date of creation of such facility to the date of such
calculation) and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, or (y) has
repaid, repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period that is no longer outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case
other than Indebtedness incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period, (2) if since the beginning of such period the Issuer
or any Restricted Subsidiary shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, the Consolidated EBITDA for such period shall be
reduced by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Issuer or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Issuer and its continuing Restricted Subsidiaries
in connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Issuer and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale), (3) if since the
beginning of such period the Issuer or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, Consolidated EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period (adjusted for
any pro forma expense and cost reductions and related adjustments calculated on
a basis consistent with Regulation S-X under the Act) and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Issuer or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Issuer or a Restricted Subsidiary during such period,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition or
Investment occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the
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Issuer. If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated EBITDA" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such non-
cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation) and less, to the extent
added in calculating Consolidated Net Income, non-cash items increasing
Consolidated Net Income (excluding such non-cash items to the extent they
represent an accrual for cash receipts to be received prior to the Stated
Maturity of the Discount Notes) for such period. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the interest,
depreciation and amortization of, a Restricted Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA of such Person
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Issuer and its Restricted Subsidiaries on a consolidated
basis determined in accordance with GAAP, plus, to the extent not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations and the interest portion of rent expense associated with
Attributable Indebtedness in respect of the relevant lease giving rise thereto,
determined as if such lease were a capitalized lease in accordance with GAAP,
(ii) amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Issuer or any such Subsidiary
under any Guarantee of Indebtedness or other obligation of any other Person,
(vii) net costs associated with Hedging Obligations (including amortization of
fees), (viii) dividends in respect of all Disqualified Stock of the Issuer and
any Restricted Subsidiaries, in each case, held by Persons other than the Issuer
or a Wholly-Owned Subsidiary and (ix) the cash contributions to any employee
stock ownership plan or similar trust to the extent such contributions are used
by such plan or trust to pay interest or fees to any Person (other than the
Issuer) in connection with Indebtedness Incurred by such plan or trust to
purchase Capital Stock of the Issuer; provided, however, that there shall be
excluded therefrom any such interest expense of any Unrestricted Subsidiary to
the extent the related Indebtedness is not Guaranteed or paid by the Issuer or
any Restricted Subsidiary. For purposes of the foregoing, total interest expense
shall be determined after giving effect to any net payments made or received by
the Issuer and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Issuer that was not a Wholly-Owned Subsidiary
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Issuer and its Restricted Subsidiaries on a consolidated basis determined
in accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income: (i) any net income (loss) of any Person if such
Person is not a Restricted Subsidiary, except that (A) subject to the
limitations contained in (iv) below, the Issuer's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Issuer or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
a Restricted Subsidiary, to the limitations contained in clause (iii) below) and
(B) the Issuer's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income to the extent such loss has been funded with cash from
the Issuer or a Restricted Subsidiary; (ii) any net income (loss) of any Person
acquired by the Issuer or a Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income of any
Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly,
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to the Issuer, except that (A) subject to the limitations contained in (iv)
below the Issuer's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Issuer or another Restricted Subsidiary as
a dividend (subject, in the case of a dividend to another Restricted Subsidiary,
to the limitation contained in this clause) and (B) the Issuer's equity in a net
loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any property, plant or equipment of the Issuer
or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person; (v) any extraordinary gain or loss, (vi) any
non-cash compensation charge for employee stock options or other stock awards,
(vii) non-cash, non-recurring charges reducing Consolidated Net Income
(excluding any such non-cash charge to the extent it represents an accrual of or
reserve for cash charges in any future period or amortization of prepaid cash
expense that was paid in a prior period not included in the calculation); (viii)
non-cash, non-recurring items increasing Consolidated Net Income (excluding such
non-cash items to the extent they represent an accrual for cash receipts to be
received prior to the Stated Maturity of the Discount Notes); and (ix) the
cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Issuer and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Issuer ending prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated value
of all outstanding Capital Stock of the Issuer plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Consolidated Tangible Assets" means, with respect to any Person, as
of any date of determination, the total assets, less goodwill, deferred
financing costs and other intangibles less accumulated amortization, shown on
the balance sheet of such Person and its Restricted Subsidiaries as of the most
recent date for which such balance sheet is available, determined on a
consolidated basis in accordance with GAAP.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Issuer in accordance with GAAP;
provided, however, that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of the Issuer in any
Unrestricted Subsidiary will be accounted for as an Investment. The term
"Consolidated" has a correlative meaning.
The "Corporate Trust Office" of the Trustee is the office of
____________ at ___________.
"Cuplex Transaction" means the acquisition of all of the outstanding
shares of capital stock and related real estate of Cuplex, Inc. by Dynamic
Circuits, Inc. on October 9, 1997.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"DCI Contribution Agreement" means the Stock Contribution and Merger
Agreement dated July 23, 1998 among Details Holdings Corp., Dynamic Circuits,
Inc. and the stockholders of Dynamic Circuits, Inc., as amended from time to
time.
"DCI Transactions" means the transactions contemplated by the DCI
Contribution Agreement and all other transactions related thereto.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Details Capital" means Details Capital Corporation, a California
corporation.
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"Depositary" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depository institution
hereinafter appointed by the Issuer.
"Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Issuer or one of its Restricted
Subsidiaries in connection with an Asset Disposition that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate executed
by the principal executive officer and the principal financial officer of the
Issuer or such Restricted Subsidiary, less the amount of cash or Cash
Equivalents received in connection with a sale of such Designated Noncash
Consideration. Such Officers' Certificate shall state the basis of such
valuation, which shall be as determined by an Independent Appraiser with respect
to the receipt in one or a series of related transactions of Designated Noncash
Consideration with a fair market value in excess of $10 million.
"Discount Notes" shall have the meaning assigned to such term in the
Recitals of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of the Issuer or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Discount Notes, provided, that
only the portion of Capital Stock which so matures or is mandatorily redeemable,
is so convertible or exchangeable or is so redeemable at the option of the
holder thereof prior to such Stated Maturity shall be deemed to be Disqualified
Stock.
"Equity Offering" means an offering for cash by the Issuer of its
common stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Note Purchase Agreement,
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Discount
Note is registered in the Register.
"Holdings" means Details Holdings Corp. (formerly known as Details,
Inc.), a California corporation.
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"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock (but excluding, in each case, any
accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons; (viii) all
Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix)
to the extent not otherwise included in this definition, net obligations of such
Person under Currency Agreements and Interest Rate Agreements (the amount of any
such obligations to be equal at any time to the termination value of such
agreement or arrangement giving rise to such obligation that would be payable by
such Person at such time). The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Independent Appraiser" means, with respect to any transaction or
series of related transactions, an independent, nationally recognized appraisal
or investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Initial Accreted Value" means, per one dollar in stated principal
amount at maturity of Discount Notes, the Aggregate Initial Accreted Value
divided by $66,809,539.40.
"Initial Offerings" means collectively, the offerings of the Capital
Discount Notes and the Senior Subordinated Notes.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Intermediate Holdings" means Details Intermediate Holdings Corp. a
California corporation, or any successor thereto which assumes the obligations
under the Discount Notes pursuant to the Note Purchase Agreement and/or the
Indenture.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of Section 1009, (i) "Investment" shall include the portion (proportionate to
the Issuer's equity interest in a Restricted Subsidiary
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to be designated as an Unrestricted Subsidiary) of the fair market value of the
net assets of such Restricted Subsidiary of the Issuer at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Issuer shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Issuer's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Issuer's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so re-designated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors of
the Issuer. If the Issuer or any Restricted Subsidiary of the Issuer sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Issuer such that, after giving effect to any such sale or
disposition, the Issuer no longer owns, directly or indirectly, 100% of the
outstanding Common Stock of such Restricted Subsidiary, the Issuer shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issue Date" means July 23, 1998.
"Issuer" means Details Intermediate Holdings Corp. a California
corporation, or any successor thereto which assumes the obligations under the
Discount Notes pursuant to the Note Purchase Agreement and/or the Indenture.
"Management Agreement" means the Management Agreement among the
Company, Holdings and Bain Capital, Inc. (and its permitted successors and
assigns thereunder) as in effect on the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) the deduction of appropriate amounts to be provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and retained by
the Issuer or any Restricted Subsidiary after such Asset Disposition.
"New Discount Notes" shall have the meaning assigned to such term in
the Recitals of this Indenture.
"Non-Capital Subsidiary" means any Subsidiary of the Issuer other than
(i) Details Capital or (ii) a Subsidiary of Details Capital.
"Note Purchase Agreement" means the Note Purchase Agreement dated July
23, 1998 between Intermediate Holdings and Sankaty High Yield Asset Partners,
L.P., as amended from time to time.
"NTI Acquisition" means the acquisition of all of the common stock of
Colorado Springs Circuits, Inc. by the Company on December 22, 1997.
"Offering" means the offering of the Discount Notes.
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"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Issuer.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Issuer or the Trustee.
"Original Discount Notes" shall have the meaning assigned to such term
in the Recitals of this Indenture.
"Parent" means the parent corporation of the Issuer, if any, or any
person for which the Issuer or the Parent thereof is a direct or indirect
Wholly-Owned Subsidiary.
"Permitted Holders" means Bain Capital, Inc. and any Affiliate thereof
or any wholly-owned Subsidiary of the Parent (for purposes of the definition of
a "Change of Control").
"Permitted Investment" means an Investment by the Issuer or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Issuer or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) cash, Cash Equivalents and Temporary Cash Investments; (iv) receivables
owing to the Issuer or any Restricted Subsidiary created or acquired in the
ordinary course of business; (v) payroll, travel and similar advances made in
the ordinary course of business; (vi) loans or advances to employees and
officers made in the ordinary course of business; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Issuer or any Restricted Subsidiary or in satisfaction
of judgments; and (viii) Currency Agreements and Interest Rate Agreements
entered into in the ordinary course of the Issuer's or its Restricted
Subsidiaries' businesses and otherwise in compliance with the Indenture; (ix)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (x) the Subsidiary Guarantees,
guarantees by the Company of Indebtedness otherwise permitted to be Incurred by
Restricted Subsidiaries of the Company under the indenture for the Senior
Subordinated Notes and guarantees by Details Capital of indebtedness otherwise
permitted to be incurred by Restricted Subsidiaries of Details Capital under the
indenture for the Capital Discount Notes; (xi) Investments the payment for which
consists exclusively of Capital Stock (other than Disqualified Stock) of the
Issuer; provided that the fair market value of such Investments shall not be
counted under clause (3)(B) of paragraph (a) of Section 1009; (xii) Investments
received by the Issuer or its Restricted Subsidiaries as consideration for asset
dispositions, including Asset Dispositions; provided in the case of an Asset
Disposition, such Asset Disposition is effected in compliance with Section 1016;
and (xiii) other Investments in an aggregate amount outstanding at any time not
to exceed the greater of (A) $7.5 million and (B) 5% of Total Consolidated
Assets.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock
of the Issuer if the Issuer or the common stock of the Issuer is then registered
with the SEC pursuant to Section 12(b) or 12(g) of Exchange Act and traded
either on a national securities exchange or in the National Association of
Securities Dealers Automated Quotation System.
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"QIB" shall mean a Qualified Institutional Buyer.
"Qualified Institutional Buyer" shall have the meaning ascribed
thereto under Rule 144A of the Securities Act.
"Qualifying Public Offering" means a public offering of common stock
of the Parent registered under the Securities Act which yields aggregate
proceeds of at least $10,000,000 to Bain Capital Fund V, L.P., Bain Capital Fund
V-B, L.P., BCIP Associates, BCIP Trust Associates, LP and any other affiliated
equity fund for which Bain Capital, Inc. serves as the adviser collectively
(the "Bain Entities") or in which the Bain Entities sell at least 5% of the
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Common Stock of the Parent held by the Bain Entities on the date of the Note
Purchase Agreement.
"Recapitalization Agreement" means the Recapitalization Agreement
dated as of October 4, 1997, as amended, among Holdings, Holdings' stockholders
and DI Acquisition Corp.
"Recapitalization Transactions" means collectively, the transactions
contemplated by the Recapitalization Agreement and all other transactions
related thereto, including the merger of DI Acquisition Corp with and into
Holdings as the surviving corporation on October 28, 1997 and the initial
borrowings under credit facilities of Holdings and its Subsidiaries in
connection with such transactions.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
date of the Note Purchase Agreement or Incurred in compliance with the Indenture
(including Indebtedness of the Issuer that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness, provided, however, that (i) only with
respect to Indebtedness described under subclause (y) of clause (b)(iv) in
Section 1011 and subclause (i) of Section 1010A, the Refinancing Indebtedness
has a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced (other than
Indebtedness which is Senior Indebtedness referred to in clause (iv) under such
covenant) and (ii) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the sum of the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value) then
outstanding (plus fees and expenses, including any premium and defeasance costs)
of the Indebtedness being refinanced.
"Registrable Discount Notes" means, at any time, New Discount Notes
that (i) have not previously been sold in a public offering under the Securities
Act or in a "brokers transaction" within the meaning of Rule 144 under the
Securities Act and (ii) are not eligible to be sold pursuant to Rule 144(k)
under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of July 23, 1998 by and between the Issuer and Sankaty High
Yield Asset Partners, L.P., as amended from time to time.
"Regular Record Date" means, with respect to any Interest Payment
Date, the June 15 or December 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses in which the Issuer and its
Restricted Subsidiaries are primarily engaged on the date of the Note Purchase
Agreement.
"Representative" means any trustee, agent or representative (if any)
of an issue of Senior Indebtedness.
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"Restricted Subsidiary" means any Subsidiary of the Issuer other than
an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or a Subsidiary leases it
from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Registration Statement" means a registration statement under
the Securities Act with respect to the registration of the sale of New Discount
Notes.
"Senior Credit Agreement" means (i) the senior secured Credit
Agreement dated July 23,1998, among the Company, Dynamic Circuits, Inc., Details
Capital, Bankers Trust Company, as documentation and co-syndication agent, The
Chase Manhattan Bank, as collateral, co-syndication and administrative agent,
and the other parties thereto from time to time, as the same may be amended,
supplemented or otherwise modified from time to time and any guarantees issued
thereunder and (ii) any renewal, extension, refunding, restructuring,
replacement or refinancing thereof (whether with the original administrative,
documentation and syndication agents and lenders or other agents or other
lenders and whether provided under the original Senior Credit Agreement or any
other credit or other agreement or indenture).
"Senior Indebtedness" is defined, whether outstanding on the Issue
Date or thereafter issued, created, incurred or assumed, as the Bank
Indebtedness and all other Indebtedness of the Company, including interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) thereon
and fees relating thereto, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that the
obligations in respect of such Indebtedness are not superior in right of, or are
subordinate to, payment to the Senior Subordinated Notes; provided, however,
that Senior Indebtedness will not include (i) any obligation of the Company to
any Subsidiary, (ii) any liability for Federal, state, foreign, local or other
taxes owed or owing by the Company, (iii) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (iv)
any Indebtedness, Guarantee or obligation of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of the Company, including any Senior Subordinated Indebtedness and
any Subordinated Obligations or (v) any Capital Stock.
"Senior Subordinated Indebtedness" means the Senior Subordinated Notes
and any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Senior Subordinated Notes in right
of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Senior Subordinated Notes" means the $100.0 million aggregate
principal amount of 10% Senior Subordinated Notes due 2005 of the Company.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
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"Subordinated Obligation" means, as to any Person, any Indebtedness of
such Person (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the Senior Subordinated Notes
pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Issuer.
"Subsidiary Guarantee" means, individually, any Guarantee of payment
of the Senior Subordinated Notes by any Restricted Subsidiary of the Company
pursuant to the terms of the indenture for the Senior Subordinated Notes, and,
collectively, all such Guarantees.
"Successor Company" shall have the meaning assigned thereto in Section
801.
"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Issuer) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, (v) Investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc. and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date of this Indenture.
"Total Consolidated Assets" means, as of any date of determination,
the total assets shown on the balance sheet of Holdings and its Restricted
Subsidiaries as of the most recent date for which such balance sheet is
available, determined on a consolidated basis in accordance with GAAP.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means an officer of the Trustee assigned by the
Trustee to administer its corporate trust matters or to any other officer of the
Trustee to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Issuer (including any newly acquired or newly formed Subsidiary of the
Issuer) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Issuer or any Restricted Subsidiary of the Issuer
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 1009. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 1011 and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Issuer,
all of the Capital Stock of which (other than directors' qualifying shares) is
owned by the Issuer or another Wholly-Owned Subsidiary.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Issuer to the Trustee to take
any action under any provision of this Indenture, the Issuer and any other
obligor on the New Discount Notes (if applicable) shall furnish to the Trustee
an Officers' Certificate in form and substance reasonably acceptable to the
Trustee stating that all conditions precedent, if any, provided for in this
Indenture (including any covenant compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including certificates
provided pursuant to Section 1019(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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(3) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him or it to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Issuer or any other
obligor on the New Discount Notes may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Issuer or any other obligor on the New Discount Notes stating
that the information with respect to such factual matters is in the possession
of the Issuer or any other obligor on the New Discount Notes unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Issuer. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Issuer, if made in the
manner provided in this Section 104.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of New Discount Notes
held by any Person, and the date of holding the same, shall be proved by the
Note Register.
(d) If the Issuer shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Issuer may,
at its option, by or pursuant to a Board
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Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Issuer shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of outstanding New
Discount Notes have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the outstanding New Discount Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any New Discount Note shall bind every
future Holder of the same New Discount Note and the Holder of every New Discount
Note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof (including in accordance with Section 310) in respect of
anything done, omitted or suffered to be done by the Trustee, any Paying Agent
or the Issuer in reliance thereon, whether or not notation of such action is
made upon such New Discount Note.
SECTION 105. Notices, Etc., to Trustee and the Issuer.
----------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Issuer or any other obligor
on the New Notes shall be sufficient for every purpose hereunder if made, given,
furnished or delivered in writing and mailed, first-class postage prepaid, or
delivered by recognized overnight courier, to or with the Trustee and received
at its Corporate Trust Office, Attention: Corporate Trust Administration.
(2) the Issuer by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
made, given,furnished or delivered, in writing, or mailed, first-class postage
prepaid, or delivered by recognized overnight courier, to the Issuer addressed
to it and received at the address of its principal office specified in the first
paragraph of this Indenture, or at any other address previously furnished in
writing to the Trustee by the Issuer.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Issuer or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder, at his address as it appears in the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be
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satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice for every purpose hereunder.
If the Issuer mails any notice or communication to any Holder, it
shall mail a copy to the Trustee at the same time.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Issuer shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the New Discount Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the New Discount Notes, express or
implied, shall give to any Person, (other than the parties hereto, any agent and
their successors hereunder and each of the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
THIS INDENTURE AND THE NEW DISCOUNT NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK EXCLUDING (TO
THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
UPON THE EFFECTIVENESS OF A SELLER REGISTRATION STATEMENT, THIS INDENTURE SHALL
BE SUBJECT TO THE PROVISIONS OF THE TRUST INDENTURE ACT THAT ARE REQUIRED TO BE
PART OF THIS INDENTURE AND SHALL, TO THE EXTENT APPLICABLE, BE GOVERNED BY SUCH
PROVISIONS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK AND THE U.S. FEDERAL COURTS, IN EACH CASE
SITTING IN THE BOROUGH OF MANHATTAN, AND WAIVES ANY OBJECTION AS TO VENUE OR
FORUM NON CONVENIENS.
SECTION 112. Legal Holidays.
--------------
In any case where any interest payment date, any date established for
payment of Defaulted Interest pursuant to Section 311 or redemption date or
Stated Maturity of any New Discount Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the New Discount
Notes) payment of principal (or premium, if any) or interest need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the interest payment date or date established for
payment of Defaulted Interest pursuant to Section 311, Redemption Date, or at
the Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such interest payment date, redemption date or date
established for payment of Defaulted Interest pursuant to Section 311, Stated
Maturity or Maturity, as the case may be, to the next succeeding Business Day.
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SECTION 113. No Personal Liability of Directors, Officers, Employees,
--------------------------------------------------------
Stockholders or Incorporators.
- -----------------------------
No director, officer, employee, incorporator or stockholders, as such,
of the Issuer shall have any liability for any obligations of the Issuer under
the New Discount Notes, this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creations. Each Holder by accepting
a New Discount Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the New Discount
Notes.
SECTION 114. Counterparts.
------------
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
SECTION 115. Communications by Holders with Other Holders.
--------------------------------------------
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the New Discount Notes.
The Issuer, the Trustee, the Note Registrar and anyone else shall have the
protection of TIA (S) 312(c).
200. ARTICLE TWO. NOTE FORMS
SECTION 201. Forms Generally.
---------------
The New Discount Notes and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with applicable laws or the rules of any securities
exchange or Depositary or as may, consistently herewith, be determined by the
officers executing such New Discount Notes, as evidenced by their execution of
the New Discount Notes. Any portion of the text of any New Discount Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the New Discount Note. Each New Discount Note shall be dated the date
of its authentication.
New Discount Notes shall be issued in certificated form, substantially
set forth in Section 203, provided that New Discount Notes offered and sold
pursuant to an effective Registration Statement may be exchanged for New
Discount Notes issued in the form of a permanent global New Discount Note,
without interest coupons, substantially in the form set forth in this Article (a
"Global Discount Note") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Issuer and authenticated by the Trustee as
hereinafter provided. The Global Discount Note may be represented by more than
one certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate. The aggregate
principal amount of the Global Discount Note may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
The definitive New Discount Notes shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Issuer executing such New Discount Notes,
as evidenced by their execution of such New Discount Notes.
SECTION 202. Restrictive Legends.
-------------------
Unless and until (i) a New Discount Note is sold under an effective
Registration Statement pursuant to the Securities Act or (ii) a New Discount
Note is distributed to the public pursuant to Rule 144
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under the Securities Act, such New Discount Note shall bear the following legend
(the "Private Placement Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF July
23, 1998 AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH
SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT
THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG
AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SECTION 501(A)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL
AMOUNT OF $250,000 OF SUCH SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT
TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) ABOVE TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E),
A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE.
The Global Discount Notes, whether or not previously sold pursuant to
an effective Registration Statement under the Securities Act or distributed to
the public pursuant to Rule 144 under the Securities Act, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
-19-
<PAGE>
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
The New Discount Notes shall also bear the following legend on the
face thereof:
THIS NEW DISCOUNT NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT
FOR THE PURPOSES OF SECTIONS 1271-1275 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND
YIELD TO MATURITY OF THE NEW DISCOUNT NOTES MAY BE OBTAINED BY CONTACTING THE
ISSUER'S __________________ DEPARTMENT, TELEPHONE NO. (___) ________.
SECTION 203. Form of New Discount Note.
-------------------------
No. ___ Stated Principal Amount at Maturity $______________
[CUSIP NO. ____________]
13 1/2% Series B Senior Discount Note due 2008
Details Intermediate Holdings Corp., a California corporation promises to
pay to ___________, or registered assigns, the principal sum of
__________________ Dollars on June 30, 2008.
Interest Payment Dates: June 30 and December 31.
Record Dates: June 15 and December 15.
This New Discount Note shall not bear interest prior to June 30, 2003.
From July 23, 1998 through June 30, 2003, the Accreted Value of this New
Discount Note will increase as specified on the reverse side hereof.
Additional provisions of this New Discount Note are set forth on the other
side of this New Discount Note.
IN WITNESS WHEREOF, the Issuer has caused this New Discount Note to be
signed manually or by facsimile by its authorized Officers.
Dated: ___________
DETAILS INTERMEDIATE HOLDINGS CORP.
By:___________________
Name
Title
By:___________________
Name
Title
-20-
<PAGE>
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
[NAME OF TRUSTEE]
as Trustee, certifies
that this is one of the
New Discount Notes referred to
in the Indenture.
By_______________________
Authorized Signatory
[FORM OF REVERSE SIDE OF NEW DISCOUNT NOTE]
13 1/2% Series B Senior Discount Note due 2008
1. Interest
--------
Details Intermediate Holdings Corp., a California corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Issuer") promises to pay interest on the
principal amount of this New Discount Note as described below.
The 13 1/2% Series B Senior Discount Notes due 2008 (the "New Discount
Notes") will accrete in value from their Initial Accreted Value until June 30,
2003 at a rate of 13 1/2% per annum, compounded semiannually, to an aggregate
principal amount of $66,809,539.40 at June 30, 2003. Cash interest will not
accrue on the New Discount Notes prior to June 30, 2003. Thereafter, interest
will accrue at the rate of 13 1/2% per annum and will be payable semiannually in
cash and in arrears to the Holders of record on each June 15 or December 15
immediately preceding the interest payment date on June 30 and December 31 of
each year, commencing December 31, 2003. Cash interest on the New Discount Notes
will accrue from the most recent interest payment date to which interest has
been paid or, if no interest has been paid, from June 30, 2003. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. For
convenience, all references herein to principal amount at maturity are to stated
principal amount at maturity without taking into account the payment required by
Section 2 hereof. All references herein to outstanding principal amount for the
purposes of calculating interest and principal payments and redemption prices
shall take into account any payment pursuant to Section 2 hereof.
2. Amounts Payable on December 31, 2003
------------------------------------
For each $1,000 in principal amount of New Discount Notes outstanding on
December 31, 2003, $427.16 will be due and payable in cash on December 31, 2003
representing a payment of a portion of principal of such Original Discount
Notes.
3. Method of Payment
-----------------
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on the New Discount Notes is due and payable, the
Issuer shall irrevocably deposit with the Trustee or the Paying Agent money
sufficient to pay such principal, premium, if any, and/or interest. The Issuer
will pay interest (except defaulted interest) to the Persons who are registered
Holders of New Discount Notes at the close of business on the June 15 or
December 15 next preceding the interest payment date even if the New Discount
Notes are canceled, repurchased or redeemed after the record date and on or
before the interest payment date. Holders must surrender New Discount Notes to a
Paying Agent to collect principal payments. The Issuer will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Issuer may pay
interest by check payable in such money. It may mail an interest check to a
Holder's registered address.
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<PAGE>
4. Trustee, Paying Agent and Registrar
-----------------------------------
Initially, [Name of Trustee] ("Trustee"), will act as Trustee, Paying Agent
and Registrar. The Issuer may appoint and change any Paying Agent, Registrar or
co-registrar without notice to any Noteholder. The Issuer or any of its
domestically incorporated Wholly-Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
5. Indenture
---------
The Issuer issued the New Discount Notes under an Indenture dated as of
______________ (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Issuer and the
Trustee. The terms of the New Discount Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "Act"). Capitalized
terms used herein and not defined herein have the meanings ascribed thereto in
the Indenture. The New Discount Notes are subject to all such terms, and
Noteholders are referred to the Indenture and the Act for a statement of those
terms.
The New Discount Notes are unsecured senior obligations of the Issuer
limited to $66,809,539.40 aggregate principal amount at maturity (without taking
into account the payment required by clause (c) of this Section 301 and Section
2 of the New Discount Notes and subject to Section 310 of the Indenture). This
New Discount Note is one of the New Discount Notes referred to in the Indenture.
The New Discount Notes evidence indebtedness previously evidenced by the
Original Discount Notes which were issued pursuant to the Note Purchase
Agreement. The Discount Notes include the Original Discount Notes and any New
Discount Notes issued in exchange for the Original Discount Notes pursuant to
the Note Purchase Agreement. The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Issuer, Details Capital, the Company and the
Issuer's Restricted Subsidiaries, the payment of dividends on, and the purchase
or redemption of, Capital Stock of the Issuer and its Restricted Subsidiaries,
the sale or transfer of assets and Capital Stock of Restricted Subsidiaries,
investments of the Issuer and its Restricted Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the ability of the Issuer and its
Subsidiaries to restrict distributions and dividends from Restricted
Subsidiaries.
6. Optional Redemption
-------------------
The New Discount Notes will be redeemable, at the Issuer's option, in whole
or in part, at any time upon not less than 30 nor more than 60 days prior notice
mailed by first-class mail to each Holder's registered address, at the following
redemption prices, plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
(a) If redeemed on or prior to June 30, 2003 the redemption price will be an
amount sufficient to generate an internal rate of return per annum on the
Initial Accreted Value of such New Discount Notes equal to the percentage set
forth below with respect to the redemption date, compounded annually, treating
the Initial Accreted Value of such New Discount Notes as having been paid on
the Issue Date:
Date of Redemption Internal Rate of Return
------------------ -----------------------
Before June 30, 1999 20.0%
July 1, 1999 to June 30, 2000 20.0%
July 1, 2000 to June 30, 2001 20.0%
July 1, 2001 to June 30, 2002 19.0%
July 1, 2002 to June 30, 2003 18.0%
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<PAGE>
(b) If redeemed during the 12-month period commencing on July 1 of the years
set forth below the redemption price, before taking into account accrued and
unpaid interest and, expressed as a percentage of outstanding principal amount
will be:
Period Redemption Price
------ -----------------
2003 106.75%
2004 104.50%
2005 102.25%
2006 and thereafter 100.00%
7. Selection
---------
In the case of any partial redemption, selection of the New Discount Notes
for redemption will be made by the Trustee on a pro rata basis, although no New
Discount Note of $100,000 in original principal amount at maturity or less will
be redeemed in part. If any New Discount Note is to be redeemed in part only,
the notice of redemption relating to such New Discount Note shall state the
portion of the principal amount at maturity thereof to be redeemed. A new New
Discount Note in principal amount at maturity equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original New Discount Note.
8. Notice of Redemption
--------------------
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each Holder of New Discount Notes to be
redeemed at his registered address. New Discount Notes in denominations of
principal amount at maturity larger than $100,000 may be redeemed in part but
only in whole multiples of $100,000. If money sufficient to pay the redemption
price of and accrued and unpaid interest on all New Discount Notes (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such New Discount
Notes (or such portions thereof) called for redemption.
9. Put Provisions
--------------
Upon the occurrence of a Change Control, each holder will have the right to
require the Issuer to repurchase all or any part of such Holder's New Discount
Notes with respect to which the Issuer has not exercised its right to redeem
such New Discount Notes as described under Optional Redemption above at a
purchase price in cash equal to 101% of the outstanding principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date) or, in the case of purchases of New
Discount Notes prior to June 30, 2003, at a purchase price equal to 101% of the
Accreted Value thereof as of the date of purchase.
Upon the occurrence of a Qualifying Public Offering, each holder will have
the right to require the Issuer to repurchase all or any part of such holder's
New Discount Notes with respect to which the Issuer has not exercised its right
to redeem such New Discount Notes as described under "Optional Redemption" above
at a purchase price in cash equal to the purchase price the Issuer would pay had
it elected to redeem such New Discount Notes as described under "Optional
Redemption" above (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
10. Denominations; Transfer; Exchange
---------------------------------
The New Discount Notes are in registered form without coupons in
denominations of principal amount at maturity or Accreted Value (as applicable)
of $100,000 and whole multiples of $100,000. A Holder may transfer or exchange
New Discount Notes in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes
-23-
<PAGE>
and fees required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange of (i) any New Discount Note selected for
redemption (except, in the case of a New Discount Note to be redeemed in part,
the portion of the New Discount Note not to be redeemed) for a period beginning
15 days before a selection of New Discount Notes to be redeemed and ending on
the date of such selection or (ii) any New Discount Notes for a period beginning
15 days before an interest payment date and ending on such interest payment
date.
11. Persons Deemed Owners
---------------------
The registered holder of this New Discount Note may be treated as the owner
of it for all purposes.
12. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Issuer at its
request unless an abandoned property law designates another Person. After any
such payment, Holders entitled to the money must look only to the Issuer and not
to the Trustee for payment.
13. Defeasance
----------
Subject to certain conditions set forth in the Indenture, the Issuer at any
time may terminate some or all of its obligations under the New Discount Notes
and the Indenture if the Issuer deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the New
Discount Notes to redemption or maturity, as the case may be. The Issuer in its
sole discretion can defease the New Discount Notes.
14. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the New Discount Notes may be amended with the written consent of the Holders
of at least a majority in principal amount of the New Discount Notes then
outstanding and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal amount
of the outstanding New Discount Notes. Without the consent of any Noteholder,
the Issuer and the Trustee may amend the Indenture or the New Discount Notes to
cure any ambiguity, omission, defect or inconsistency, or to comply with Article
8 of the Indenture, or to provide for uncertificated New Discount Notes in
addition to or in place of certificated New Discount Notes or to add guarantees
with respect to the New Discount Notes or to secure the New Discount Notes, or
to add additional covenants or surrender rights and powers conferred on the
Issuer, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make any change that does not adversely
affect the rights of any Noteholder.
15. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) a default in any payment
of interest on any New Discount Note when due, continued for 30 days, (ii) a
default in the payment of principal of any New Discount Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, except any failure by the Issuer to pay any amounts
that are due and payable solely pursuant to Section 301(c) of the Indenture and
Section 2 of this Discount Note (iii) the failure by the Issuer to comply for 30
days with certain of its obligations under the Indenture (other than a failure
to purchase New Discount Notes which shall constitute an Event of Default under
clause (ii) above), (iv) the failure by the Issuer to comply for 60 days after
notice with its other agreements contained in the Indenture, except any failure
by the Issuer to pay any amounts that are due and payable solely pursuant to
Section 301(c) of the Indenture and Section 2 of this Discount Note (v) the
failure by the Issuer or any Restricted Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default and if the
total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million,
(vi) certain events of bankruptcy, insolvency or reorganization of the Issuer or
a Significant Subsidiary or (vii) the rendering of any judgment or decree for
the payment of money
-24-
<PAGE>
in an amount in excess of $10.0 million against the Issuer or a Significant
Subsidiary and such judgment or decree remains undischarged or unstayed for a
period of 60 days after such judgment or decree becomes final and non-appealable
and is not discharged, waived or stayed. If a default occurs and is continuing
under clauses (iii) and (iv) above it will not be deemed an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
outstanding applicable New Discount Notes notify the Company of the default and
the Company does not cure such defect within the time specified in clauses (iii)
and (iv) above after receipt of such notice. Certain events of bankruptcy or
insolvency are Events of Default which will result in the New Discount Notes
being due and payable immediately upon the occurrence of such Events of Default.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding New Discount Notes by
notice to the Issuer and the Trustee may declare the principal of and accrued
and unpaid interest, if any, on all the New Discount Notes to be due and payable
immediately. Upon such a declaration, such principal and accrued and unpaid
interest shall be due and payable immediately. Under certain circumstances, the
holders of a majority in principal amount of the outstanding New Discount Notes
may rescind any such acceleration with respect to the New Discount Notes and its
consequences.
The failure of the Issuer to pay any amounts that are due and payable
solely pursuant to Section 301(c) of the Indenture and Section 2 hereof shall
give the Holders of New Discount Notes a right to sue for failure to pay such
amounts when due and payable, but shall not give such Holders the right to
declare the principal of and accrued and unpaid interest on the New Discount
Notes, if any, to be due and payable.
Noteholders may not enforce the Indenture or the New Discount Notes except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the New Discount Notes unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
New Discount Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Noteholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
(or if prior to June 30, 2003, the Accreted Value of) or interest) if it
determines that withholding notice is in their interest.
16. Trustee Dealings with the Issuer
--------------------------------
Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of New Discount Notes and may otherwise deal with and collect
obligations owed to it by the Issuer or its affiliates and may otherwise deal
with the Issuer or its affiliates with the same rights it would have if it were
not Trustee.
17. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Issuer shall
not have any liability for any obligations of the Issuer under the New Discount
Notes or the Indenture or for any claim based on, in respect of or by reason of
such obligations or their creation. By accepting a New Discount Note, each
Noteholder waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the New Discount Notes.
18. Authentication
--------------
This New Discount Note shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this New Discount Note.
19. Registration Rights
-------------------
So long as this note constitutes a Registrable Discount Note, the Holder of
this New Discount Note is entitled to the benefits of the registration rights,
as provided in the Registration Rights Agreement.
-25-
<PAGE>
20. Abbreviations
-------------
Customary abbreviations may be used in the name of a Noteholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuer has caused CUSIP numbers to be
printed on the New Discount Notes and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Noteholders. No
representation is made as to the accuracy of such numbers either as printed on
the New Discount Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.*/
-
22. Governing Law
-------------
THIS NEW DISCOUNT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT
PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
The Issuer will furnish to any Noteholder upon written request and without
charge to the Noteholder a copy of the Indenture. Requests may be made to:
Details Intermediate Holdings Corp.
1231 Simon Circle
Anaheim, California 92806
Attention: Chief Financial Officer
_______________________________
*/ Include if applicable
- -
-26-
<PAGE>
ASSIGNMENT FORM
To assign this New Discount Note, fill in the form below:
I or we assign and transfer this New Discount Note to
___________________________________________________
(Print or type assignee's name, address and zip code)
___________________________________________
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this New Discount Note on the
books of the Issuer. The agent may substitute another to act for him.
_______________________________________________________________________________
Date:____________________ Your Signature:___________________
Signature Guarantee:_____________________________________
(Signature must be guaranteed)
_______________________________________________________________________________
Sign exactly as your name appears on the other side of this New Discount Note.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for, STAMP), pursuant to S.E.C. Rule
17Ad-15.
In connection with any transfer or exchange of any of the New Discount Notes
evidenced by this certificate occurring prior to (i) the sale of such New
Discount Notes in a public offering registered under the Securities Act of 1933
and (ii) the date that is two years after the later of (x) the date of original
issuance of such New Discount Notes (or their predecessor, including without
limitation any predecessor Original Discount Notes) and (y) the last date, if
any, on which such New Discount Notes (or their predecessors, including without
limitation any predecessor Original Discount Notes) were owned by the Issuer or
any Affiliate of the Issuer, the undersigned confirms that such New Discount
Notes:
CHECK ONE BOX BELOW:
1 [_] are being acquired for the undersigned's own account, without
transfer; or
2 [_] are being transferred to the Issuer; or
3 [_] are being transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
4 [_] are being transferred pursuant to an effective registration
statement under the Securities Act; or
5 [_] are being transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
-27-
<PAGE>
6 [_] are being transferred to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933), that has furnished to the Trustee a
signed letter containing certain representations and agreements
(the form of which letter appears as Section 308 of the
Indenture); or
7 [_] are being transferred pursuant to another available exemption
from the registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee may refuse to register any of
the New Discount Notes evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box (5),
(6) or (7) is checked, the Trustee or the Issuer may require, prior to
registering any such transfer of the New Discount Notes, in their sole
discretion, such legal opinions, certifications and other information as the
Trustee or the Issuer may reasonably request to confirm that such transfer is
being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act.
______________________________
Signature
Signature Guarantee:
__________________________________________________________
(Signature must be guaranteed)
____________________________________________________________
Signature
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule
17Ad-15.
-28-
<PAGE>
[TO BE ATTACHED TO GLOBAL DISCOUNT NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL DISCOUNT NOTE
The following increases or decreases in this Global Discount
Note have been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Date of Principal Amount of this Principal Amount of this Global Discount Note following signatory of Trustee or
Exchange Global Discount Note Global Discount Note such decrease or increase Discount Notes Custodian
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this New Discount Note purchased by the
Issuer pursuant to Section 1015, 1015A or 1016 of the Indenture, check the box:
[_]
If you want to elect to have only part of this New Discount Note
purchased by the Issuer pursuant to Section 1015, 1015A or 1016 of the
Indenture, state the amount in principal amount at maturity (must be integral
multiple of $100,000): $________.
Date: __________ Your Signature _____________________________________________
(Sign exactly as your name appears on the
other side of the New Discount Note)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule
17Ad-15.
-30-
<PAGE>
In connection with any transfer or exchange of any of the New Discount
Notes evidenced by this certificate occurring prior to (i) the sale of such New
Discount Notes in a public offering registered under the Securities Act of 1933
and (ii) the date that is two years after the later of (x) the date of original
issuance of such New Discount Notes (or their predecessor, including without
limitation any predecessor Original Discount Notes) and (y) the last date, if
any, on which such New Discount Notes (or their predecessors, including without
limitation any predecessor Original Discount Notes) were owned by the Issuer or
any Affiliate of the Issuer, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
---------
[_] (a) this New Discount Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
--
[_] (b) this New Discount Note is being transferred other than in accordance
with (a) above and documents are being furnished that comply with the
conditions of transfer set forth in this New Discount Note and the
Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this New Discount Note in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 307 of the Indenture
shall have been satisfied.
Date: _____________ _________________________________________________________
NOTICE: The signature must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:____________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this New
Discount Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, as amended, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Issuer as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.
Date: ____________ _________________________________________
NOTICE: To be executed by an executive officer.
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the New Discount Notes referred to in the within-mentioned
Indenture.
___________________________,
as Trustee
By ___________________
Authorized Signatory
Dated: ____________
SECTION 205. [Intentionally Omitted]
300. ARTICLE THREE. THE NEW DISCOUNT NOTES
SECTION 301. Title and Terms.
---------------
(a) The aggregate principal amount at maturity of New Discount Notes which
may be authenticated and delivered under this Indenture is limited to
$66,809,639.40 aggregate principal amount at maturity (without taking into
account the payment required by clause (c) of this Section 301 and Section 2 of
the New Discount Notes), except for New Discount Notes authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other New Discount Notes pursuant to Section 304, 305, 306, 307, 310, 906, 1015,
1015A, 1016 or 1108.
(b) The Original Discount Notes are known as the "13 1/2% Series A Senior
Discount Notes due 2008," and the New Discount Notes shall be known and
designated as the "13 1/2% Series B Senior Discount Notes due 2008," in each
case, of the Issuer. The Original Discount Notes were issued at a discount from
the Initial Accreted Value of the Discount Notes. The Aggregate Initial Accreted
Value reflects a discount from the aggregate principal amount of the
Intermediate Holdings Discount Notes at maturity (without taking into account
the payment required by clause (c) of this Section 301 and Section 2 of the New
Discount Notes), and the New Discount Notes accrete in value from the Initial
Accreted Value until June 30, 2003 at a rate per annum of 13 1/2%, compounded
semiannually, to an aggregate principal amount at June 30, 2003 of
$66,809,639.40. Cash interest will not accrue on the New Discount Notes prior to
June 30, 2003. Thereafter, interest will accrue at a rate per annum of 13.5% and
will be payable semiannually in cash and in arrears to the Holders of record on
each June 15 or December 15 immediately preceding the interest payment date on
June 30 and December 31 of each year, commencing December 31, 2003. Cash
interest on the New Discount Notes will accrue from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from June 30, 2003. For convenience, all references to the principal amount at
maturity of the New Discount Notes herein are references to the principal amount
at final maturity, without taking into account the payment required by clause
(c) of this Section 301 and Section 2 of the New Discount Notes. All references
herein to outstanding principal amount for the purposes of calculating interest
and principal payments and redemption prices shall take into account any payment
pursuant to clause (c) of this Section 301 and Section 2 of the New Discount
Notes. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months, until the principal thereof is paid or duly provided for.
Interest on any overdue principal, interest (to the extent lawful) or premium,
if any, shall be payable on demand.
(c) For each $1,000 in principal amount of New Discount Notes outstanding
on December 31, 2003, $427.16 will be due and payable in cash on December 31,
2003, representing a payment of a portion of the principal of such New Discount
Notes.
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(d) The principal of (and premium, if any) and interest on the New
Discount Notes shall be payable at the office or agency of the Issuer maintained
for such purpose in The City of New York, or at such other office or agency of
the Issuer as may be maintained for such purpose; provided, however, that, at
the option of the Issuer, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Note
Register.
(e) Holders shall have the right to require the Issuer to purchase their
New Discount Notes, in whole or in part, in the event of a Change of Control
pursuant to Section 1015 and in the event of a Qualifying Public Offering
pursuant to Section 1015A. The New Discount Notes shall be subject to repurchase
by the Issuer pursuant to an Asset Disposition as provided in Section 1016. The
New Discount Notes shall be redeemable as provided in Article Eleven and in the
New Discount Notes.
SECTION 302. Denominations.
-------------
The New Discount Notes shall be issuable only in fully registered form,
without coupons, and only in denominations of $100,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The New Discount Notes shall be executed on behalf of the Issuer by
two Officers, of which at least one Officer shall be the President or the Chief
Financial Officer of the Issuer. The signature of any Officer on the New
Discount Notes may be manual or facsimile signatures of the present or any
future such authorized officer and may be imprinted or otherwise reproduced on
the New Discount Notes.
New Discount Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Issuer shall bind
the Issuer, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such New Discount
Notes or did not hold such offices at the date of such New Discount Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver New Discount Notes executed by the Issuer
to the Trustee for authentication, together with an Order for the authentication
and delivery of such New Discount Notes (the "Authentication Order"), and the
Trustee in accordance with such Authentication Order shall authenticate and
deliver such New Discount Notes directing the Trustee to authenticate the New
Notes and certifying that all conditions precedent to the issuance of New
Discount Notes contained herein have been fully complied with; provided that
such New Discount Notes shall be issuable only upon the valid surrender for
cancellation of Original Discount Notes of a like aggregate principal amount at
maturity in accordance with the Note Purchase Agreement. The Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Issuer that it may reasonably request in connection with such authentication of
New Discount Notes. Such order shall specify the amount of Discount Notes to be
authenticated and the date on which the original issue of New Discount Notes is
to be authenticated.
Each New Discount Note shall be dated the date of its authentication.
No New Discount Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
New Discount Note a certificate of authentication substantially in the form
provided for herein duly executed by the Trustee by manual signature of an
authorized signatory, and such certificate upon any New Discount Note shall be
conclusive evidence, and the only evidence, that such New Discount Note has been
duly authenticated and delivered hereunder and is entitled to the benefits of
this Indenture.
In case the Issuer, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Issuer shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental
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hereto with the Trustee pursuant to Article Eight, any of the New Discount Notes
authenticated or delivered prior to such consolidation, merger, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other New Discount Notes executed in the
name of the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the New Discount Notes
surrendered for such exchange and of like principal amount at maturity; and the
Trustee, upon the Issuer Request of the successor Person, shall authenticate and
deliver New Discount Notes as specified in such request for the purpose of such
exchange. If New Discount Notes shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section 303 in exchange
or substitution for or upon registration of transfer of any New Discount Notes,
such successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all New Discount Notes at the time outstanding
for New Discount Notes authenticated and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate New Discount Notes on behalf of the Trustee. Unless
limited by the terms of such appointment, an authenticating agent may
authenticate New Discount Notes whenever the Trustee may do so. Each reference
in this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as any Note Registrar
or Paying Agent to deal with the Issuer and its Affiliates hereunder.
SECTION 304. Temporary New Discount Notes.
----------------------------
Pending the preparation of definitive New Discount Notes, the Issuer
may execute, and upon Authentication Order the Trustee shall authenticate and
deliver, temporary New Discount Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination.
Temporary New Discount Notes shall be substantially of the tenor of the
definitive New Discount Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such New Discount Notes may determine, as conclusively
evidenced by their execution of such New Discount Notes.
If temporary New Discount Notes are issued, the Issuer will cause
definitive New Discount Notes to be prepared without unreasonable delay. After
the preparation of definitive New Discount Notes, the temporary New Discount
Notes shall be exchangeable for definitive New Discount Notes upon surrender of
the temporary New Discount Notes at the office or agency of the Issuer
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary New
Discount Notes, the Issuer shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount at maturity of definitive
New Discount Notes of authorized denominations. Until so exchanged, the
temporary New Discount Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive New Discount Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Issuer shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, Holdings shall provide for the registration of
New Discount Notes and of transfers of New Discount Notes. The Note Register
shall be in written form or any other form capable of being converted into
written form within a reasonable time. At all reasonable times, the Note
Register shall be open to inspection by the Trustee. The Trustee is hereby
initially appointed as security registrar (the Trustee in such capacity,
together with any successor of the Trustee in such capacity, the "Note
Registrar") for the purpose of registering New Discount Notes and transfers of
New Discount Notes as herein provided.
Upon surrender for registration of transfer of any New Discount Note
at the office or agency of Holdings designated pursuant to Section 1002,
Holdings shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new New Discount
Notes of any authorized denomination or denominations of a like aggregate
principal amount at maturity.
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Furthermore, any Holder of a Global Discount Note shall, by acceptance
of such Global Discount Note, agree that transfers of beneficial interest in
such Global Discount Note may be effected only through a book-entry system
maintained by the Holder of such Global Discount Note (or its agent), and that
ownership of a beneficial interest in the New Discount Note shall be required to
be reflected in a book entry.
At the option of the Holder, New Discount Notes may be exchanged for
other New Discount Notes of any authorized denomination (not less than $100,000)
and of a like aggregate principal amount at maturity, upon surrender of the New
Discount Notes to be exchanged at such office or agency. Whenever any New
Discount Notes are so surrendered for exchange (including an exchange of
Original Discount Notes for New Discount Notes), the Issuer shall execute, and
the Trustee shall authenticate and deliver, the New Discount Notes which the
Holder making the exchange is entitled to receive; provided that no exchange of
New Discount Notes for Original Discount Notes shall occur except pursuant to
Section 12 of the Note Purchase Agreement.
All New Discount Notes issued upon any registration of transfer or
exchange of New Discount Notes shall be the valid obligations of the Issuer,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the New Discount Notes surrendered upon such registration of
transfer or exchange.
Every New Discount Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Issuer or the Note
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Issuer and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of New Discount Notes, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of New
Discount Notes, other than exchanges pursuant to Section 304, 906, 1015, 1015A,
1016 or 1108, not involving any transfer.
The Register shall be in written form in the English language or in
any other form including computerized records, capable of being converted into
such form within a reasonable time.
SECTION 306. Book-Entry Provisions for Global Discount Notes.
-----------------------------------------------
(a) Each Global Discount Note initially shall (i) be registered in
the name of the Depositary for such global Discount Note or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Discount Note
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Discount Note, and the Depositary may be treated by the Issuer,
the Trustee and any agent of the Issuer or the Trustee as the absolute owner of
such Global Discount Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent of
the Issuer or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or shall impair, as between
the Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any New Discount Note.
(b) Transfers of a Global Discount Note shall be limited to transfers
of such Global Discount Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Discount Note may be transferred in accordance with the rules and
procedures of the Depositary and the provisions of Section 307. If required to
do so pursuant to any applicable law or regulation, beneficial owners may obtain
New Discount Notes in definitive form ("Physical Discount Notes") in exchange
for their beneficial interests in a Global Discount Note upon written request in
accordance with the Depositary's and the Registrar's procedures. In addition,
Physical Discount Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in a Global Discount Note if
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(i) the Depositary notifies the Issuer that it is unwilling or unable to
continue as Depositary for such Global Discount Note or the Depositary ceases to
be a clearing agency registered under the Exchange Act, at a time when the
Depositary is required to be so registered in order to act as Depositary, and in
each case a successor depositary is not appointed by the Issuer within 90 days
of such notice or, (ii) the Issuer executes and delivers to the Trustee and Note
Registrar an Officers' Certificate stating that such Global Discount Note shall
be so exchangeable or (iii) an Event of Default has occurred and is continuing
and the Note Registrar has received a request from the Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in a Global Discount Note pursuant to subsection (b) of this Section to
beneficial owners who are required to hold Physical Discount Notes, the Note
-----------------------
Registrar shall reflect on its books and records the date and a decrease in the
principal amount at maturity of such Global Discount Note in an amount equal to
the principal amount at maturity of the beneficial interest in the Global
Discount Note to be transferred, and the Issuer shall execute, and the Trustee
shall authenticate and deliver, one or more Physical Discount Notes of like
tenor and amount.
(d) In connection with the transfer of an entire Global Discount Note
to beneficial owners pursuant to subsection (b) of this Section, such Global
Discount Note shall be deemed to be surrendered to the Trustee for cancellation,
and the Issuer shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in such Global Discount Note, an equal aggregate principal
amount at maturity of Physical Discount Notes of authorized denominations.
(e) Any Physical Discount Note delivered in exchange for an interest
in a Global Discount Note pursuant to subsection (c) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (c) of Section 307,
bear the applicable legend regarding transfer restrictions applicable to the
Physical Discount Note set forth in Section 202.
(f) The registered holder of a Global Discount Note may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the New Discount Notes.
SECTION 307. Special Transfer Provisions.
---------------------------
(a) The following provisions shall apply with respect to any proposed
transfer of a New Discount Note, prior to the expiration of the Resale
Restriction Termination Date (as defined in the legend appearing in Section 202
hereof), which has not been sold in a public offering registered under the
Securities Act or distributed to the public pursuant to Rule 144 under the
Securities Act.
(i) a transfer of such New Discount Note to a QIB (as defined
herein) shall be made upon the representation of the transferee that it is
purchasing the New Discount Note for its own account or an account with
respect to which it exercises sole investment discretion and that it and
any such account is a "qualified institutional buyer" within the meaning of
Rule 144A under the Securities Act and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Issuer as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A;
(ii) a transfer of such New Discount Note or a beneficial
interest therein to an institutional accredited investor shall be made upon
receipt by the Trustee or its agent of a certificate substantially in the
form set forth in Section 308 hereof from the proposed transferee and, if
requested by the Issuer or the Trustee, the delivery of an opinion of
counsel, certification and/or other information satisfactory to each of
them; and
(iii) a transfer of a such New Discount Note or a beneficial
interest therein to a Non-U.S. Person shall be made upon receipt by the
Trustee or its agent of a certificate substantially in the form
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set forth in Section 309 hereof from the proposed transferee and, if
requested by the Issuer or the Trustee, the delivery of an opinion of
counsel, certification and/or other information satisfactory to each of
them.
(b) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of New Discount Notes not bearing the Private Placement Legend, the
Note Registrar shall deliver New Discount Notes that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of New Discount
Notes bearing the Private Placement Legend, the Note Registrar shall deliver
only New Discount Notes that bear the Private Placement Legend unless there is
delivered to the Note Registrar an Opinion of Counsel reasonably satisfactory to
the Issuer and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(c) General. By its acceptance of any New Discount Note bearing the
-------
Private Placement Legend, each Holder of such a New Discount Note acknowledges
the restrictions on transfer of such New Discount Note set forth in this
Indenture and in the Private Placement Legend and agrees that it will transfer
such New Discount Note only as provided in this Indenture and the Private
Placement Legend.
(d) the Issuer shall deliver to the Trustee an Officer's Certificate
setting forth the dates on which the Restricted Period terminates (the "Resale
Restriction Termination Date").
The Note Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Issuer shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Note Registrar.
(e) No Obligation of the Trustee: (i) The Trustee shall have no
----------------------------
responsibility or obligation to any beneficial owner of a Global Discount Note,
a member of, or a participant in the Depository or other Person with respect to
any ownership interest in the New Discount Notes, with respect to the accuracy
of the records of the Depository or its nominee or of any participant or member
thereof or with respect to the delivery to any participant, member, beneficial
owner or other Person (other than the Depository) of any notice (including any
notice of redemption) or the payment of any amount, under or with respect to
such New Discount Notes. All notices and communications to be given to the
Holders and all payments to be made to Holders under the New Discount Notes
shall be given or made only to the registered Holders (which shall be the
Depository or its nominee in the case of a Global Discount Note). The rights of
beneficial owners in any Global Discount Note in global form shall be exercised
only through the Depository subject to the applicable rules and procedures of
the Depository. The Trustee may rely and shall be fully protected and
indemnified pursuant to Section 607 in relying upon information furnished by the
Depository with respect to any beneficial owners, its members and participants.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any New Discount Note (including without limitation any transfers
between or among Depository participants, members or beneficial owners in any
Global Discount Note) other than to require delivery of such certificates and
other documentation of evidence as are expressly required by, and to do so if
and when expressly required by, the terms of this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
SECTION 308. Form of Certificate to Be Delivered in Connection with
------------------------------------------------------
Transfers to Institutional Accredited Investors.
- -----------------------------------------------
[date]
DETAILS INTERMEDIATE HOLDINGS CORP.
c/o [Name of Trustee]
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Ladies and Gentlemen:
This certificate is delivered to request a transfer of $______
principal amount at maturity of the 13 1/2% Series B Senior Discount Notes due
2008 (the "New Discount Notes") of Details Intermediate Holdings Corp. (the
"Issuer").
Upon transfer, the New Discount Notes would be registered in the name
of the new beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrants to you that:
(1) We are an institutional "accredited investor" (as defined in
Rules 501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as amended
(the "Securities Act")), purchasing for our own account or for the account of an
institutional "accredited investor" at least $250,000 principal amount (or
Accreted Value, as applicable) of the New Discount Notes, and we are acquiring
the New Discount Notes not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act. We have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the New Discount Notes and
invest in or purchase securities similar to the New Discount Notes in the normal
course of our business. We and any accounts for which we are acting are each
able to bear the economic risk of our or its investment.
(2) We understand that the New Discount Notes have not been
registered under the Securities Act and, unless so registered, may not be sold
except as permitted in the following sentence. We agree on our own behalf and on
behalf of any investor account for which we are purchasing New Discount Notes to
offer, sell or otherwise transfer such New Discount Notes prior to the date
which is two years after the later of the date of original issue and the last
date on which the Issuer or any affiliate of the Issuer was the owner of such
New Discount Notes (or any predecessor thereto) (the "Resale Restriction
Termination Date") only (a) to the Issuer, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) in a
transaction complying with the requirements of Rule 144A under the Securities
Act, to a person we reasonably believe is a qualified institutional buyer under
Rule 144A (a "QIB") that purchases for its own account or for the account of a
QIB and to whom notice is given that the transfer is being made in reliance on
Rule 144A, (d) pursuant to offers and sales that occur outside the United States
within the meaning of Regulation S under the Securities Act, (e) to an
institutional "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act that is purchasing for its own account or
for the account of such an institutional "accredited investor", in each case in
a minimum principal amount of New Discount Notes (or Accreted Value, applicable)
of $250,000 or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and in compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the New
Discount Notes is proposed to be made pursuant to clause (e) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the form of this letter to the Issuer and the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act and that it is acquiring such New Discount
Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Issuer and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Termination Date of the New Discount Notes pursuant to clauses (d), (e) or (f)
above to require the delivery of an opinion of counsel, certifications and/or
other information satisfactory to the Issuer and the Trustee.
TRANSFEREE:
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BY:
Upon transfer the New Discount Notes would be registered in the name of the new
beneficial owner as follows:
Taxpayer ID
Name Address Number
---- ------- ------
Very truly yours,
[Name of Transferor]
By:______________________________ _________________________________
Name: Signature Medallion Guaranteed
Title:
SECTION 309. Form of Certificate to Be Delivered in Connection with
------------------------------------------------------
Transfers Pursuant to Regulation S.
- ----------------------------------
[date]
[Name of Trustee]
Attention: Corporate Trust Administration
Re: Details Intermediate Holdings Corp. (the "Issuer")
13 1/2% Series B Senior Discount Notes due 2008 (the "New
---------------------------------------------------------
Discount Notes")
- ----------------
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate principal
amount at maturity of the New Discount Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(a) the offer of the New Discount Notes was not made to a person in
the United States;
(b) either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States or (ii) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(c) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
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(d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
SECTION 310. Mutilated, Destroyed, Lost and Stolen New Discount Notes.
--------------------------------------------------------
If (i) any mutilated New Discount Note is surrendered to the Trustee,
or (ii) the Issuer and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any New Discount Note, and there is delivered to
the Issuer and the Trustee such security or indemnity, in each case, as may be
required by them to save each of them harmless, then, in the absence of notice
to the Issuer or the Trustee that such New Discount Note has been acquired by a
bona fide purchaser, the Issuer shall execute and upon Authentication Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated New
Discount Note or in lieu of any such destroyed, lost or stolen New Discount
Note, a new New Discount Note of like tenor and principal amount at maturity,
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen New Discount
Note has become or is about to become due and payable, the Issuer in its
discretion may, instead of issuing a new New Discount Note, pay such New
Discount Note.
Upon the issuance of any New Discount Note under this Section, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new New Discount Note issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen New Discount Note shall constitute an
original additional contractual obligation of the Issuer and any other obligor
upon the New Discount Notes, whether or not the mutilated, destroyed, lost or
stolen New Discount Note shall be at any time enforceable by anyone, and shall
be entitled to all benefits of this Indenture equally and proportionately with
any and all other New Discount Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen New Discount Notes.
SECTION 311. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any New Discount Note which is payable, and is punctually
paid or duly provided for, on any interest payment date shall be paid to the
Person in whose name such New Discount Note (or one or more predecessor Discount
Notes) is registered at the close of business on the Regular Record Date for
such interest at the office or agency of the Issuer maintained for such purpose
pursuant to Section 1002; provided, however, that each installment of interest
may at the Issuer's option be paid by (i) mailing a check for such interest,
payable to or upon the written order of the Person entitled thereto pursuant to
Section 312, to the address of such Person as it appears in the Note Register or
(ii) wire transfer to an account located in the United States maintained by the
payee.
Any interest on any New Discount Note which is payable, but is not
paid when the same becomes due and payable and such nonpayment continues for a
period of 30 days shall forthwith cease to be payable to the Holder on the
Regular Record Date by virtue of having been such Holder, and such defaulted
interest and (to the extent lawful) interest on such defaulted interest at the
rate borne by the New
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Discount Notes (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest") shall be paid by the Issuer, at its election in
each case, as provided in clause (a) or (b) below:
(a) the Issuer may elect to make payment of any Defaulted Interest to
the Persons in whose names the New Discount Notes (or their respective
predecessor Discount Notes) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Issuer shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each New
Discount Note and the date (not less than 30 days after such notice) of the
proposed payment (the "Special Interest Payment Date"), and at the same
time the Issuer shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a record date (the "Special Record Date") for the payment of such
Defaulted Interest which shall be not more than 15 days and not less than
10 days prior to the Special Interest Payment Date and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Issuer of such Special
Record Date, and in the name and at the expense of the Issuer, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date and Special Interest Payment Date therefor to be given in the
manner provided for in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date and Special Interest Payment Date
therefor having been so given, such Defaulted Interest shall be paid on the
Special Interest Payment Date to the Persons in whose names the New
Discount Notes (or their respective predecessor Discount Notes) are
registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following clause (b).
(b) the Issuer may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the New Discount Notes may be listed, and upon
such notice as may be required by such exchange, if, after notice given by
the Issuer to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each New Discount
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Discount Note (including without limitation
an Original Discount Note) shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Discount Note.
SECTION 312. Persons Deemed Owners.
---------------------
Prior to the due presentment of a New Discount Note for registration
of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee
may treat the Person in whose name such New Discount Note is registered as the
owner of such New Discount Note for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 305 and 311)
interest on such New Discount Note and for all other purposes whatsoever,
whether or not such New Discount Note be overdue, and none of the Issuer, the
Trustee nor any agent of the Issuer or the Trustee shall be affected by notice
to the contrary.
SECTION 313. Cancellation.
------------
All New Discount Notes surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
it. If the Issuer shall acquire any of the New Discount Notes other than as set
forth in the preceding sentence, the acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such New Discount
Notes unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 313. No New Discount Notes shall be authenticated in
lieu of or in exchange for any New Discount Notes canceled as provided in this
Section, except as expressly permitted
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by this Indenture. All canceled New Discount Notes held by the Trustee shall be
destroyed by the Trustee and the Trustee shall send a certificate of such
destruction to the Issuer.
SECTION 314. Computation of Interest.
-----------------------
Interest on the New Discount Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
SECTION 315. CUSIP Numbers.
-------------
The Issuer in issuing New Discount Notes may use "CUSIP" numbers (if
then generally in use) in addition to serial numbers; if so, the Trustee shall
use such "CUSIP" numbers in addition to serial numbers in notices of redemption
and repurchase as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such CUSIP
numbers, either as printed on the New Discount Notes or as contained in any
notice of a redemption or repurchase and that reliance may be placed only on the
serial or other identification numbers printed on the New Discount Notes, and
any such redemption or repurchase shall not be affected by any defect in or
omission of such CUSIP numbers. The Issuer will promptly notify the Trustee of
any change in the CUSIP numbers.
400. ARTICLE FOUR. SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon the Issuer's Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
New Discount Notes expressly provided for herein or pursuant hereto) and the
Trustee, at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(i) either
(A) all New Discount Notes theretofore authenticated and
delivered (other than (1) New Discount Notes which have been lost,
stolen or destroyed and which have been replaced or paid as provided
in Section 310 and (2) New Discount Notes for whose payment money has
theretofore been deposited in trust with the Trustee or any Paying
Agent or segregated and held in trust by the Issuer and thereafter
repaid to the Issuer or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all New Discount Notes not theretofore delivered to the
Trustee for cancellation
(1) have become due and payable by reason of the making
of a notice of redemption or otherwise; or
(2) will become due and payable at their Stated Maturity
within one year; or
(3) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Issuer,
and the Issuer in the case of (1), (2) or (3) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust for such purpose an amount in cash or Government Obligations
sufficient to pay and discharge the entire indebtedness on such New
Discount Notes not theretofore delivered to the Trustee for
cancellation, for principal of (and
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premium, if any) and interest to the date of such deposit (in the case
of New Discount Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(ii) no Default or Event of Default with respect to this Indenture
or the New Discount Notes shall have occurred and be continuing on the date
of such deposit or shall occur as a result of such deposit and such deposit
will not result in a breach or violation of, or constitute a default under,
any other instrument or agreement to which the Issuer is a party or by
which it is bound;
(iii) the Issuer has paid or caused to be paid all sums payable
hereunder by the Issuer in connection with all the New Discount Notes
including all fees and expenses of the Trustee;
(iv) the Issuer has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of such New
Discount Notes at maturity or the Redemption Date, as the case may be; and
(v) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture and the termination of the Issuer's obligation hereunder
have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (i) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive any such satisfaction and discharge.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the New Discount Notes
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Issuer acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Obligations in accordance with Section 401 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Issuer's obligations under this Indenture and the New Discount Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
401; provided that if the Issuer has made any payment of principal of, premium,
if any, or interest on any New Discount Notes because of the reinstatement of
its obligations, the Issuer shall be subrogated to the rights of the Holders of
such New Discount Notes to receive such payment from the money or Government
Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE. REMEDIES
500.
SECTION 501. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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(i) a default in any payment of interest on any New Discount Note
when due, continued for 30 days;
(ii) a default in the payment of principal of any New Discount Note
when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise; provided that this clause (ii)
shall not be deemed to include as an Event of Default any failure by the
Issuer to pay any amounts that are due and payable solely pursuant to
Section 301(c) of this Indenture and Section 2 of the New Discount Notes;
(iii) the failure by the Issuer to comply for 30 days after the notice
specified below with any of its obligations under Article Eight and
Sections 1009 through 1018 ( other than a failure to purchase New Discount
Notes when required under Sections 1015, 1015A and 1016 which shall
constitute an Event of Default under clause (ii) above);
(iv) the failure by the Issuer to comply for 60 days after the notice
specified below with any of its other agreements contained in this
Indenture or the New Discount Note (other than those referred to in (i),
(ii) or (iii) above); provided that this clause (iv) shall not be deemed to
include as an Event of Default any failure by the Issuer to pay any amounts
that are due and payable solely pursuant to Section 301(c) of this
Indenture and Section 2 of the New Discount Notes;
(v) Indebtedness of the Issuer or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the Holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million;
(vi) the Issuer or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property;
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Issuer or any Significant Subsidiary
in an involuntary case;
(B) appoints a Custodian of the Issuer or any Significant Subsidiary
for all or substantially all of its property; or
(C) orders the winding up or liquidation of the Issuer or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 90 consecutive days;
(viii) any judgment or decree for the payment of money in excess of
$10 million is rendered against the Issuer or any Significant Subsidiary
and such judgment or decree remains undischarged or unstayed for a period
of 60 days after such judgment becomes final and non-appealable; or
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The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body; provided, however, a default under clauses (iii) and (iv) will not
constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding New Discount Notes notify the Issuer of the
default and the Issuer does not cure such default within the time specified in
clauses (iii) and (iv) after receipt of such notice. Such notice must specify
the Default, demand that it is to be remedied and state that such notice is a
"Notice of Default."
The Issuer also is required to deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any events that would become an
Event of Default under clause (iii), (iv) or (vii) above, their status and what
action the Issuer is taking or proposes to take in respect thereof.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of (or if
prior to June 30, 2003, the Accreted Value of), premium, if any, or interest on
any New Discount Note, the Trustee may withhold notice if and so long as a
committee of its Trust officers in good faith determines that withholding notice
is in the interests of the Holders of the New Discount Notes.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than by reason of an Event of Default
specified in Section 501(vi) or 501(vii)) occurs and is continuing, the Trustee
by notice to the Issuer or the Holders of at least 25% in principal amount of
the applicable New Discount Notes outstanding may declare the principal (or if
prior to June 30, 2003, the Accreted Value of) (and premium, if any), accrued
and unpaid interest and any other monetary obligations on all such then
outstanding New Discount Notes to be due and payable immediately, by a notice in
writing to the Issuer (and to the Trustee if given by Holders). Upon the
effectiveness of such declaration, such principal (or Accreted Value) (and
premium, if any) and interest will be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default specified in
Section 501(vi) or 501(vii) occurs and is continuing, then the outstanding
principal amount of all the New Discount Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Holders of a majority in principal amount of the outstanding New
Discount Notes by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. The Trustee may rely upon such notice of rescission without any
independent investigation as to the satisfaction of the conditions in the
preceding sentence. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
The failure of the Issuer to pay any amounts that are due and payable
solely pursuant to Section 301(c) of this Indenture and Section 2 of the New
Discount Notes shall give the Holders of New Discount Notes a right to sue for
failure to pay such amounts when due and payable, but shall not give such
Holders or the Trustee the right to declare the principal of and accrued and
unpaid interest on the New Discount Notes, if any, to be due and payable.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
If an Event of Default specified in Section 501(i) or 501(ii) occurs
and is continuing, the Trustee, in its own name as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Issuer or any other obligor upon the New Discount
Notes and collect the moneys adjudged or decreed to be payable in the manner
provided by law out of the property of the Issuer or any other obligor upon the
New Discount Notes, wherever situated.
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If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy, subject however to Section 513. No recovery of any
such judgment upon any property of the Issuer shall affect or impair any rights,
powers or remedies of the Trustee or the Holders.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Issuer or any other obligor, upon the New
Discount Notes or the property of the Issuer or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the New
Discount Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Issuer for the payment of overdue principal, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the New
Discount Notes, to take such other actions (including participating as a
member, voting or otherwise, of any official committee of creditors
appointed in such matter) and to file such other papers or documents and
take such other actions as the Trustee (including, participation as a
member of any creditors committee) may deem necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding,
and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the New
Discount Notes or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of such Holders, vote for the election
of a trustee in bankruptcy or other similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of New
----------------------------------------------------
Discount Notes.
- --------------
All rights of action and claims under this Indenture or the New
Discount Notes may be prosecuted and enforced by the Trustee without the
possession of any of the New Discount Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the New Discount Notes
in respect of which such judgment has been recovered.
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SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the New Discount Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the New Discount Notes
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according
to the amounts due and payable on such New Discount Notes for principal
(and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Issuer or any other obligor on the New Discount
Notes, as their interests may appear or as a court of competent
jurisdiction may direct, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this
Indenture.
SECTION 507. Limitation on Suits.
-------------------
Except to enforce the right to receive payment of principal (or if
prior to June 30, 2003, the Accreted Value of), premium, if any, or
interest when due, no holder may pursue any remedy with respect to the
Indenture or the New Discount Notes unless:
(i) such holder has previously given the Trustee notice that an
Event of Default is continuing;
(ii) holders of at least 25% in principal amount of the
outstanding New Discount Notes have requested the Trustee to pursue the
remedy;
(iii) such holders have offered the Trustee reasonable security
or indemnity against any loss, liability or expense;
(iv) the Trustee has not complied with such request within 60
days after the receipt of the request and the offer of security or
indemnity; and
(v) the holders of a majority in principal amount of the
outstanding New Discount Notes have not given the Trustee a direction that,
in the opinion of the Trustee, is inconsistent with such request within
such 60-day period.
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any New Discount Note to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture
or any New Discount Note, except in the manner herein provided and for the equal
and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture the Holder of
any New Discount Note shall have the right, which is absolute and unconditional,
to receive payment, as provided herein (including, if applicable, Article
Eleven) and in such New Discount Note of the principal of (and premium, if any)
and (subject to Section 311) interest on such New Discount Note on the
respective Stated Maturities expressed in such New Discount Note (or, in the
case of redemption or repurchase, on the Redemption Date or
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repurchase) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Issuer, any other obligor on the New
Discount Notes, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen New Discount Notes in the last
paragraph of Section 310, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
------------------
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding New Discount Notes are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee, provided that
(i) such direction shall not be in conflict with any rule of
law or the Indenture;
(ii) the Trustee need not take any action which might be unduly
prejudicial to the rights of any other Holder or would involve the Trustee
in personal liability; and
(iii) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Prior to taking any action under the Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
SECTION 513. Waiver of Past Defaults.
-----------------------
Subject to Sections 508 and 902, the Holders of a majority in
aggregate principal amount of the outstanding New Discount Notes (including
consents obtained in connection with a tender offer or exchange offer for the
New Discount Notes) may on behalf of the Holders of all the New Discount Notes,
by written notice to the Trustee, waive any existing Default or Event of Default
and its consequences under this
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Indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of (or if prior to June 30, 2003,
the Accreted Value), any such New Discount Note held by a non-consenting Holder,
or in respect of a covenant or a provision which cannot be amended or modified
without the consent of all Holders.
In the event that any Event of Default specified in Section 501(v)
shall have occurred and be continuing, such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or the Holders of the New Discount Notes, if
within 30 days after such Event of Default arose (i) the Indebtedness that is
the basis for such Event of Default has been discharged, or (ii) the holders
thereof have rescinded or waived the acceleration, notice or action (as the case
may be) giving rise to such Event of Default, or (iii) if the Default that is
the basis for such Event of Default has been cured.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. [Intentionally Omitted].
SECTION 515. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any New
Discount Note by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
outstanding New Discount Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or Accreted Value of) (or
premium, if any) or interest on any New Discount Note on or after the respective
Stated Maturities expressed in such New Discount Note (or, in the case of
redemption, on or after the Redemption Date).
ARTICLE SIX. THE TRUSTEE
600.
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of a Default or an Event of
Default.
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and the Trustee
should not be liable except for the performance of such duties as
specifically set forth in the Indenture and no others; and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture, but not to verify
the contents thereof.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Trust Officer of the Trustee has actual knowledge or of
which written notice of such Default or Event of Default shall have been given
to the Trustee of the Issuer, any other obligor of the New Discount Notes or by
any
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Holder, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that
(i) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount of the
outstanding New Discount Notes relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture.
(iv) the Trustee shall not be required to examine any of the
reports, information or documents filed with it pursuant to Section 1017 to
determine whether there has been any breach of the covenants of the Issuer
set forth in Sections 1004 through 1016.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section and to the TIA.
SECTION 602. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder actually known to a Trust Officer of
the Trustee, unless such Default shall have been cured or waived; provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any) or interest on any New Discount Note, the Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Trust Officers of the Trustee in good faith determine that the withholding of
such notice is in the interest of the Holders. Notwithstanding anything to the
contrary expressed in this Indenture, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default hereunder unless and until the
Trustee shall have received written notice thereof from the Issuer at its
principal Corporate Trust Office as specified in Section 105, except in the case
of an Event of Default under Sections 501(i) or 501(ii) (provided that the
Trustee is the Paying Agent).
SECTION 603. Certain Rights of Trustee.
-------------------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Subject to the provisions of TIA Sections 315(a) through
315(d):
(i) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon (whether in its original or facsimile
form) any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties
and the Trustee need not investigate any fact or matter stated in the
documents;
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(ii) any request or direction of the Issuer mentioned herein
shall be sufficiently evidenced by a the Issuer Request or Authentication
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(iii) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith or willful misconduct on its part, request and rely
upon an Officers' Certificate or an Opinion of Counsel and shall not liable
for any action it takes or omits to take in good faith reliance on such
Officer's Certificate or Opinion of Counsel;
(iv) the Trustee may consult with counsel of its selection and
any advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(v) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
satisfactory to the Trustee against the costs, expenses, losses and
liabilities which might be incurred by it in compliance with such request
or direction;
(vi) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Issuer,
personally or by agent or attorney;
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder; and
(viii) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture; provided, however, that the Trustee's conduct does not
constitute willful misconduct or negligence.
(c) The Trustee shall not be required to expend or risk its
own funds or otherwise incur any financial liability in the performance of any
of its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
New Discount Notes.
------------------
The recitals contained herein and in the New Discount Notes, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Issuer, and the Trustee assumes no responsibility for their
correctness and it shall not be responsible for the Issuer's use of the proceeds
from the New Discount Notes. The Trustee makes no representations as to the
validity or sufficiency of this Indenture or of the New Discount Notes, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the New Discount Notes and perform its obligations
hereunder and that the statements made by it in a Statement of Eligibility on
Form T-1 supplied to the Issuer are true and accurate, subject to the
qualifications set forth therein. The Trustee shall not be accountable for the
use or application by the Issuer of the proceeds of the New Discount Notes.
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SECTION 605. May Hold New Discount Notes.
---------------------------
The Trustee, any Paying Agent, any Note Registrar, any Authenticating
Agent or any other agent of the Issuer or of the Trustee, in its individual or
any other capacity, may become the owner or pledgee of New Discount Notes and,
subject to TIA Sections 310(b) and 311, may otherwise deal with the Issuer with
the same rights it would have if it were not Trustee, Paying Agent, Note
Registrar, Authenticating Agent or such other agent.
SECTION 606. Money Held in Trust.
-------------------
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust hereunder for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Issuer.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Issuer agrees:
(i) to pay to the Trustee from time to time such compensation as
shall be agreed to in writing between the Issuer and the Trustee for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(ii) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents, consultants and counsel and costs and
expenses of collection), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(iii) to indemnify each of the Trustee or any predecessor Trustee
(and their respective directors, officers, stockholders, employees and
agents) for, and to hold them harmless against, any and all loss, damage,
claim, liability or expense, including taxes (other than taxes based on the
income of the Trustee) incurred without negligence, willful misconduct or
bad faith on their part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of the Trustee's powers
or duties hereunder.
The obligations of the Issuer under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Issuer, the Trustee shall have a lien prior to the Holders of the New
Discount Notes upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the payment of principal of (and premium,
if any) or interest on particular New Discount Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(vi) or (vii), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
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SECTION 608. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1), and which may have an
office in The City of New York and shall have a combined capital and surplus of
at least $50,000,000. If the Trustee does not have an office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the Issuer to conduct any activities which the Trustee may be
required under this Indenture to conduct in The City of New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section 608,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 608, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of this Section.
(b) Trustee may resign at any time by giving written notice
thereof to the Issuer. Upon receiving such notice of resignation, the Issuer
shall promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors, a copy of which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance required by this Section shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition, at the expense of the Issuer, any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders
of not less than a majority in principal amount of the outstanding New Discount
Notes, delivered to the Trustee and to the Issuer. The Trustee so removed may,
at the expense of the Issuer, petition any court of competent jurisdiction for
the appointment of a successor Trustee if no successor Trustee is appointed
within 30 days of such removal.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Issuer or by any
Holder who has been a bona fide Holder of a New Discount Note for at least
six months, or
(ii) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Issuer or by any
Holder who has been a bona fide Holder of a New Discount Note for at least
six months, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a Custodian of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (A) the Issuer, by a Board Resolution, may remove the
Trustee, or (B) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a New Discount Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Issuer, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of
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such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the outstanding New Discount Notes delivered to
the Issuer and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Issuer. If no successor
Trustee shall have been so appointed by the Issuer or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a New Discount Note for at least six months may, at the expense
of the Issuer on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of New
Discount Notes in the manner provided for in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 610. Acceptance of Appointment by Successor.
-------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Issuer and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Issuer or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Notwithstanding the replacement of the Trustee
pursuant to this Section 610, the Issuer's obligations under Section 607 shall
continue for the benefit of the retiring Trustee with regard to expenses and
liabilities incurred by it and compensation earned by it prior to such
replacement or otherwise under the Indenture. Upon request of any such
successor Trustee, the Issuer shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any New Discount Notes shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the New Discount Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such New Discount Notes. In case at that time any of the New
Discount Notes shall not have been authenticated, any successor Trustee may
authenticate such New Discount Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate New Discount Notes in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
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SECTION 612. Trustee's Application for Instructions from the Issuer.
------------------------------------------------------
Any application by the Trustee for written instructions from the
Issuer may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. Subject to Section 610, the Trustee shall not be liable for any
action taken by, or omission of, the Trustee in accordance with a proposal
included in such application on or after the date specified in such application
(which date shall not be less than three Business Days after the date any
officer of the Issuer actually receives such application, unless any such
officer shall have consented in writing to any earlier date) unless prior to
taking any such action (or the effective date in the case of an omission), the
Trustee shall have received written instructions in response to such application
specifying the action to be taken or omitted.
ARTICLE SEVEN. HOLDERS LISTS AND REPORTS BY TRUSTEE AND THE ISSUER
700.
SECTION 701. the Issuer to Furnish Trustee Names and Addresses.
-------------------------------------------------
The Issuer will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Issuer of any such request, a list
of similar form and content to that in Subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
SECTION 702. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of New Discount Notes, by receiving and holding the same,
agrees with the Issuer and the Trustee that none of the Issuer or the Trustee or
any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 703. Reports by Trustee.
------------------
Within 60 days after June 30 of each year commencing with the first
June 30 after the first issuance of New Discount Notes, the Trustee shall
transmit to the Holders, in the manner and to the extent provided in TIA Section
313(c), a brief report dated as of such June 30 if required by TIA Section
313(a). Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuer's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to conclusively rely exclusively on Officer's Certificates).
The Trustee also shall comply with TIA (S) 313(b). A copy of each
report at the time of its mailing to Holders shall be filed by the Trustee with
the SEC and each stock exchange (if any) on which the New Discount Notes are
listed. The Issuer agrees to notify promptly the Trustee whenever the New
Discount Notes become listed on any stock exchange and of any delisting thereof.
ARTICLE EIGHT. MERGER, CONSOLIDATION, OR SALE OF ASSETS
800.
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SECTION 801. the Issuer May Consolidate, Etc., Only on Certain Terms.
-------------------------------------------------------
The Issuer will not in a single transaction or series of related
transactions consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust or limited liability
company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Issuer) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of the Issuer under the New Discount Notes
and hereunder;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the Issuer
or the Successor Company if the Issuer is not the continuing obligor under
this Indenture would at the time of such transaction or series of
transactions, after giving pro forma effect to such transaction have a
Consolidated Net Worth not less than that of the Issuer immediately prior
to the transaction; and
(iv) the Issuer shall have delivered to the Trustee (A) an Officers'
Certificate, stating that (1) such Officers are not aware of any Default or
Event of Default that shall have happened and be continuing and (2) such
consolidation, merger or transfer and such supplemental indenture comply
with this Indenture; provided that no Officers' Certificate will be
required as to matters described in clause (A)(1) of this clause (iv) for a
consolidation, merger or transfer described in the last paragraph of this
Section 801, and (B) an Opinion of Counsel, stating that such
consolidation, merger or transfer and such supplemental indenture comply
with this Indenture, both in the form required by this Indenture; provided
that (1) in giving such opinion such counsel may rely on such officer's
certificate as to any matters of fact (including without limitation as to
compliance with the foregoing clauses (ii) and (iii)), and (2) no Opinion
of Counsel will be required for a consolidation, merger or transfer
described in the last paragraph of this Section 801.
Notwithstanding the foregoing clauses (ii) and (iii), (w) the Issuer
may contribute all of the capital stock of Dynamic Circuits, Inc. held by it to
a Wholly Owned Restricted Subsidiary, (x) the Issuer may consolidate with or
merge with or into, or convey or transfer all or substantially all its assets,
subject to all liabilities, including the New Discount Notes, to a Wholly-Owned
Restricted Subsidiary of the Issuer in which case, such Wholly-Owned Restricted
Subsidiary will succeed to, and be substituted for, and may exercise every right
and power of, the Issuer under the Indenture and thereafter the Issuer shall be
released from all obligations and covenants thereunder, (y) any Restricted
Subsidiary of the Issuer may consolidate with, merge into or transfer all or
part of its properties and assets to the Issuer and (z) the Issuer may merge
with an Affiliate incorporated solely for the purpose of reincorporating the
Issuer in another jurisdiction to realize tax or other benefits.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Issuer with or merger of the Issuer with
or into any other corporation or any conveyance, transfer, lease or other
disposition of all or substantially all of the assets of the Issuer to any
Person in accordance with Section 801, the Successor Company will succeed to,
and be substituted for, and may exercise every right and power of, the Issuer
hereunder and thereafter the predecessor shall be released from all obligations
and covenants hereunder, but, in the case of conveyance, transfer or lease of
all or substantially all its assets (other than pursuant to the last paragraph
under Section 801), the predecessor will not be released from the obligation to
pay the principal of and interest on the New Discount Notes.
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ARTICLE NINE. SUPPLEMENTS AND AMENDMENTS TO INDENTURE
900.
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Issuer and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(i) to cure any ambiguity, omission, defect or inconsistency;
or
(ii) to provide for uncertificated New Discount Notes in
addition to or in place of certificated New Discount Notes (provided that
the uncertificated New Discount Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated New Discount Notes are described in Section 163(f)(2)(B) of
the Code); or
(iii) to add Guarantees with respect to the New Discount Notes;
or
(iv) to provide for the assumption by a successor corporation,
partnership, trust or limited liability company of the obligations of the
Issuer hereunder; or
(v) to secure the New Discount Notes; or
(vi) to add to the covenants of the Issuer for the benefit of
the Holders or to surrender any right or power conferred upon the Issuer;
or
(vii) to make any other change that does not adversely affect
the rights of any Holder; or
(viii) to comply with any requirement of the SEC in connection
with the qualification of this Indenture under the Trust Indenture
Act.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of at least a majority in principal
amount of the outstanding New Discount Notes (including consents obtained in
connection with a tender offer or exchange offer for the New Discount Notes),
the Issuer, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each outstanding New Discount Note affected thereby
(with respect to any New Discount Notes held by a nonconsenting Holder of the
New Discount Notes):
(i) reduce the amount of New Discount Notes whose Holders must
consent to an amendment; or
(ii) reduce the stated rate of or extend the stated time for
payment of interest on any New Discount Note; or
(iii) reduce the principal of or extend the Stated Maturity of
any New Discount Note; or
(iv) reduce the premium payable upon the redemption or
repurchase of any Discount Note or change the time at which any Note may be
redeemed as described in Section 1101; or
(v) make any New Discount Note payable in money other than that
stated in the Discount Note; or
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(vi) impair the right of any Holder to receive payment of principal
of and interest on such Holder's New Discount Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's New Discount Notes; or
(vii) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions.
The consent of the Holders is not necessary under this Indenture to
approve the particular form of any proposed amendment or supplemental indenture.
It is sufficient if such consent approves the substance of the proposed
amendment or supplemental indenture.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities, as determined by the Trustee in its sole discretion under this
Indenture or otherwise. In signing or refusing to sign any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of New Discount Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby (except as provided in Section 902).
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in New Discount Notes to Supplemental
-----------------------------------------------
Indentures.
----------
New Discount Notes authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Trustee shall
so determine, new New Discount Notes so modified as to conform to any such
supplemental indenture may be prepared and executed by the Issuer, and the
Issuer shall issue and the Trustee shall authenticate a new New Discount Note
that reflects the changed terms, the cost and expense of which will be borne by
the Issuer in exchange for outstanding New Discount Notes.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Issuer
shall give notice thereof to the Holders of each outstanding New Discount Note
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. The failure to give such
notice to all the Holders, or any defect therein, will not impair or affect the
validity of the supplemental indenture.
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ARTICLE TEN. COVENANTS
1000.
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Issuer covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any) and interest
on the New Discount Notes in accordance with the terms of the New Discount Notes
and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Issuer will maintain in The City of New York, an office or agency
where the New Discount Notes may be presented or surrendered for payment, where,
if applicable, the New Discount Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Issuer in
respect of the New Discount Notes and this Indenture may be served. The
corporate trust office of the Trustee [address], New York, New York, [zip code]
shall be such office or agency of the Issuer, unless the Issuer shall designate
and maintain some other office or agency for one or more of such purposes. The
Issuer will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Issuer shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Issuer hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Issuer may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the New
Discount Notes may be presented or surrendered for any or all such purposes and
may from time to time rescind any such designation; provided, however, that no
such designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Issuer will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
-------------------------------------------
If the Issuer shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (or premium, if any) or interest
on any of the New Discount Notes, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure to so act.
Whenever the Issuer shall have one or more Paying Agents for the New
Discount Notes, it will, on or before each due date of the principal of (or
premium, if any) or interest on any New Discount Notes, deposit with a Paying
Agent a sum in same day funds (or New York Clearing House funds if such deposit
is made prior to the date on which such deposit is required to be made) that
shall be available to the Trustee by 10:00 a.m. Eastern Standard Time on such
due date sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Issuer will promptly notify the Trustee of such action or
any failure to so act.
The Issuer will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on New Discount Notes in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Issuer (or any
other obligor upon the New Discount Notes) in the making of any payment of
principal (and premium, if any) or interest; and
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(iii) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Authentication Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Issuer or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Issuer or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of (or premium, if any)
or interest on any New Discount Note and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall be paid to
the Issuer on the Issuer Request, or (if then held by the Issuer) shall be
discharged from such trust; and the Holder of such New Discount Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Issuer as trustee thereof,
shall thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment to the Issuer, may at the
expense of the Issuer cause to be published once, in a leading daily newspaper
(if practicable, The Wall Street Journal (Eastern Edition)) printed in the
English language and of general circulation in New York City, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Issuer will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Issuer and each
Restricted Subsidiary; provided, however, that the Issuer shall not be required
to preserve any such existence (except the Issuer) right, license or franchise
if the Board of Directors of the Issuer shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Issuer and
each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not, and will not be, disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Issuer will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Issuer or any Subsidiary or upon
the income, profits or property of the Issuer or any Subsidiary and (ii) all
lawful claims for labor, materials and supplies, which, if unpaid, might by law
become a material liability or lien upon the property of the Issuer or any
Restricted Subsidiary; provided, however, that the Issuer shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which appropriate reserves, if
necessary (in the good faith judgment of management of the Issuer) are being
maintained in accordance with GAAP.
SECTION 1006. [Intentionally Omitted].
-----------------------
SECTION 1007. [Intentionally Omitted].
-----------------------
SECTION 1008. Compliance with Statutes.
------------------------
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The Issuer shall comply, and shall cause each of its Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental regulatory authority, in respect of the conduct
of their respective businesses and the ownership of their respective properties,
except for such noncompliances as would not in the aggregate have a material
adverse effect on the financial condition or results of operations of the Issuer
and its Restricted Subsidiaries, taken as a whole.
SECTION 1009. Limitation on Restricted Payments.
---------------------------------
(a) The Issuer shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) and
(B) dividends or distributions payable to the Issuer or a Restricted Subsidiary
of the Issuer (and if such Restricted Subsidiary is not a Wholly-Owned
Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Issuer held by Persons other than a Restricted Subsidiary of the Issuer or any
Capital Stock of a Restricted Subsidiary of the Issuer held by any Affiliate of
the Issuer, other than another Restricted Subsidiary (in either case, other than
in exchange for its Capital Stock (other than Disqualified Stock)), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
in clauses (i) through (iv) as a "Restricted Payment"), if at the time the
Issuer or such Restricted Subsidiary makes such Restricted Payment: (1) a
Default shall have occurred and be continuing (or would result therefrom); or
(2) the Company is not able to incur an additional $1.00 of Indebtedness
pursuant to Section 1011; or (3) the aggregate amount of such Restricted Payment
and all other Restricted Payments declared or made subsequent to the Issue Date
would exceed the sum of: (A) 50% of the Consolidated Net Income (x) of the
Issuer in the case of any Restricted Payment made by the Issuer or (y) of the
Company and its Restricted Subsidiaries in the case of any Restricted Payment
made by the Company or any of its Restricted Subsidiaries accrued during the
period (treated as one accounting period) from, but excluding, the Issue Date
to, but excluding, the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate net proceeds, including the fair market value of property other than
cash (determined in good faith by the Board of Directors as evidenced by a
certificate filed with the Trustee, except that in the event the value of any
non-cash consideration shall be $10 million or more, the value shall be as
determined in writing by an Independent Appraiser) received by the Issuer from
the issue or sale of its Capital Stock (other than Disqualified Stock) or other
capital contributions subsequent to the Issue Date (other than net proceeds
received from an issuance or sale of such Capital Stock to a Subsidiary of the
Issuer or an employee stock ownership plan or similar trust to the extent such
sale to an employee stock ownership plan or similar trust is financed by loans
from the Issuer or any Restricted Subsidiary unless such loans have been repaid
with cash on or prior to the date of determination); (C) the amount by which
Indebtedness of the Issuer is reduced on the Issuer's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Issuer) subsequent to
the Issue Date of any Indebtedness of the Issuer convertible or exchangeable for
Capital Stock of the Issuer (less the amount of any cash, or other property,
distributed by the Issuer upon such conversion or exchange); (D) the amount
equal to the net reduction in Investments made by the Issuer or any of its
Restricted Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds realized upon the sale
of such Investment to an unaffiliated purchaser, repayments of loans or advances
or other transfers of assets (including by way of dividend or distribution) by
such Person to the Issuer or any Restricted Subsidiary of the Issuer or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
by the Issuer or any Restricted Subsidiary in such Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments; provided, however, that no amount shall be included under this clause
(D) to the extent it is already included in Consolidated Net Income.
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(b) The provisions of paragraph (a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Issuer or any Restricted Subsidiary made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of the Issuer (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or similar trust to the extent such sale to
an employee stock ownership plan or similar trust is financed by loans from the
Issuer or any Restricted Subsidiary unless such loans have been repaid with cash
on or prior to the date of determination); provided, however, that (A) such
purchase or redemption shall be excluded in subsequent calculations of the
amount of Restricted Payments and (B) the aggregate net proceeds from such sale
shall be excluded from clause (3) (B) of paragraph (a); (ii) any purchase or
redemption of Subordinated Obligations of the Issuer made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Subordinated
Obligations of the Issuer; provided, however, that such purchase or redemption
shall be excluded in subsequent calculations of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under Section 1016; provided, however,
that such purchase or redemption shall be excluded in subsequent calculations of
the amount of Restricted Payments; (iv) dividends paid within 60 days after the
date of declaration if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend shall be
included in subsequent calculations of the amount of Restricted Payments; (v)
payments for the purpose of, and in amounts equal to, amounts required to permit
the Issuer to redeem or repurchase Capital Stock of the Issuer or the Parent
from existing or former employees or management of the Issuer or any Parent
thereof or any Subsidiary or their assigns, estates or heirs, in each case in
connection with the repurchase provisions under employee stock option or stock
purchase agreements or other agreements to compensate management employees;
provided that such redemption or repurchases pursuant to this clause shall not
exceed $5.0 million (and such maximum amount shall be increased by the amount of
any proceeds to the Company, Parent or the Issuer from (x) sales of Capital
Stock of the Issuer to management employees subsequent to the Issue Date and (y)
any "key-man" life insurance policies which are used to make such redemptions or
repurchases) in the aggregate; provided, however, that such payments shall be
included in the calculation of the amount of Restricted Payments; provided,
further, that the cancellation of Indebtedness owing to the Issuer, any Parent
thereof or the Company from members of management in connection with a
repurchase of Capital Stock of the Issuer, Parent or the Company will not be
deemed to constitute a Restricted Payment under the Indenture; (vi) loans or
advances made after the Issue Date to employees or directors of the Issuer,
Parent or any Subsidiary the proceeds of which are used to purchase Capital
Stock of the Issuer or any Parent thereof, in an aggregate amount not in excess
of $1.0 million at any one time outstanding; provided, however, that such
payments shall be included in the calculation of the amount of Restricted
Payments; (vii) cash dividends to the Parent, if any, in amounts equal to (A)
the amounts required for the Issuer or the Parent to pay any Federal, state or
local income taxes to the extent that such income taxes are attributable to the
income of the Issuer and its Subsidiaries, (B) the amounts required for the
Issuer or the Parent to pay franchise taxes and other fees required to maintain
its legal existence, (C) an amount not to exceed $250,000 in any fiscal year to
permit the Issuer or the Parent to pay its corporate overhead expenses incurred
in the ordinary course of business, and to pay salaries or other compensation of
employees who perform services for both the Parent and the Issuer, (D) so long
as no Default or Event of Default shall have occurred and be continuing, an
amount not to exceed $100,000 in the aggregate, to enable the Issuer or the
Parent to make payments to holders of its Capital Stock in lieu of issuance of
fractional shares of its Capital Stock; provided, however, that such payments
shall not be included in the calculation of the amount of Restricted Payments,
and (E) the amounts required for Parent to make indemnification payments under
the Recapitalization Agreement; (viii) repurchases of Capital Stock deemed to
occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price hereof; provided, however, that such repurchases
shall not be included in the calculation of the amount of Restricted Payments;
(ix) any redemption of the Series B Preferred Stock of Dynamic Circuits, Inc.
(the "DCI B Preferred") by Dynamic Circuits, Inc. or any purchase of the DCI B
Preferred by the Issuer or any of its Subsidiaries at the redemption price of
the DCI B Preferred; provided, however, that such redemptions and purchases
shall not be included in the calculation of the amount of Restricted Payments;
(x) cash payments to holders of options to purchase capital stock of Dynamic
Circuits, Inc. as contemplated by the DCI Contribution Agreement (including,
without limitation, the deferred cash payments to be paid to holders of such
options pursuant to the DCI Contribution Agreement); provided, however, that
such payments shall not be included in the calculation of the amount of
Restricted Payments; and (xi) any other payments or actions contemplated by
the DCI
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Contribution Agreement or which otherwise occur in connection with the DCI
Transactions; provided, however, that any such payments or actions shall not be
included in the calculation of the amount of Restricted Payments.
(c) Not later than the date of making any Restricted Payment, the
Issuer shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 1009 were computed, which calculations may
be based upon the Issuer's latest available financial statements. The Trustee
shall have no duty to recompute or recalculate or verify the accuracy of the
information set forth in such Officers' Certificate.
(d) The Issuer will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except in compliance with the second to last sentence of
the definition of "Unrestricted Subsidiary."
SECTION 1010. Limitation on Indebtedness by the Issuer.
----------------------------------------
The Issuer shall not Incur any Indebtedness, other than the
Indebtedness represented by (i) the Discount Notes, (ii) any Refinancing
Indebtedness incurred in connection with the Discount Notes, (iii) Guarantees of
Indebtedness for borrowed money Incurred by Non-Capital Subsidiaries or their
Restricted Subsidiaries as to which recourse is limited to the capital stock of
such Non-Capital Subsidiaries or their Restricted Subsidiaries and (iv)
Indebtedness of the Issuer owing to and held by any Wholly-Owned Subsidiary if
such Indebtedness is subordinated in right of payment to the Discount Notes and
the proceeds thereof are not used to pay dividends to the Issuer's stockholders;
provided, however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly-Owned Subsidiary ceasing to
be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Issuer or a Wholly-Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the Issuer.
SECTION 1010A. Limitations on Indebtedness by Details Capital.
----------------------------------------------
Details Capital shall not Incur any Indebtedness, other than the
Indebtedness represented by (i) the Capital Discount Notes, (ii) any Refinancing
Indebtedness incurred in connection with the Capital Discount Notes, (iii) the
Guarantee of the Bank Indebtedness, and (iv) Indebtedness of Details Capital
owing to and held by any Wholly-Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to the
Issuer or a Wholly-Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by Details Capital.
SECTION 1010B. Limitation on Indebtedness by Non-Capital Subsidiaries.
------------------------------------------------------
(a) Each Non-Capital Subsidiary shall not, and shall not permit any
of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however,
that a Non-Capital Subsidiary and its Restricted Subsidiaries may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio for such
Non-Capital Subsidiary and its Restricted Subsidiaries is at least 2.00 to 1.00.
(b) Notwithstanding the foregoing paragraph (a), each Non-Capital
Subsidiary and its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of such Non-Capital Subsidiary owing to and held by any Wholly-
Owned Subsidiary of such Non-Capital Subsidiary or Indebtedness of a Restricted
Subsidiary of such Non-Capital Subsidiary owing to and held by such Non-Capital
Subsidiary or any Wholly-Owned Subsidiary of such Non-Capital Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly-Owned Subsidiary of such
Non-Capital Subsidiary ceasing to be a Wholly-Owned Subsidiary of such Non-
Capital Subsidiary or any subsequent transfer of any such Indebtedness (except
to such Non-Capital Subsidiary or a Wholly-Owned Subsidiary of such Non-Capital
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof; (ii) Indebtedness under Currency Agreements
and Interest Rate Agreements; provided, however, that in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate
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Agreements are entered into for bona fide hedging purposes of such Non-Capital
Subsidiary or its Restricted Subsidiaries (as determined in good faith by the
Board of Directors or senior management of such Non-Capital Subsidiary) and
correspond in terms of notional amount, duration, currencies and interest rates,
as applicable, to Indebtedness of such Non-Capital Subsidiary or its Restricted
Subsidiaries Incurred without violation of the Note Purchase Agreement or to
business transactions of such Non-Capital Subsidiary or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of business;
(iii) Indebtedness incurred by such Non-Capital Subsidiary or any of its
Restricted Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; (iv) Indebtedness arising
from agreements of such Non-Capital Subsidiary or a Restricted Subsidiary of
such Non-Capital Subsidiary providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary of such Non-Capital Subsidiary, provided that the maximum
liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by such Non-Capital Subsidiary and its Restricted
Subsidiaries in connection with such disposition; and (v) obligations in respect
of performance and surety bonds and completion guarantees provided by such Non-
Capital Subsidiary or any Restricted Subsidiary of such Non-Capital Subsidiary
in the ordinary course of business.
SECTION 1011. Limitation on Indebtedness by the Company.
-----------------------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and
its Restricted Subsidiaries may Incur Indebtedness if on the date thereof the
Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is
at least 2.00 to 1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to the Senior Credit Agreement; provided, however, that the
aggregate principal amount of all Indebtedness Incurred pursuant to this clause
(i) does not exceed $350 million at any time outstanding, less the aggregate
principal amount of all mandatory prepayments of principal thereof with the
proceeds of Asset Dispositions; (ii) the Subsidiary Guarantees and Guarantees of
Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness of the Company
owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly-Owned Subsidiary ceasing to
be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Wholly-Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (x) the Senior Subordinated Notes, (y) any
Indebtedness (other than the Indebtedness described in clauses (i), (ii) and
(iii)) outstanding on the Issue Date and (z) any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iv) or clause
(v) or Incurred pursuant to paragraph (a) of this Section; (v) Indebtedness of a
Restricted Subsidiary Incurred and outstanding on the date on which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company (other than Indebtedness Incurred to provide all or any portion of the
funds utilized to consummate the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary or was
otherwise acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have been
able to Incur $1.00 of additional Indebtedness under this Section 1011 after
giving effect to the Incurrence of such Indebtedness pursuant to this clause
(v); (vi) Indebtedness under Currency Agreements and Interest Rate Agreements;
provided, however, that in the case of Currency Agreements and Interest Rate
Agreements, such Currency Agreements and Interest Rate Agreements are entered
into for bona fide hedging purposes of the Company or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors or senior
management of the Company) and correspond in terms of notional amount, duration,
currencies and interest rates, as applicable, to Indebtedness of the Company or
its Restricted Subsidiaries Incurred without violation of the Indenture or to
business transactions of the Company or its Restricted Subsidiaries on customary
terms entered into in the ordinary course of business;
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(vii) Indebtedness of foreign Restricted Subsidiaries under working capital
facilities; provided that the aggregate principal amount of such Indebtedness
outstanding at any time does not exceed 5% of Consolidated Tangible Assets of
the Company; (viii) Indebtedness (including Capital Lease Obligations) incurred
by the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount outstanding not to exceed the
greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets of the
Company at the time of any Incurrence thereof (including any Refinancing
Indebtedness with respect thereto); (ix) Indebtedness incurred by the Company or
any of its Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims; (x)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
of the Company providing for indemnification, adjustment of purchase price, earn
out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Restricted
Subsidiary of the Company, provided that the maximum liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; (xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary of
the Company in the ordinary course of business; and (xii) Indebtedness (other
than Indebtedness described in clauses (i) through (xi)) in a principal amount
which, when taken together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (xii) and then outstanding, will not exceed the
greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets of the
Company.
SECTION 1012. Limitation on Affiliate Transactions.
------------------------------------
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Issuer (an "Affiliate
Transaction") unless: (i) the terms of such Affiliate Transaction are no less
favorable to the Issuer or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate; (ii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $2 million, the
terms of such transaction have been approved by a majority of the members of the
Board of Directors of the Issuer and by a majority of the members of such Board
having no personal stake in such transaction, if any (and such majority or
majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above); and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $15 million, the Issuer
has received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is not materially
less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arms-length basis from a Person that
is not an Affiliate.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to Section 1009, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors of the Issuer, (iii) the
payment of compensation and directors' fees and the performance of
indemnification or contribution obligations in the ordinary course of business,
(iv) loans or advances to employees in the ordinary course of business of the
Issuer or any of its Restricted Subsidiaries, (v) the execution, delivery and
performance of the Management Agreement, or (vi) any transaction between the
Issuer and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.
SECTION 1013. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Issuer will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Issuer, (ii) make
any loans or advances to the Issuer or (iii) transfer any of its property or
assets to the Issuer, except (a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the date of the Note Purchase
Agreement (including, without limitation, the Senior Credit Agreement, the
Capital Discount Notes and the Senior Subordinated Notes); (b) any encumbrance
or restriction with respect to a Restricted Subsidiary pursuant to
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an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by the
Issuer (other than Indebtedness Incurred to provide all or any portion of the
funds utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Issuer) and outstanding on such date; (c) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
effecting a refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (a) or (b) of this covenant or this clause (c) or
contained in any amendment to an agreement referred to in clause (a) or (b) of
this covenant or this clause (c); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
agreement or amendment are no less favorable to the Holders of the New Discount
Notes than encumbrances and restrictions contained in such agreements; (d) in
the case of clause (iii) above, any encumbrance or restriction (A) that
restricts in a customary manner the subletting, assignment or transfer of any
property or asset that is subject to a lease, license or similar contract, or
the assignment or transfer of any such lease, license or other contract, (B) by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of the Issuer or any Restricted
Subsidiary not otherwise prohibited by the Indenture, (C) contained in
mortgages, pledges or other security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restrictions restrict
the transfer of the property subject to such mortgages, pledges or other
security agreements or (D) pursuant to customary provisions restricting
dispositions of real property interests set forth in any reciprocal easement
agreements of the Issuer or any Restricted Subsidiary; (e) any restriction with
respect to a Restricted Subsidiary (or any of its property or assets) imposed
pursuant to an agreement entered into for the direct or indirect sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary (or the property or assets that are subject to such
restriction) pending the closing of such sale or disposition; (f) encumbrances
or restrictions arising or existing by reason of applicable law; (g) any
restrictions pursuant to the Indenture and the Senior Subordinated Notes; (h)
restrictions imposed by any agreement or instrument governing Capital Stock of
any Person that is acquired; and (i) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business.
SECTION 1014. Limitation on the Sale or Issuance of Preferred Stock
-----------------------------------------------------
of Restricted Subsidiaries.
- --------------------------
The Issuer shall not sell any shares of Preferred Stock of a
Restricted Subsidiary and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Preferred Stock to any Person
(other than to the Issuer or a Wholly-Owned Subsidiary).
SECTION 1015. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, each holder will have
the right to require the Issuer to repurchase all or any part of such holder's
New Discount Notes with respect to which the Issuer has not exercised its right
to redeem the New Discount Notes as described in Section 1101 at a purchase
price in cash equal to 101% of the outstanding principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date) or, in the case of purchases of New
Discount Notes prior to June 30, 2003, at a purchase price equal to 101% of the
Accreted Value thereof as of the date of purchase.
(b) Within 30 days following any Change of Control, unless the Issuer
has mailed a redemption notice with respect to all the outstanding New Discount
Notes in connection with such Change of Control as described in Section 1105,
the Issuer shall mail a notice to each holder with a copy to the Trustee
stating:
(i) that a Change of Control has occurred and that such holder
has the right to require the Issuer to purchase such holder's New Discount Notes
at a purchase price in cash equal to 101% of the outstanding principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on a record date to receive interest
on the relevant interest payment date) or,
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in the case of purchases of New Discount Notes prior to June 30, 2003, at a
purchase price equal to 101% of the Accreted Value thereof as of the date of
purchase;
(ii) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed); and
(iii) the procedures determined by the Issuer, consistent with
the Indenture, that a holder must follow in order to have its New Discount Notes
purchased.
(c) The Issuer will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of New Discount Notes pursuant
to this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Issuer will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
SECTION 1015A. Qualifying Public Offering.
--------------------------
(a) Upon the occurrence of a Qualifying Public Offering, each holder
will have the right to require the Issuer to repurchase all or any part of such
holder's New Discount Notes with respect to which the Issuer has not exercised
its right to redeem the New Discount Notes as described in Section 1101 at a
purchase price in cash equal to the purchase price the Issuer would pay had it
elected to redeem such Discount Notes pursuant to Section 1101 hereof (subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date).
(b) Unless the Issuer has mailed a redemption notice with respect to
all the outstanding New Discount Notes in connection with such Qualifying Public
Offering as described in Section 1105, whenever the Parent proposes to register
any shares of its common stock under the Securities Act for a public offering
which the Issuer believes is reasonably likely to be a Qualifying Public
Offering, the Issuer shall not later than thirty days prior to the expected date
of the consummation of the offering (or the date on which the Issuer becomes
aware of a proposed offering which is reasonably likely to be a Qualifying
Public Offering, if such date is less than thirty days prior to the expected
date of the consummation of the offering) the Issuer shall mail a notice (which
may be revoked as set forth in clause (iii) below) to each holder with a copy to
the Trustee stating:
(i) that a public offering which the Issuer believes is
reasonably likely to be a Qualifying Public Offering is proposed and that if
such offering occurs and is a Qualifying Public Offering such holder will have
the right to require the Issuer to purchase such holder's New Discount Notes at
a purchase price in cash equal to the purchase price the Issuer would pay had it
elected to redeem such Discount Notes pursuant to Section 1101 hereof (subject
to the right of holders of record on a record date to receive interest on the
relevant interest payment date);
(ii) the expected approximate date for the consummation of the
offering;
(iii) that the sending of such notice creates no obligation of
the Parent or the Issuer to effect the proposed offering and that such notice
may be revoked by the Issuer at any time it reasonably believes that the
proposed public offering will not occur or that the proposed public offering
will not be a Qualifying Public Offering; and
(iv) the procedures determined by the Issuer, consistent with the
Indenture, that a holder must follow in order to have its New Discount Notes
purchased.
(c) The Issuer shall use all reasonable efforts to repurchase all New
Discount Notes that have been requested to be repurchased pursuant to the
procedures referred to in clause (b)(iv) above concurrently with the
consummation of the Qualifying Public Offering. If it is not practicable for the
Issuer to repurchase such New Discount Notes concurrently with consummation of
the Qualifying Public Offering, it shall do so as soon thereafter as
practicable.
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(d) The Issuer will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of New Discount Notes pursuant
to this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Issuer will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
SECTION 1016. Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
(a) The Issuer shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Asset Disposition unless (i) the Issuer or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value, as determined in good faith
by the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition, (ii)
at least 75% of the consideration thereof received by the Issuer or such
Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Issuer (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Issuer or any Restricted Subsidiary, as the case may
- -----
be, elects (or is required by the terms of any Senior Indebtedness), to prepay,
repay or purchase Senior Indebtedness or Indebtedness (other than any Preferred
Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed
to the Issuer or an Affiliate of the Issuer) within 180 days from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
------
application in accordance with clause (A), at the Issuer's election to the
investment in Additional Assets within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (C) third, to
-----
the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase Senior
Subordinated Notes and other pari passu debt obligations subject to a similar
covenant at par plus accrued and unpaid interest, if any, thereon; (D) fourth,
------
to the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A), (B) and (C), to make an offer to purchase the
Capital Discount Notes and other pari passu debt obligations subject to a
similar covenant at par plus accrued and unpaid interest, if any, thereon; (E)
fifth, to the extent of the balance of such Net Available Cash after application
and in accordance with clauses (A), (B), (C) and (D) to make an offer to
purchase (an "Offer") the New Discount Notes at a price in cash equal to, prior
to June 30, 2003, 100% of the Accreted Value thereof on the purchase date and,
thereafter, 100% of the Accreted Value thereof plus accrued and unpaid interest
to the purchase date; and (F) sixth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B), (C), (D)
and (E) for other general corporate purposes not prohibited by the Indenture;
provided, however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) above, the Issuer or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Issuer and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant exceed $5 million. the Issuer shall not
be required to make an Offer for the New Discount Notes pursuant to this
covenant if the Net Available Cash available therefor (after application of the
proceeds as provided in clauses (A), (B), (C)and (D)) are less than $5 million
for any particular Asset Disposition (which lesser amounts shall be carried
forward for purposes of determining whether an Offer is required with respect to
the Net Available Cash from any subsequent Asset Disposition).
(b) For the purposes of this covenant, the following will be deemed
to be cash: (x) the assumption by the transferee of Indebtedness of any
Restricted Subsidiary of the Issuer and the release of the Issuer or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition (in which case the Issuer shall, without further action,
be deemed to have applied such assumed Indebtedness in accordance with clause
(A) of the preceding paragraph), (y) securities received by the Issuer or any
Restricted Subsidiary of the Issuer from the transferee that are promptly
converted by the Issuer or such Restricted Subsidiary into cash and (z) any
Designated Noncash Consideration received by the Issuer or any of its Restricted
Subsidiaries in such Asset Disposition having an aggregate fair market value,
taken together with all other Designated Noncash Consideration received pursuant
to this clause (z) that is at that time outstanding, not to exceed 10% of
Consolidated Tangible Assets of the Issuer at the time of the receipt
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of such Designated Noncash Consideration (with the fair market value of each
item of Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value).
(c) In the event of an Asset Disposition that requires the purchase
of New Discount Notes pursuant to clause (a)(iii)(E), the Issuer will be
required to purchase New Discount Notes tendered pursuant to an offer by the
Issuer for the New Discount Notes at a price in cash equal to, prior to June 30,
2003, 100% of the Accreted Value thereof on the purchase date and, thereafter,
100% of the Accreted Value thereof plus accrued and unpaid interest, if any, to
the purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the New Discount Notes tendered pursuant to the offer is less than the
Net Available Cash allotted to the purchase of the New Discount Notes, the
Issuer will apply the remaining Net Available Cash in accordance with clause
(a)(iii)(F) above.
(d) The Issuer will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of New Discount Notes pursuant
to the Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuer will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
SECTION 1017. SEC Reports.
-----------
Notwithstanding that the Issuer may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted
by the Exchange Act, the Issuer will file with the SEC and provide, within 15
days after the Issuer is required to file the same with the SEC, the Trustee and
the holders of the New Discount Notes with the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) that are
specified in Section 13 or 15(d) of the Exchange Act. In the event that the
Issuer is not permitted to file such reports, documents and information with the
SEC pursuant to the Exchange Act, the Issuer will nevertheless deliver such
Exchange Act information to the holders of the New Discount Notes as if the
Issuer were subject to the reporting requirements of Section 13 and 15(d) of the
Exchange Act.
SECTION 1018. Limitation on Lines of Business.
-------------------------------
The Issuer will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Related Business.
SECTION 1019. Statement by Officers as to Default.
-----------------------------------
(a) The Issuer will deliver to the Trustee, within 120 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Issuer and its Restricted Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing officers with a
view to determining whether it has kept, observed, performed and fulfilled, and
has caused each of its Restricted Subsidiaries to keep, observe, perform and
fulfill its obligations under this Indenture and further stating, as to each
such officer signing such certificate, that, to the best of his or her
knowledge, the Issuer during such preceding fiscal year has kept, observed,
performed and fulfilled, and has caused each of its Restricted Subsidiaries to
keep, observe, perform and fulfill each and every such covenant contained in
this Indenture and no Default or Event of Default occurred during such year and
at the date of such certificate there is no Default or Event of Default which
has occurred and is continuing or, if such signers do know of such Default or
Event of Default, the certificate shall describe its status, with particularity
and that, to the best of his or her knowledge, no event has occurred and remains
by reason of which payments on the account of the principal of or interest, if
any, on the New Discount Notes is prohibited or if such event has occurred, a
description of the event and what action each is taking or proposes to take with
respect thereto. The Officers' Certificate shall also notify the Trustee should
the Issuer elect to change the manner in which it fixes its fiscal year end. For
purposes of this Section 1019(a), such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Issuer or any Significant Subsidiary
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gives any notice or takes any other action with respect to a claimed Default
(other than with respect to Indebtedness in the principal amount of less than
$10 million), the Issuer shall deliver to the Trustee by registered or certified
mail or facsimile transmission an Officers' Certificate specifying such event,
notice or other action within five Business Days of its occurrence.
1100.
ARTICLE ELEVEN. REDEMPTION OF NEW DISCOUNT NOTES
SECTION 1101. Optional Redemption.
-------------------
The New Discount Notes may or shall, as the case may be, be redeemed,
as a whole or from time to time in part, subject to the conditions and at the
Redemption Prices specified in the Form of New Discount Note (Section 203),
together with accrued interest to the redemption date. Exhibit F to the Note
Purchase Agreement sets forth examples of Redemption Prices as of certain dates
for illustrative purposes only.
SECTION 1102. Applicability of Article.
------------------------
Redemption of New Discount Notes at the election of the Issuer or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Issuer to redeem any New Discount Notes pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Issuer, the Issuer shall, at least 90 days
prior to the Redemption Date fixed by the Issuer (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of (or in the case of redemption prior to June 30, 2003,
the Accreted Value of) New Discount Notes to be redeemed and shall deliver to
the Trustee such documentation and records as shall enable the Trustee to select
the New Discount Notes to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of New Discount Notes to Be
------------------------------------------------
Redeemed.
- --------
If less than all the New Discount Notes are to be redeemed at any time
pursuant to an optional redemption, the particular New Discount Notes to be
redeemed shall be selected not more than 90 days prior to the Redemption Date by
the Trustee, from the outstanding New Discount Notes not previously called for
redemption, in compliance with the requirements of the principal securities
exchange, if any, on which such New Discount Notes are listed, or, if such New
Discount Notes are not so listed, on a pro rata basis and which may provide for
the selection for redemption of portions of the principal of (or Accreted Value
of) the New Discount Notes; provided, however, that no such partial redemption
shall reduce the portion of the principal amount of (or Accreted Value of) a New
Discount Note not redeemed to less than $100,000.
The Trustee shall promptly notify the Issuer in writing of the New
Discount Notes selected for redemption and, in the case of any New Discount
Notes selected for partial redemption, the principal amount thereof (or Accreted
Value thereof) to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of New Discount Notes shall
relate, in the case of any New Discount Note redeemed or to be redeemed only in
part, to the portion of the principal amount of (or Accreted Value of) such New
Discount Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 90 days prior to the Redemption Date,
to each Holder of New Discount Notes to be redeemed. The Trustee shall give
notice of redemption in the Issuer's name and at the Issuer's expense; provided,
however, that the Issuer shall deliver to the Trustee, at least 45 days prior to
the Redemption Date,
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an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
following items.
All notices of redemption shall state:
(i) the Redemption Date,
(ii) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(iii) if less than all outstanding New Discount Notes are to be
redeemed, the identification of the particular New Discount Notes (or
portion thereof) to be redeemed, as well as the aggregate principal amount
of (or Accreted Value of) New Discount Notes to be redeemed and the
aggregate principal amount of (or Accreted Value of) New Discount Notes to
be outstanding after such partial redemption,
(iv) in case any New Discount Note is to be redeemed in part
only, the notice which relates to such New Discount Note shall state that
on and after the Redemption Date, upon surrender of such New Discount Note,
the holder will receive, without charge, a new New Discount Note or New
Discount Notes of authorized denominations for the principal amount thereof
(or Accreted Value thereof) remaining unredeemed,
(v) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such New Discount Note, or the
portion thereof, to be redeemed, and, unless the Issuer defaults in making
the redemption payment, that interest on New Discount Notes called for
redemption (or the portion thereof) will cease to accrue on and after said
date,
(vi) the place or places where such New Discount Notes are to be
surrendered for payment of the Redemption Price and accrued interest, if
any,
(vii) the name and address of the Paying Agent,
(viii) that New Discount Notes called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price,
(ix) the CUSIP number, and that no representation is made as to
the accuracy or correctness of the CUSIP number, if any, listed in such
notice or printed on the New Discount Notes, and
(x) the paragraph of the New Discount Notes or Section of the
Indenture pursuant to which the New Discount Notes are to be redeemed.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Issuer shall deposit with the
Trustee or with a Paying Agent (or, if the Issuer is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the New Discount Notes which are to be redeemed on that date.
SECTION 1107. New Discount Notes Payable on Redemption Date.
---------------------------------------------
Notice of redemption having been given as aforesaid, the New Discount
Notes so to be redeemed shall, on the Redemption Date, become due and payable at
the Redemption Price therein specified (together with accrued interest, if any,
to the Redemption Date), and from and after such date (unless the Issuer shall
default in the payment of the Redemption Price and accrued interest) such New
Discount Notes shall cease to bear interest. Upon surrender of any such New
Discount Note for redemption in accordance with said notice, such New Discount
Note shall be paid by the Issuer at the Redemption Price, together with
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accrued interest, if any, to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such New Discount Notes, or one or more
predecessor New Discount Notes, registered as such at the close of business on
the relevant Regular Record Date or Special Record Date, as the case may be,
according to their terms and the provisions of Section 311.
If any New Discount Note called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the New Discount Notes.
SECTION 1108. New Discount Notes Redeemed in Part.
-----------------------------------
Any New Discount Note which is to be redeemed only in part (pursuant
to the provisions of this Article) shall be surrendered at the office or agency
of the Issuer maintained for such purpose pursuant to Section 1002 (with, if the
Issuer or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder thereof or such Holder's attorney duly authorized in writing), and
the Issuer shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note at the expense of the Issuer, a new New Discount Note or New
Discount Notes, of any authorized denomination as requested by such Holder, in
an aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the New Discount Note so surrendered, provided, that
each such new Note will be in a principal amount of $100,000 or integral
multiple thereof.
1200.
ARTICLE TWELVE. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. the Issuer's Option to Effect Legal Defeasance or
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Covenant Defeasance.
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The Issuer may, at its option, at any time, with respect to the New
Discount Notes, elect to have either Section 1202 or Section 1203 be applied to
all outstanding New Discount Notes upon compliance with the conditions set forth
in this Article Twelve. The Issuer in its sole discretion can defease the New
Discount Notes.
SECTION 1202. Legal Defeasance and Discharge.
------------------------------
Upon the Issuer's exercise under Section 1201 of the option applicable
to this Section 1202, the Issuer shall be deemed to have been discharged from
its obligations with respect to all outstanding New Discount Notes on the date
the conditions set forth in Section 1204 are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Issuer
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding New Discount Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 1205 and the other Sections of
this Indenture referred to in (i) and (ii) below, and to have satisfied all its
other obligations under such New Discount Notes and this Indenture insofar as
such New Discount Notes are concerned (and the Trustee, at the expense of the
Issuer, shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding New Discount Notes to
receive, solely from the trust fund described in Section 1204 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any, on) and interest on such New Discount Notes when such payments are due,
(ii) the Issuer's obligations with respect to such New Discount Notes under
Sections 304, 305, 310, 1002 and 1003, (iii) the rights, powers, trusts, duties
and immunities of the Trustee hereunder, and the Issuer's obligations in
connection therewith and (iv) this Article Twelve.
If the Issuer exercises its Legal Defeasance Option, payment of the
New Discount Notes may not be accelerated because of an Event of Default.
Subject to compliance with this Article Twelve, the Issuer may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the New Discount Notes.
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SECTION 1203. Covenant Defeasance.
-------------------
Upon the Issuer's exercise under Section 1201 of the option applicable
to this Section 1203, the Issuer may terminate its obligations under any
covenant contained in Sections 1004 through 1019, the operation of Section
501(v), Section 501(vi) (with respect only to Significant Subsidiaries), Section
501(vii) (with respect only to Significant Subsidiaries) and 501(viii) and the
limitations contained in Sections 801(a)(iii) with respect to the outstanding
New Discount Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the New Discount Notes shall
thereafter be deemed not to be "outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
New Discount Notes will not be outstanding for accounting purposes). If the
Issuer exercises its covenant defeasance option, payment of the New Discount
Notes may not be accelerated because of an Event of Default specified under
Section 501(iii), (v), (vi) (with respect only to Significant Subsidiaries),
(vii) (with respect only to Significant Subsidiaries) and (viii) or because of
the failure of the Issuer to comply with Section 801(a)(iii). For this purpose,
such Covenant Defeasance means that, with respect to the outstanding New
Discount Notes, the Issuer may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 501(iii),
but, except as specified above, the remainder of this Indenture and such New
Discount Notes shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.
-----------------------------------------------------
The following shall be the conditions to application of either Section
1202 or Section 1203 to the outstanding New Discount Notes:
(i) the Issuer shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of this Indenture who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds in trust money or
Government Obligations, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants
selected by the Issuer, to pay the principal of, premium, if any, and
interest due on the outstanding New Discount Notes on the Stated Maturity
or on the applicable Redemption Date as the case may be, of such principal,
premium, if any, or interest on the outstanding New Discount Notes;
(ii) in the case of Legal Defeasance, the Issuer shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee (which opinion may be subject to
customary assumptions and exclusions) confirming that (A) the Issuer has
received from, or there has been published by, the United States Internal
Revenue Service a ruling or (B) since the Issue Date, there has been a
change in the applicable U.S. federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel in the United States
(which opinion may be subject to customary assumptions and exclusions)
shall confirm that the Holders of the outstanding New Discount Notes will
not recognize income, gain or loss for U.S. federal income tax purposes as
a result of such Legal Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Issuer shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding New Discount
Notes will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
such tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
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(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 123rd day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Issuer is
a party or by which the Issuer is bound;
(vi) the Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Issuer or others;
(viii) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel in the United States (which
Opinion of Counsel may be subject to customary assumptions and exclusions)
each stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with; and
(ix) the Issuer shall have delivered to the Trustee the opinion
of a nationally recognized firm of independent public accountants stating
the matters set forth in paragraph (i) above.
SECTION 1205. Deposited Money and Government Obligations to Be Held
-----------------------------------------------------
in Trust; Other Miscellaneous Provisions.
- ----------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
outstanding New Discount Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such New Discount Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Issuer acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such New Discount Notes of all sums due and to
become due thereon in respect of principal (and premium, if any) and interest,
but such money need not be segregated from other funds except to the extent
required by law.
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1204 or the principal and interest received in respect
thereof.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon the Issuer
Request any money or Government Obligations held by it as provided in Section
1204 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent legal defeasance or covenant defeasance, as
applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money or
Government Obligations in accordance with Section 1205 by reason of any legal
proceeding or by any reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuer's obligations under this Indenture and the New
Discount Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1205; provided,
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however, that if the Issuer makes any payment of principal of (or premium, if
any) or interest on any New Discount Note following the reinstatement of its
obligations, the Issuer shall be subrogated to the rights of the Holders of such
New Discount Notes to receive such payment from the money and Government
Obligations held by the Trustee or Paying Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
DETAILS INTERMEDIATE HOLDINGS CORP.
By ________________________________
Name:
Title:
Attest:
By ________________________
Name:
Title:
___________________________________
as Trustee
By ________________________________
Name:
Title:
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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 11, 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 11, 2000
